Commissioner Of Income Tax – I,Chennai v. M/S.tube Investments Of India Ltd.,Dare House

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 09.06.2022 CORAM : THE HON'BLE MR. JUSTICE R.MAHADEVANAND THE HON'BLE MR. JUSTICE J.SATHYA NARAYANA PRASAD T.C.A.Nos.695 of 2009 and 1100 to 1103 of 2010 Commissioner of Income Tax,Chennai. Commissioner of Income Tax – I,Chennai. ...Appellant/Appellant inT.C.A.No.695 of 2009 ...Appellant/Appellant inT.C.A.Nos.1100 to 1103 of 2010 Versus M/s.Tube Investments of India Ltd.,DARE House,234, NSC Bose Road, Chennai – 600 001. ...Respondent/Respondent in all T.C.As T.C.A.No.695 of 2009: Tax Case Appeal filed under Section 260(A) of the Income Tax Act, 1961 against the order of the IncomeTaxAppellateTribunal'C'Bench,ChennaiinI.T.A.No.1650/Mds/2007 dated 09.01.2009 against the order of theoffice of the Commissioner of Income Tax Appeals VIII Chennai –600 034 dated 30.03.2007 in ITA.No.139/2006-07/Tr.16/A VIII andagainst the Assement order of Assistant Commissioner of IncomeTax company Circle III (2) Chennai – 34 dated 28.03.2006 forPAN/GIR No.AAACT1249H/32001-T for the Assessment year 1998-99. T.C.A.Nos.1100 to 1103 of 2010:Tax Case Appeals filed underSection 260 (A) of the Income Tax Act, 1961 against the order ofthe Income Tax Appellate Tribunal 'A' Bench, Chennai inI.T.A.Nos.987/Mds/2009,988/Mds/2009,989/Mds/2009&990/Mds/2009 dated 06.11.2009 against the order of theCommissioner of Tax Appeal Large Tax Payers Unit, Chennai – 101dated 13.02.2009 in ITA.Nos.66/07-08/LTU(A), 33/08-09(LTU(A),67/07-08/LTU(A), 34/08-09/LTU(A) respectively and against theAssesment order passed by Assistant Commissioner of Income Tax Company Circle III (2) chennai dated 31.12.2007 made in PANNO/GIR No.AAACT1248G/32002-T (in TCA 1100, 1102/2010) andAAACT1249H (in TCA 1101, 1103/10) For Respondentin all T.C.As:Mr.K.Vaitheeswaran COMMON JUDGMENT R.MAHADEVAN, J. The parties to the proceedings are one and the same and theissues involved herein are identical. Hence, all these appealswere heard together and decided by this common judgment. 2.The Revenue is the appellant herein. TCA No.695 of 2009 isfiled against the order of the Income Tax Appellate Tribunal,Chennai 'C' Bench, dated 09.01.2009, relating to the assessmentyear 1998-98, whereas TCA Nos.1100 to 1103 of 2010 are filedagainst the common order of the Income Tax Appellate Tribunal,Chennai 'A' Bench, dated 06.11.2009, relating to the assessmentyears 2000-01, 2001-02, 2002-03 and 2003-04 respectively. 3.On 11.08.2009, TCA No.695 of 2009 was admitted on thefollowing substantial questions of law: “1.Whether on the facts and circumstances of thecase, the Tribunal was right in holding that the valueof the MILIEV grant given by the Dutch government as asubsidy for purchase of wind turbine generator, couldnot be brought to tax in the hands of the assesseeu/s.28(iv), when the assessee did not purchase theequipment, but transferred the right to anothercompany? 2. Whether on the facts and circumstances of thecase, the Tribunal was right in merely accepting theletter of the broker that no off set credits weregiven to the assessee, instead of remanding the matterto enable the assessing officer to get the correctfacts from the Dutch government through diplomaticchannels? 3.Whether on the facts and circumstances of thecase, the Tribunal was right in allowing the“electricity charges” paid to Wescare as a deduction,when purchase of electricity from a person other than the electricity board is illegal and contrary topublic policy?” 4.By order dated 31.01.2011, Tax Case Appeal Nos.1100 to1103 of 2010 were admitted on the following substantialquestions of law: “1. Whether on the facts and circumstances of thecase, the Appellate Tribunal was right in confirmingthe order of the Commissioner of Income Tax (Appeals)holding that the assessee was not the owner of the WindTurbine Generators and the 'electricity charges' paidto M/s.Wescare India Ltd., was allowance as deduction? 3.Whether on the facts and circumstances of thecase, the Tribunal was right in allowing the“electricity charges” paid to Wescare as a deduction,when purchase of electricity from a person other than the electricity board is illegal and contrary topublic policy?” 4.By order dated 31.01.2011, Tax Case Appeal Nos.1100 to1103 of 2010 were admitted on the following substantialquestions of law: “1. Whether on the facts and circumstances of thecase, the Appellate Tribunal was right in confirmingthe order of the Commissioner of Income Tax (Appeals)holding that the assessee was not the owner of the WindTurbine Generators and the 'electricity charges' paidto M/s.Wescare India Ltd., was allowance as deduction? 2. Without prejudice to the preceding question,whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right inholding that the 'electricity charges' paid toM/s.Wescare India Ltd., was allowable as deduction,when purchase of electricity from a person other thanthe Tamil Nadu Electricity Board was illegal andcontrary to the Public Policy?” 5.At the outset, the brief facts of the case, which arenecessary for deciding the issues involved herein, have beenstated below: 5.1. The respondent / assessee is engaged in the business ofmanufacture of bicycles, chains, precision steel tubes, CR steelstrips, etc. For the assessment year 1998-99, they filed itsreturn on 30.11.1998 declaring total income of Rs.1,46,86,704/-and disclosing profit under section 115J at Rs.4,04,28,085/-.The said return of income was processed under section 143(1) on28.03.1999 accepting the book profit and assessment order waspassed on 27.03.2001. Subsequently, notice under section 148came to be issued on 04.03.2005 for reassessment, based on thesurvey conducted on 07.02.2005. 5.2. During the course of inspection, it was found that therespondent / assessee entered into an Engineering, Procuring andCommissioning Contract (for brevity, 'EPC contract') withM/s.Lagerway Wind Turbines BV, Netherlands, a Dutch entity (forbrevity, 'LW') on 20.01.1997, for development of a wind farm of20 MW capacity consisting of 80 Wind Turbine Generators (WTGs),to be built and delivered by LW. The total project cost was NLG48,301,031 and the erection work was to be carried out in Indiaby M/s.Das Lagerway Wind Turbine Ltd (DLWL), an Indian jointventure company involving LW. As per the EPC contract, on17.02.1997, the respondent/assessee placed a purchase order withLW for design, manufacture, supply, erection, testing andcommissioning of 80 nos. of WTGs at its site, in and around Sankanapuram. Consequently, the respondent / assessee sent anapplication to the Dutch Government through LW seeking grantunder the Miliev Programme (subsidy scheme), as per which, asubstantial part of the cost of wind mills would be paid by theDutch Government through NIO Bank as grant for such purchasedirectly to the supplier of the wind mill viz., LW, Netherlandsand the balance cost would be paid to the LW by the assessee byopening letter of credit. Pursuant to the same, a MOU dated17.02.1997 was entered into among the respondent / assessee,WIPRO and DLWL, whereby WIPRO was to syndicate the lease financeof the project and open the letter of credits in favour of LW.Besides this, another MOU was signed among the respondent/assessee, WIPRO and Wind Energy System Care India Ltd (Wescare),in and by which, the respondent / assessee took lease operationof 20 MW wind farm at Sankanapuram from Wescare and WIPROsyndicated lease finance for the project. 5.3. On 24.03.1997, a grant agreement was entered intobetween the NIO Bank and the respondent/assessee, to disbursethe Miliev grant to LW on behalf of the Dutch Government, as perwhich, the respondent/assessee shall not transfer or assign itsrights under this agreement to a third party. The amount givenunder Miliev Grant was NLG 2,56,99,351. The total amount ofbenefit passed on to DLWL was Rs.58.85 crores and DLWL paid asum of Rs.2 crores i.e., Rs.2.5 lakhs per wind turbine for 80WTGs to the respondent/assessee to acquire its right under EPCcontract. 5.4. Out of total contract of Rs.102.15 crores, as per thepurchase order dated 17.02.1997, the respondent/assesseereceived only a part of the same valued at Rs.84,52,700/- andsold the same to M/s.DLWL on high sea sale basis for aconsideration of Rs.86,21,753/- and the difference ofRs.1,69,053/- was accounted as commission by the assessee. Theydid not purchase the balance value of the goods and theyrequested LW to issue the same in the name of DLWL, whichassembled the wind turbines and sold the same to various financecompanies. On 05.09.1997, a performance guarantee letter wasissued by LW in favour of the respondent / assessee; on25.09.1997, no objection certificate was issued by the TamilNadu Electricity Board to the respondent / assessee forinstallation of WTGs; and on 29.09.1997, a tripartite agreementwas entered into among the respondent / assessee, Wescare andthe finance companies, as per which, the finance companiesallowed Wescare to operate the wind mills on lease. Therespondent / assessee was to pay operational lease rentalcalculated as: the electricity consumed x TNEB rates – 25 paiseper unit. Accordingly, the respondent/ assessee paid a sum ofRs.59,56,238/- towards the electricity supplied to it byWescare. As some of the wind mills were not working after erection, the respondent / assessee assigned its rights underthe EPC contract in favour of Wescare for taking legal actionagainst LW and for getting compensation for inadequate workingof the wind mills. Subsequently, arbitration proceedings wereinitiated and a compensation of Rs.24.27 crores was orderedunder an international arbitration award dated 10.05.2004 andthe respondent / assessee was entitled to receive 10% share inthe compensation. 5.5. Taking note of all these aspects, the Assessing Officerby the reassessment order dated 28.03.2006, inter aliadisallowed the electricity charges of Rs.59,56,238/- incurred bythe respondent/assessee in respect of electricity supplied to itby Wescare by holding that the respondent/assessee was the ownerof WTGs, besides making addition of Rs.58,85,41,252/-(Rs.54,35,41,274/- for miliev grant by the Dutch Government +Rs.4,49,99,978/- for additional subsidy granted by NIO Bank tothe assessee for meeting various expenses in connection with theinstallation of the WTGs) towards consideration received by therespondent / assessee for surrendering its rights under EPCcontract in favour of DLWL and Rs.33,87,06,625/- for off setcredit. Aggrieved over the said assessment order, therespondent/assessee preferred an Appeal before the FirstAppellate Authority/Commissioner of Income Tax (Appeals) VIII,Chennai, who partly allowed the appeal, vide order 30.03.2007.Challenging the said order of the CIT(A), the appellant/Revenuepreferred an Appeal before the ITAT. By order dated 09.01.2009,the said appeal was dismissed. Therefore, the appellant/Revenueis before this court with Tax Case Appeal No.695 of 2009. 5.6. In respect of the assessment years 2000-01, 2001-02,2002-03 & 2003-04, the respondent/assessee company filed itsreturn of income, declaring the total income ofRs.27,86,23,531/-,Rs.36,63,00,895/-,Rs.46,35,46,246/- &Rs.56,89,60,117/- respectively. They claimed payment ofRs.10,03,20,820/-,Rs.8,06,50,593/-,Rs.7,50,77,615/-andRs.1,77,65,398/- respectively, for purchase of electricitygenerated by the wind mills. The returns of income filed by therespondent/assessee were processed under Section 143(1).Subsequently, notices under Section 148 came to be issued to therespondent/assessee on 06.03.2007, 11.10.2007, 05.02.2007 &28.03.2008 respectively. Upon receipt of the same, therespondent/assessee filed its replies treating the originalreturns filed by them as response to the said notices. Afterfollowing due procedure, the assessing officer ultimately passedthe assessment order dated 31.12.2007 in respect of theassessment years 2000-01 and 2003-03 and assessment order dated27.11.2008 in respect of the assessment years 2001-02 and 2003-04, thereby disallowing the electricity expenses incurred by therespondent / assessee, on the basis of the earlier order passed in respect of the assessment year 1998-99. 5.7. Aggrieved over the assessment orders so passed by theAssessing Officer, the respondent/assessee preferred Appealsbefore the CIT(A), who by separate orders dated 13.02.2009,partly allowed the appeals. Challenging the same, theappellant/Revenue preferred Appeals and the respondent/assesseepreferred cross objections before the ITAT and all the appealsand cross objections were dismissed, by a common order dated06.11.2009, which is impugned in TCA.Nos.1100 to 1103 of 2010filed by the appellant/ Revenue. 6.1. Mr.T.Ravikumar, learned senior standing counsel for theappellant/Revenue contended that according to the agreement withthe Dutch Government for the Miliev grant, the respondent /assessee was not to transfer or assign the rights to any thirdparty, whereas they entered into an agreement with M/s.DLWL,whereby the right to purchase the wind turbine generators, wastransferred and consequently, the benefit of the Miliev grantgiven by the Dutch Government was enjoyment by the said DLWL,although the assessee continued to be the beneficiary and themoneys were purportedly paid to the manufacturer to subsidisethe purchase of the machinery by the assessee. Taking note ofthe same, the assessing officer rightly made addition ofRs.58.85 crores representing the total amount of benefit passedon to DLWL, as against the claim of Rs.2 crores by the assessee,relating to the assessment year 1998-99. According to thelearned counsel, the grant is given as a subsidy for purchase ofa particular equipment and hence, the same would be treated as acapital receipt. On the other hand, in this case, the respondent/ assessee had passed on the benefit of the grant to DLWL and nolonger used the same for capital purchases and therefore, thesaid grant should be treated as a benefit received under section28(iv) and the transfer of the same to a third party is anapplication of such benefit. Adding further, the learned counselsubmitted that the respondent / assessee not only gave up theright of grant for a paltry consideration of Rs.2 crores, butalso took the same goods on lease on the enhanced value from thebanks / finance companies, which is inconceivable. However, theCIT(A) erred in deleting the said addition made by the assessingofficer, which was also upheld by the Tribunal. 6.2. The learned senior standing counsel appearing for theappellant further contended that there were several documents toshow that negotiations were on for claiming off set credits andpermitting M/s.Lockheed Martin, USA to utilise the same; andM/s.Fremont were the brokers for the same and hence, mere letterfrom the broker that no off set credits were taken byM/s.Lockheed Martin, is not sufficient evidence and the Tribunalought to have in all fairness remanded the matter to the assessing officer so as to enable the revenue to get a clearcertificate from the Dutch Government through diplomaticchannels in this regard. 6.3. That apart, the learned senior standing counsel for theappellant submitted that the wind mills were installed in thename of the assessee and the assessee had been shown as theowner of the wind mills in the records of TNEB; the transactionwith the finance company for the sale of wind turbines was notgenuine and as such, the finance company cannot be construed tobe the owner of the same; the sale of components of windturbines by the assessee to DLWL was a sham transaction; andhence, the assessing officer wholly justified in disallowing theelectricity charges incurred by the assessee in respect of theelectricity supplied to it by Wescare. However, the CIT(A)erroneously concluded that the assessee was not the owner andaccordingly, allowed the claim of the assessee in regard to thepayment of operational lease rental to Wescare equivalent to themeasure of units of electricity consumed by the assessee at TNEBrates less Rs.0.25 per unit. The said finding of the CIT(A) wasalso wrongly affirmed by the Tribunal. 6.4. With respect to the assessment years from 2000-01 to2003-04, the learned senior standing counsel for the appellantsubmitted that following the order passed by the Tribunalrelating to the assessment year 1997-98, the CIT(A) erred inallowing the claim of the assessee for deduction of electricitycharges paid to Wescare and the same was also confirmed by theTribunal. Though it was contended by the revenue before theTribunal that the payment of operational lease rental thoughdesignated as electricity charges cannot be allowed to bededucted, as the same was violative of public policy within themeaning of Explanation 1 of section 37 of the Act, the Tribunalerred in rejecting the said contention and dismissed the appealsfiled by Revenue. 6.5. Ultimately, the learned senior standing counselappearing for the appellant referred to various decisions andsubmitted that these tax case appeals will have to be allowed bysetting aside the orders impugned herein. 7.Mr.K.Vaitheeswaran, learned counsel appearing for therespondent/assessee submitted that in terms of EPC contract andthe Miliev grant agreement, the respondent / assessee was aparty recognized by the Dutch Government / NIO as ultimateconsumer of electricity; and the grant was directly paid to LWand no part of the grant was received by the assessee. For theright transferred to DLWL, the assessee received considerationof Rs.2 crores, which was offered for taxation. Further, therespondent / assessee was not the owner of WTGs and they only 6.5. Ultimately, the learned senior standing counselappearing for the appellant referred to various decisions andsubmitted that these tax case appeals will have to be allowed bysetting aside the orders impugned herein. 7.Mr.K.Vaitheeswaran, learned counsel appearing for therespondent/assessee submitted that in terms of EPC contract andthe Miliev grant agreement, the respondent / assessee was aparty recognized by the Dutch Government / NIO as ultimateconsumer of electricity; and the grant was directly paid to LWand no part of the grant was received by the assessee. For theright transferred to DLWL, the assessee received considerationof Rs.2 crores, which was offered for taxation. Further, therespondent / assessee was not the owner of WTGs and they only purchased some parts of WTGs amounting to Rs.84,52,700/- in itsname, at the initial stage of the wind farm project, which wereinturn, sold to DLWL on high sea sale basis and thereafter, nofurther purchases were made by the assessee. That apart, theWTGs were installed on the land owned by the assessee and wereleased to Wescare and the electricity generated was to besupplied to the assessee, which inturn made payment on the basisof the electricity charges per unit produced. After consideringthose aspects, the CIT(A) rightly allowed the claims of theassessee by deleting the additions made by the assessingofficer. The said orders of the CIT(A) were also affirmed by theTribunal. To substantiate his contentions, the learned counselplaced reliance on various case laws. Therefore, according tothe learned counsel, no interference of this court is requiredto the orders passed by the Tribunal, which are impugned herein. 8.Heard the learned counsel appearing for both sides andalso perused the materials placed before this Court. 9.At the outset, it is to be pointed out that the assesseein all these appeals is M/s.Tube Investments of India Ltd. Thefirst case viz., TCA No.695 of 2009 pertains to the assessmentyear 1997-98. Following the decision rendered by the Tribunal on09.01.2009 in the appeal relating to the assessment year 1997-98, which is questioned in TC.No.695 of 2009, the appealsrelating to the subsequent assessment years viz., 2000-01,2001-02, 2002-03 and 2003-04 were decided by the Tribunal, byorder dated 06.11.2009, which is impugned in TCA Nos.1100 to1103 of 2010. Therefore, as a logical sequitur, the decision tobe taken in the first case viz., TCA No.695 of 2009 will governthe subsequent cases too viz., TCA Nos.1100 to 1103 of 2010. 10.1.The three major issues involved in TCA No.695 of 2009are with respect to (i)transfer of right by the assessee toanother company; (ii)no offset credit; and (iii)electricitycharges paid to Wescare as deduction. At the first instance, weare inclined to go into the findings of the authorities below inthis regard. 10.2.As regards the first issue, according to the respondent/ assessee, the benefit of Miliev grant given by the DutchGovernment was enjoyed by DLWL and the respondent / assesseereceived consideration of only Rs.2 crores i.e., Rs.2.5 lakhsper wind turbine in respect of 80 WTGs for transferring itsright to DLWL under EPC contract for installation of 80 WTGsdelivered by LW. Whereas, the Assessing Officer brought to taxthe value of the entire benefit of Rs.58,85,41,252/- and treatedthe sale by the respondent/ assessee to DLWL and the sale ofthe wind mills to the finance companies as sham transactions, onthe premise that the wind mills were standing in the name of the 10.2.As regards the first issue, according to the respondent/ assessee, the benefit of Miliev grant given by the DutchGovernment was enjoyed by DLWL and the respondent / assesseereceived consideration of only Rs.2 crores i.e., Rs.2.5 lakhsper wind turbine in respect of 80 WTGs for transferring itsright to DLWL under EPC contract for installation of 80 WTGsdelivered by LW. Whereas, the Assessing Officer brought to taxthe value of the entire benefit of Rs.58,85,41,252/- and treatedthe sale by the respondent/ assessee to DLWL and the sale ofthe wind mills to the finance companies as sham transactions, onthe premise that the wind mills were standing in the name of the assessee in the books of TNEB, the finance companies neverbecame the owners of the wind mills and these companies claimed100 per cent depreciation; and also on the basis of the letterdated 30.06.1997 from the company secretary of the assesseerequesting Sanjay Jayaraman in Hong Kong to send a letterdirectly to LW backdating it as 27.03.1997. However, theappellate authorities did not accept the same and accordingly,deleted the addition made by the assessing officer, on theground that the grant was given by the Dutch Government as amatter of policy and it had nexus with the equipment and notwith the buyer and hence, it was not possible for the purchaserto transfer the grant and the same was directly disbursed to themanufacturer. It was also pointed out by the appellateauthorities that the revenue failed to produce any cogentmaterial to prove that the assessee received over and above thedisclosed consideration of Rs.2 crores; and there was noincriminating document made available against the assessee. TheAppellate Authorities further noted that as per the agreementsentered into the parties, the finance companies were allowed tooperate the wind mills on lease and the payment of lease rentalswas assured by Wescare and the assessee was to pay operationallease rental calculated as the electricity consumed x TNEB rates– 25 paise per unit. We do not find any good reason to disagreewith the reasonings so recorded by the appellate authorities. 10.3.With regard to the second issue, the assessing officermade addition of Rs.33,87,06,625/- in respect of off set creditsalleged to have been received by the respondent / assessee,stating that the respondent / assessee was entitled to claim thebenefit by using the value of the WTGs imported from LW, under'off set credit' or 'IP credit' allowed by the Dutch Government;Lockheed Martin, a US company, had certain commitments ofpurchasing goods from Dutch manufacturers to be fulfilled, thesupply of 80 WTGs by LW to the assessee under the EPC contractwas utilised towards the said commitment of Lockheed Martin topurchase goods from the Dutch manufacturers and the assesseeclaimed additional compensation from Lockheed Martin tofacilitate the claim of the 'off set credit'. The assessingofficer also referred to certain communications exchanged amongLockheed Martin, Fremont Group and the assessee in the financialyear 1998-99, relating the steps being taken for availing 'offset credits', which were found at the premises of the assesseeduring the course of inspection. It was contended by theassessee before the appellate authorities that the efforts weremade for facilitating the transaction and exploring thepossibility of obtaining off set credits, which however, did notmaterialise and therefore, no amount was received by theassessee. Acceding to the same, the CIT(A) was of the view thatthere is absolutely no document on record to indicate with theauthority that the assessee did receive offset credits and accordingly, deleted the addition made by the assessing officer,which finding of the CIT(A) was also affirmed by the Tribunal.In the absence of any concrete material, we have no optionexcept to concur with the view taken by the appellateauthorities. accordingly, deleted the addition made by the assessing officer,which finding of the CIT(A) was also affirmed by the Tribunal.In the absence of any concrete material, we have no optionexcept to concur with the view taken by the appellateauthorities. 10.4.As regards the electricity charges, the assessingofficer disallowed the said charges incurred by the assessee inrespect of the electricity supplied to it by Wescare throughwind turbines, on the premise that the assessee was the owner ofthe wind turbines and the TNEB made payments to the assessee forthe electricity generated and hence, there is no justificationfor claiming the electricity charges paid to Wescare asdeduction. It was pleaded by the assessee before the appellateauthorities that they purchased only some components of windturbines in its name in the initial stage of the wind farmproject, which were inturn sold to DLWL on high seas sale basisand the same was also duly accepted in the sales tax assessment.The bill of lading and the bill of entry were in the name ofDLWL and delivery of the items under such invoices was taken byDLWL and DLWL paid a sum of Rs.2 crores i.e., Rs.2.5 lakhs perwind turbine for 80 wind turbines to the assessee to acquire itsright under the EPC contract for the purchase of wind turbines,which was duly accounted and offered to tax; and the assesseewas only interested in supply of electricity and not in theownership of the wind turbines. Considering the same, the CIT(A)noted that various agreements / arrangements / MOU were enteredinto by the assessee with various parties from time to time withthe object to supply of electricity for a long duration at aneconomical / concessional rate; DLWL was the real owner of thewind farm project and it accounted for the income in relation tothe sale of wind turbines to the finance companies; theassessments of the finance companies were completed treatingthem as the owners of the wind turbines and depreciation wasalso allowed. It was further pointed out that there isabsolutely no evidence to indicate that the assessee didpurchase indigenous parts in connection with the erection andcommissioning of the turbines. Ultimately, the CIT(A) concludedthat the assessee was not the owner of the wind turbines andaccordingly, allowed the claim of the assessee in regard to thepayment of operational lease rental to Wescare. Though it wascontended by the appellant/Revenue that the allowance ofelectricity charges incurred by the assessee as deduction, isviolative of public policy within the meaning of Explanation 1of section 37 of the Act, the appellate authorities rejected thesame, by observing that the payment of operational lease rentalwas in terms of the lease arrangement between finance companies,Wescare and the assessee though measured in terms of units ofelectricity consumed; and the same was admittedly, for theconsumption of electricity for business purposes; and there is no violation of the policies/ guidelines by any of the partiesto the lease agreement pointed out by the TNEB till date. Thesaid findings of the appellate authorities do not require anyinterference by this court, as the same are based on thematerials available before the same. 11.1.Before this court, the learned counsel for theappellant/ Revenue placed reliance on the following decisions: (i)Sahney Steel & Press Works Ltd v. Commissioner of IncomeTax [(1997) 94 Taxman 0368], wherein, it was held by the Hon'bleSupreme Court that “subsidy from public funds granted byGovernment by way of refund of sales tax on purchase ofmachinery, etc. after commencement of production to enable theassessee to run the business more profitably, and not forsetting up of the industry, is operational subsidy and hence, arevenue receipt”. 11.1.Before this court, the learned counsel for theappellant/ Revenue placed reliance on the following decisions: (i)Sahney Steel & Press Works Ltd v. Commissioner of IncomeTax [(1997) 94 Taxman 0368], wherein, it was held by the Hon'bleSupreme Court that “subsidy from public funds granted byGovernment by way of refund of sales tax on purchase ofmachinery, etc. after commencement of production to enable theassessee to run the business more profitably, and not forsetting up of the industry, is operational subsidy and hence, arevenue receipt”. (ii)Upasana Finance Ltd v. Joint Commissioner of Income-tax,[(2013) 40 taxmann.com 252 (Madras)], wherein, the assesseepurchased a boiler and subsequently, leased it out to sisterconcern of seller and they claimed depreciation on the saidboiler. The assessing officer found that boiler was attached toland and sale could not be completed by mere issuance of salebills and the boiler was still lying and functioning in thefactory of seller and it was not installed in its sister concernand hence, the transaction in question was a loan transactionand it was wrongly given colour of lease transaction and hence,disallowed the assessee's claim. The same was upheld by theTribunal, against which, the assessee preferred the Tax caseappeal and the same was dismissed by this court, by holding that“when the finding of fact on the genuineness of the transactionhad not been challenged in the manner known to law and the samehaving attained finality, there exists no ground to interferewith the order of the authorities below rejecting the claim fordepreciation”. (iii)CIT v. Ganapati Finance Ltd [(2013) 29 taxmann.com 162(Delhi)], wherein the assessee claimed depreciation on LPGcylinders leased out to Janta Gases and Air Jet Spindle Assemblyand Positar disc leased out to Maruti Syntax. The assessingofficer disallowed depreciation after forming a view thatassessee did not purchase the said assets, but merely financedtheir purchase. The same was reversed by the CIT(A), which wasalso affirmed by the Tribunal. However, the Delhi High Court wasof the opinion that “the Tribunal ought to have tested theevidence adduced by the assessee in the light of the materialgathered by the assessing officer, the conduct of the partiesand other surrounding circumstances, whereas the Tribunal seemsto have proceeded merely on the basis of the documentary evidence without putting it to rigorous examination in the lightof the aspects highlighted by the assessing officer”. “In thecase of LPG cylinders, the transaction was only a financingtransaction and not a lease, with no material to show that theassessee became the owner of the cylinders and leased them toJanta. In the case of air jet spindles and positar disc, thevery existence of the assets and the genuineness of the purchaseof the assets by the assessee was not proved. Therefore, theassessee was not entitled to depreciation”. (iv)Avasarala Technologies Ltd v. Joint Commissioner ofIncome tax [(2016) 66 taxmann.com 377 (SC)]. In that case, theassessee claimed depreciation on certain machinery allegedlypurchased from Andhra Pradesh State Electricity Board vide saledeed dated 29.09.1995 which, as per the assessee, was given tothe APSEB itself on lease. All the authorities below had found,as a fact, that there was no such purchase of machinery and thetransaction in question was sham. On that basis, it wasconcluded that since the machinery was not purchased by theappellant, it never became the owner of the machinery andtherefore, could not claim any depreciation thereof. “These arepure findings of facts recorded by the authorities below andtherefore, no question of law arose out of impugned order”,according to the Hon'ble Supreme Court. (v)Commissioner of Income Tax v. Southern Cables &Engineering Works [(2007) 289 ITR 0167], in which, it was heldby Kerala High Court that “an assessee who is followingmercantile system of accounting, is entitled to deduct, from theprofits and gains, its business liability which arose during therelevant previous year and that liability did not cease to be aliability because the assessee had taken proceedings beforehigher authorities for getting it reduced or wiped off”. 11.2.We are in agreement with the legal proposition laiddown in the aforesaid decisions. However, the same have norelevance to the facts of the present case, wherein, therespondent / assessee did not make any claim for depreciationbefore the assessing officer as if they were the owner of thewind mills. On the corollary, the appellant /Revenue failed toproduce concrete material evidence against the respondent /assessee. 12.At the same time, it is pertinent to refer to thefollowing decisions cited by the learned counsel for therespondent / assessee, viz., (i)Godhra Electricity Co.Ltd v. Commissioner of Income-tax[(1997) 91 Taxman 351 (SC)], in which, it was observed by theHon'ble Supreme Court, as follows: “14.The question whether there was real accrualof income to the assessee-company in respect of theenhanced charges for supply of electricity has to beconsidered by taking the probability or improbabilityof realisation in a realistic manner. If the matteris considered in this light, it is not possible tohold that there was real accrual of income to theassessee-company in respect of the enhanced chargesfor supply of electricity which were added by the ITOwhile passing the assessment orders in respect of theassessment years under consideration. The AAC wasright in deleting the said addition made by the ITOand the Tribunal had rightly held that the claim atthe increased rates as made by the assessee – companyon the basis of which necessary entries were maderepresented only hypothetical income and the impugnedamounts as brought to tax by the ITO did notrepresent the income which had really accrued to theassessee-company during the relevant previousyears...” (ii)Commissioner of Income Tax Chennai v. Sundaram FinanceLtd. [(2016) SCC Online Mad 3072], wherein, it was held by thiscourt as follows: “14.As rightly pointed out by the Commissionerof Income Tax (Appeals), the question of ownership ofthe land has nothing to do with the claim fordepreciation. Depreciation is claimed in respect ofthe plant and machinery installed on the land. 15.Unfortunately, the Assessing Officer wasmisguided by the fact that the Electricity Authoritygranted permission only to the land owner to run thewindmills. It is not the case of the Department orthe respondent herein that the respondent was in thebusiness of generating power through windmills. Thereis no restriction by the Electricity Board thatunless the applicant for the generation of wind poweralso owns the plant and machinery he would not beentitled to a license. 16.In other words, the Assessing Officer as wellas the Tribunal misdirected themselves to the actualissue on hand, without realizing what is the incomeeither from the land owner or from the financierdepending each side of the table as per the terms ofthe financing agreement. The Revenue cannot claimrevenue from both. Therefore, the question of law isanswered against the Revenue and the appeals aredismissed”. In the light of the ratio laid down in the aforesaid decisions,this court is of the opinion that without any substantivematerial, the respondent / assessee cannot be construed as ownerof the wind mills and hence, the payment made by them to Wescarecan be treated only as consumption charges for the electricitysupplied to them, that too, for business purposes. As such,there is no question of law much less substantial question oflaw arisen for consideration. In the light of the ratio laid down in the aforesaid decisions,this court is of the opinion that without any substantivematerial, the respondent / assessee cannot be construed as ownerof the wind mills and hence, the payment made by them to Wescarecan be treated only as consumption charges for the electricitysupplied to them, that too, for business purposes. As such,there is no question of law much less substantial question oflaw arisen for consideration. 13.In the result, all these tax case appeals filed by theRevenue stand dismissed. However, there shall be no order as tocosts. Sd/- Assistant Registrar(CS-II) mrr //True Copy// Sub Assistant Registrar To1. The Commissioner of Income Tax, Chennai.2. The Commissioner of Income Tax – I, Chennai.3. The Income Tax Appellate Tribunal 'C' Bench, Chennai.4. The Income Tax Appellate Tribunal 'A' Bench, Chennai.5. The Commissioner of Income Tax – I, Chennai.6. The Commissioner of Tax Appeals VIII Chennai – 34. +2cc to Mr.Ravikumar, Advocate, S.R.No.33383 T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010 MG(CO)RGA(26/07/2022)