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TMI Blog2005 (9) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O) revealed that prior to purchase of the said plant and machinery, a Memorandum of Understanding by way of tripartite agreement was entered into on 15.3.1991 between the assessee, RPL and LandT, which showed that RPL had already entered into an agreement with LandT for acquisition of Captive Co-generation Plant (CCP) which was to be installed at the premises of RPL at Hazira. The consideration for the same was ₹ 6,25,02,000/-. Since RPL was not in a position to provide finance of its own for acquiring the CCP, it entered into the tripartite agreement with LandT and the assessee under which, the entire benefit and rights in the contract between RPL and LandT was to be transferred in favour of assessee and in turn it would, under separate agreement, lease the said plant and machinery to RPL for a period of 30 years (extendable for further period of 22 years) against payment of lease rentals to be specified. It also revealed that RPL had already made payment of ₹ 3,97,38,000/- to LandT and this payment was to be reimbursed by the assessee to RPL and the balance payment was to be paid by the assessee to LandT. Accordingly, lease agreement was executed between assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire plant and machinery and the entire exercise was merely a device with the sole objective of avoidance of tax liability. The Assessing Officer was of the view that in case depreciation is held to be allowable, then depreciation would be allowed @ 25% since plant and machinery leased is part of the generating plant and is not the full system on which 100% depreciation could be claimed. 5. In respect of Assessment Year 1992-93, the assessee had claimed depreciation of ₹ 1,56,25,500/- being 25% of the cost of plant and machinery in as much as in the preceding assessment year, the claim of depreciation had been restricted to 75%. The Assessing Officer disallowed the claim of the assessee following his order for Assessment Year 1991-92. 6. On appeal, the Learned CIT (Appeals) posed two questions - (i) whether assessee is the owner of the plant and machinery and (ii) whether such plant and machinery is separately owned and identifiable. On examination of the agreements and the material on record, he answered both the questions in affirmative. Regarding the first question, he relied on the facts - (i) that agreement declares the assessee as owner, (ii) the invoice is dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issible if it is within the parameter of law and the decision of supreme Court in the case of Mc Dowels would not apply to such a situation. In support of the submission, he also relied on the judgment of Orissa High Court in the case of Industrial Development Corporation of Orissa Ltd. vs. CIT, 268 ITR 130 and the judgment of Guwahati high Court in the case of CIT vs. George Williamson (Assam) Ltd., 265 ITR 626, where the claim of depreciation was held to be allowable in the case of sale and lease back of the assets. Accordingly, it was contended that the decision of the Tribunal, Special Bench, in the case of Mid East Portfolio Management Ltd. (supra) is no more a good law. Proceeding further, it was submitted that no adverse inference could be drawn merely because the plant and machinery were fixed to the earth. He also relied on various decisions of the Tribunal reported as 83 ITD 340, 82 ITD 531, decision in the case of Soni Capital Markets in ITO No. 4091/Mum/2000 and in the case of Polytax India Ltd. in ITA No.5168/Bom/1994. 9. Rival submissions of parties have been considered carefully in the light of the materials placed before us. At the outset, it may be mentioned tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the onus to prove otherwise is on the person who alleges so (Daulat Ram Rawatmull, 87 ITR 349). In the background of this legal position, let us examine the real issue before us. 12. In the present case, the stand of the Assessing Officer has been that the entire arrangement was merely a financing arrangement and a devise was adopted to give a colour of lease in order to claim 100% depreciation with a view to avoid the legitimate tax due to the Revenue. On the other hand, the stand of the assessee is that the plant and machinery was acquired by the assessee itself and then it was given on lease to RPL. Thus, the assessee being the owner of the plant and machinery which was identifiable was legally entitled to depreciation under the provisions of the Act. 13. Therefore, the first question to be answered is whether the entire arrangement is a financing arrangement or the transaction between the assessee and RPL is really a leased transaction. The answer to this question would depend on the consideration of the entire terms of the agreement between the assessee and RPL as well as the terms of tripartite agreement between assessee, RPL and LandT. We have gone through the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was adopted to avoid the payment of tax. In a pure financial arrangement, there was no need for assessee to purchase the plant and then lease the same to RPL. The object of finance could be achieved by giving loans to RPL and the plant could be kept under pledge / hypothecation by way of security. Such a course was neither beneficial to assessee nor to RPL from the tax point of view. The reason is obvious. The RPL was in the process of setting up the plant and, therefore, depreciation could not be allowed to RPL prior to commencement of business. Even after the business had commenced, it would not be beneficial to RPL as in the initial stage, since the RPL would not be in a position for same years to earn sufficient profits to absorb the depreciation. On the other hand, if assessee is shown as owner by documentation, it would immediately be entitled to depreciation and set-off the same against income from financing as per the probable advice to the assessee. This is apparent from Clause - 2 of the lease agreement which provides that lease rental had been calculated on the assumption that assessee would be allowed 100% depreciation on such plant and machinery. It further provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement of Section 32 cannot be said to be fulfilled. This view is also fortified by the observations of the Special Bench mentioned above (87 ITD 537 at page - 570). Therefore, even on this account, the claim of assessee cannot be accepted. 16. before parting with this issue, we would like to say few words about the case law referred to. The Learned Counsel for the Assessee has referred to the judgment of Hon'ble Supreme Court in the case of UOI vs. Azadi Bachao andolan, 263 ITR 706, in support of his contention that judgment of Supreme Court in the case of McDowell is no more applicable and tax planning, if any, is permissible in law. According to him, the judgment of Supreme court in the case of A. Raman and Co., 67 ITR 11, is still applicable wherein it was held that tax avoidance was not prohibited. We have gone through the judgments of the Hon'ble Supreme Court in the aforesaid cases. We find that their Lordships, in the case of Azadi Bachao andolan (supra), have commented upon the opinion of Chinnappa Reddy J. (at page -755 of 263 ITR) and held that opinion of majority delivered by Rangnath Misra J. Was a far cry from the view expressed by O. Reddy J. But they hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship business. If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income tax on a capital gain, it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The Income Tax Officer will be entitled to consider all the relevant indicia in this regard, whether the partnership is formed between the assessee and his wife and children or substantially limited to them, whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined the amounts of interest on such securities as mentioned in earlier para and included the same in the assessment for these years. 22. On appeal, the Learned CIT (Appeals) did not agree with the views expressed by the Assessing Officer. The Learned CIT(Appeals) held that interest on securities did not accrue on day to day basis but accrued on fixed or prescribed dates. He also relied on the High Court judgment in the case of Canara Bank, 195 ITR 66, wherein it was held that unless a debt was created in one's favour and a right is acquired to receive the payment, it cannot be said that any income had accrued. Accordingly, it was held by him that assessee did not acquire any right to receive the interest till the due date or date of maturity and, therefore, no interest accrued to assessee before that date. Accordingly, he directed the Assessing Officer to delete the additions made by him. Aggrieved by the same, the Revenue is in appeal for both the years. 23. Both the parties have been heard at length. However, we find that the issue before us is squarely covered by the decision of the Tribunal in the case of Union Bank of India vs. DCIT (ITA No. 8817/Bom/1992) dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture relating to guest house falling within the ambit of the provisions 30 to 36 (including depreciation) cannot be disallowed. The Bench also discussed the subsequent judgments of Bombay High Court in the case of Ocean Carriers Pvt. Ltd. and Raja Bahadur Motilal Poona Mills Ltd. (supra) and held that these decisions were distinguishable on facts. We may also mention that Special Bench has not adversely commented on the judgments of Bombay High Court in the case of Chase Bright Steel Ltd. (supra) and in the case of Century Spinning and Mfg. Co. Ltd., 189 ITR 660 (Bom.). The following observations of the Special Bench in Para - 26 (84 ITD 49 (TM) of the order are noteworthy. Before we part with this Special Bench reference we must specifically observe that we, in the present decision, have not attempted to reconcile the judgments of the Hon'ble High Courts, which as a quasi-judicial Tribunal, we are not permitted to do under the law. We have merely given a factual narration of the views expressed in the various judgments cited before us by the parties and which was necessary to come to a conclusion on the issue before us. No judgment of the Hon'ble supreme Court or the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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