TMI Blog2003 (9) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... of income on November 29, 1996, declaring the total income of Rs. 1,54,33,960 (rupees one crore fifty-four lakhs thirty-three thousand nine hundred sixty only). In the return filed, the assessee had claimed that it had purchased machinery/equipment from the Andhra Pradesh State Electricity Board (hereinafter referred to as lithe APSEB"), by virtue of an agreement of sale deed dated September 29, 1995, for a total consideration of Rs. 1,60,18,854 (rupees one crore sixty lakhs eighteen thousand eight hundred fifty four only); and on the same day, by means of a separate lease deed, it had leased back the said machinery/equipment to the APSEB for a monthly rent of Rs.2,19,498.35 (rupees two lakhs nineteen thousand four hundred ninety-eight and paise thirty-five only) for a period of 72 months commencing from September 29, 1995, till August 29, 2001. The assessee claimed 100 per cent. depreciation in respect of the said leased machinery as the machinery purchased, according to the assessee, was pollution control equipment. The Assessing Officer by his order annexure E dated March 26, 1999, disallowed the depreciation claimed by the assessee to the extent of Rs. 1,60,18,854 on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted all the details as required including photographs and the certificate from the APSEB? 3. Whether the Tribunal was right in law in holding that the appellant was not entitled to 100 per cent. depreciation on the assets purchased and leased back to the APSEB especially when even APSEB had confirmed the transaction vide its declaration? 4. Whether the Tribunal was right in law in upholding the action of the lower appellate authorities in treating the transaction between the appellant and the APSEB as the financial transaction and bringing to tax the notional interest at 18 per cent. on the net sum paid by the appellant to the APSEB? 5. Whether the order of the Tribunal was perverse in so far as in spite of producing all necessary details to identify the assets and the transaction as entered into between the appellant and the APSEB to the said transaction had been treated as a sham transaction?" Sri G. Sarangan, the learned senior advocate appearing along with Sri S. Parthasarathi, for the assessee, strongly urged that since the purchase of machinery/equipment from the APSEB was made by means of agreement of sale deed dated September 29, 1995; and on the same day by means o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh [1980] 124 ITR 40; in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 (SC), in the case of CIT v. Aswati Corporation [2000] 243 ITR 283 (Karn), in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), in the case of CWT v. Arvind Narottam [1988] 173 ITR 479 (SC), in the case of Sri Mohan Wahi v. CIT [2001] 248 ITR 799 (SC); [2001] 4 SCC 362, and in the case of Mittal Belting and Machinery Stores v. CIT [2002] 253 ITR 341 (P H). He also referred to us certain passages from Kanga and Palkhivala's at pages 21A, 46, 48, 50, 51, 53, 54, where judgments of various courts are referred to, and submitted that the Tribunal has failed to consider that the decision of the Supreme Court in the case of McDowell [1985] 154 ITR 148 relied upon by the Tribunal has absolutely no application to the facts of the present case and the Tribunal has failed to consider that it is open to the assessee to have a tax planning and all tax planning allowable in law cannot be equated or treated as the planning meant for evasion of tax. However, Sri M.V. Seshachala, learned counsel appearing for the respondent, meeting every one of the submissions made by Sri Sarangan pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion is embedded to the earth, any transaction relating to such equipment requires registration. In this connection, he drew our attention to the definition of immovable property attached to the earth provided under sections 2(6) and 17(1)(d) of the Registration Act, 1908. He also referred to us to the contents of a valuation report, which was produced for the first time before the appellate authority. According to learned counsel, the said report would clearly support the conclusion reached by the Tribunal as well as the appellate authority and the Assessing Officer that the transaction in question is only a colourable transaction. He submitted that when the machinery/equipment in question was being utilised by the APSEB; and was admittedly embedded to the earth, and the case put forward by the assessee also shows that the said machinery/equipment was required by the APSEB; and since it is not the case of the assessee that the machinery/equipment was dismantled or detached from the earth and actual possession was handed over to the APSEB by the assessee, the only inference and irresistible conclusion any reasonable person or authority could arrive at, which as a matter of fact ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal Barua v. Umesh Chandra Goswami [1997] 4 SCC 713, 719 at para. 7; [1997] AIR SCW 1035 : AIR 1997 SC 1041, 1044: "A bare look at section 100 of the Code of Civil Procedure, shows that the jurisdiction of the High Court to entertain a second appeal after the 1976 amendment is confined only to such appeals as involve a substantial question of law, specifically set out in the memorandum of appeal and formulated by the High Court. Of course, the proviso to the section shows that nothing shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law, not formulated by it, if the court is satisfied that the case involves such a question. The proviso presupposes that the court shall indicate in its order the substantial question of law which it proposes to decide even if such substantial question of law was not earlier formulated by it. The existence of a 'substantial question of law' is thus, the sine qua non for the exercise of the jurisdiction under the amended provisions of section 100 of the Code of Civil Procedure." Keeping the above principle in mind, we will now proceed to examine the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale agreement dated September 29, 1995, had purchased the machinery/equipment from the APSEB and on the same day, by means of another lease agreement, the assessee has leased out the said machinery/ equipment to the APSEB, as claimed by it. While coming to the said conclusion, they have taken into account: (i) the documents in question were not registered; (ii) machinery/equipment was not identified; (iii) written down value as per section 43(1) of the Act in support of the machinery/equipment could not be ascertained; (iv) market value of the asset without valuer assessment also could not be ascertained; (v) there is no actual delivery or handing over of possession of the machinery/equipment by the APSEB to the assessee on completion of the sale of the said machinery/equipment; (vii) there was also no redelivery or handing over of the possession of the machinery/equipment by the assessee to the APSEB ; and (viii) the machinery/equipment also was embedded or attached to the earth. The order made by the Assessing Officer also indicates that the assessee has not co-operated before him in the course of the assessment proceedings for the purpose of identification of machinery/equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action. Besides the assessee-company was also asked to obtain a report from the Chief Engineer of the concerned unit of the APSEB so as to ascertain whether the equipment was capable of physical delivery if required. If the equipment is installed in a building or fixed to a place and interconnected with various other equipments, it would be difficult for selling a part of such a huge equipment. The assessee-company has not furnished all the required factual information so as to examine this issue in detail and come to reasonable conclusion. Therefore, it is inferred that the assessee has no explanation to offer on these issues." The appellate authority, after elaborately considering the case pleaded by the assessee and also after looking into the valuation report dated October 15, 1999, had concurred with the conclusion reached by the Assessing Officer. The conclusion reached both by the appellate authority and the Assessing Officer has been confirmed by the Tribunal in the order impugned. Therefore, if on a careful analysis of the material placed, the Assessing Officer, the appellate authority and the Tribunal, have not believed the case pleaded by the assessee, in our view, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and the subordinate authorities have come to the conclusion that it is not possible to identify the machinery/equipment and also have recorded a finding that the assessee did not co-operate in the course of the assessment proceedings, in our view, the said conclusion reached by the Tribunal and subordinate authorities cannot be found fault with by us in exercise of the power under section 260A of the Act. Sri Sarangan repeatedly submitted that the APSEB being a statute of the Government of Andhra Pradesh has not denied both the sale and the lease transaction in question and it was not permissible for the Assessing Officer and the Tribunal to go beyond the said transaction, we find it difficult to accede to his submission. The Assessing Officer, in our view, is entitled to go into the genuineness or otherwise of the transaction entered into for the purpose of determining, whether any attempt is made by the assessee to avoid payment of tax. If an instrumentality of the State or the Department of the State, is one of the parties to the transaction, it may be one of the circumstances that may be taken into account by the Assessing Officer while considering the claim regarding the gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property from year to year, or for any term exceeding one year, or reserving a yearly rent." The report of the valuer, referred to by the Tribunal, shows that the machinery/equipment is embedded or attached to the earth. Therefore, we are unable to accede to the submission of Sri Sarangan that the Tribunal has erred in law in not relying upon the transaction of sale and lease back of the machinery/equipment is not a genuine transaction on the ground that the said documents were not registered. In the facts and circumstances of the case, it is not possible to take the view that the Tribunal was not justified in holding that the transaction in question is not in the nature of tax planning adopted by the assessee intending to avoidance of tax liability by so arranging its commercial affairs so that charge of tax is distributed. As noticed by us earlier, the taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the assessee has chosen to conceal by a device he legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. However, the only restriction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und it convenient to enter into such a transaction as a device adopted to avoid payment of tax. Therefore, the Tribunal and the subordinate authorities were fully justified, taking into account several circumstances referred to by them in the orders impugned, to determine the nature of the new and sophisticated acumen adopted to avoid payment of tax legitimately due to the State. In a matter like this, we consider that it is the duty of this court not to give judicial vindication to such an act of avoidance of payment of tax in the guise of sophisticated use of language as "tax planning". We are of the view that the decision in the case of Arvind Narottam [1988] 173 ITR 479 (SC), relied upon by Sri Sarangan, is of no assistance to him. No doubt, in the said decision, both the Chief Justice (R.S. Pathak C.J.I.) who delivered the main judgment and Mr. Justice Sabyasachi Mukharji who agreed with his view, decided the case on the language of the deed of settlement, which came up for consideration before the court in the said case. The observation made by the Mr. Justice Sabyasachi Mukharji in the said case, on which considerable reliance is placed by Sri Sarangan, is of no assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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