Orissa High Court
Industrial Development Corporation Of ... vs Commissioner Of Income-Tax And Ors. on 17 March, 2004
Equivalent citations: 98(2004)CLT363, [2004]268ITR130(ORISSA)
Author: A. K. Patnaik
Bench: A.K. Patnaik
JUDGMENT A. K. Patnaik, J.
1. This is an appeal under Section 260A of the Income-tax Act, 1961 (in short, "the Act"), against the order dated February 7, 2003, of the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack (hereinafter referred to as "the Tribunal), in I. T. A. No. 280/CTK of 2001.
2. The facts as narrated in the impugned order of the Tribunal briefly are that the appellant is a public limited company wholly owned by the State Government of Orissa and has been incorporated with, inter alia, the object of promoting and establishing industries which are likely to advance the industrial development of Orissa. On September 29, 1995, the appellant entered into a purchase-cum-lease agreement with the Orissa State Electricity Board (in short, "OSEB"), an undertaking of the State Government of Orissa for generation, distribution and supply of electricity: By the said agreement, the appellant purchased electrical machinery of some sub-stations of OSES for a price of Rs. 25 crores and leased out the said machinery back to the OSEB for a lease rent of Rs. 34,38,00,000 (rupees thirty-four crores thirty eight lakhs) for a period of 60 (sixty) months. Towards the price of Rs. 25 crores the appellant paid Rs. 20 crores to the OSEB and retained the balance of Rs. 5 crores as security money. The said sum of Rs. 20 crores was borrowed by the appellant from the Industrial Promotion and Investment Corporation of Orissa Limited (for short "the IPICOL") at an interest rate of 16.5 per cent. per annum for a period of 60 (sixty) months. After deducting the interest that was payable to IPICOL from the lease rent, a net amount of Rs. 4.48 crores was available in the hands of the appellant as surplus. The appellant claimed depreciation on the said machinery at the rate of 100 per cent. on the ground that the said machinery were energy saving devices entitled to depreciation at the rate of 100 per cent. under the relevant rules relating to depreciation and filed return accordingly for the assessment year 1996-97. The said depreciation at the rate of 100 per cent. was allowed by the Assessing Officer in his assessment order dated March 31, 1999, under Section 143(3) of the Act.
3. Thereafter, on October 22, 1999, the appellant received a notice under Section 154 of the Act from the Assessing Officer proposing to rectify the said assessment order dated March 31, 1999, by reducing the depreciation on the aforesaid machinery from 100 per cent. to 25 per cent. on the ground that the machinery were not energy saving devices. In response to the said notice, the appellant replied that the machinery were "instrumentation and monitoring systems for monitoring energy flows" entitled to 100 per cent. depreciation under Rule 5, Appendix I, Part III(3)(iii)B, of the Income-tax Rules, 1962 (in short, "the Rules"), which were in force then. After the said reply of the appellant, no order of the Assessing officer was received by the appellant and the appellant believed that the matter was dropped.
4. But on March 8, 2001, the Commissioner of Income-tax, Bhubaneswar (in short, "the Commissioner"), issued a notice under Section 263 of the Act to the petitioner proposing to modify/set aside the said assessment on the ground that it was erroneous and prejudicial to the interests of the Revenue. By the said notice dated March 8, 2001, the appellant was given opportunity of being heard before any order was passed under Section 263 of the Act and the case was fixed for hearing to March 19, 2001. The appellant sought adjournments of the hearing before the Commissioner, but the Commissioner passed orders on March 29, 2001, setting aside the assessment order dated March 31, 1999, of the Assessing Officer for the year 1996-97 and directing him to pass a fresh assessment order after holding that while making the assessment the Assessing Officer had committed the following errors :
(i) The Assessing Officer allowed depreciation at the rate of 100 per cent. on the machinery termed as energy monitoring systems shown to have been purchased at a cost of Rs. 25 crores. The valuation report submitted in support of the cost of the machinery shows that the concerned machinery are not new machinery but old installations of the OSEB at various transmission substations such as 220/132 KV at Brajarajnagar, 220/33 KV at Nayagarh, 132/33 KV at Bidanasi, etc. These transmission sub-stations consist of the usual circuit breakers, transformers, lightining arrestors, isolators, control panel, etc. All these are normal components of voltage step-down system where high voltage transmission is stepped down to lower voltage.
The Income-tax Rules provide 100 per cent. depreciation for specific "energy saving devices" as mentioned in Rule 5, Appendix I, Part III(3)(iii)B. In the case of the appellant, the machinery of Rs. 25 crores mentioned in the valuation report do not; at all fall under the above category. Therefore, the appellant was not entitled to depreciation at the rate of 100 per cent. on these machinery. Hence, the allowance of 100 per cent. depreciation was a clear error in so far as it was: prejudicial to the interests of the Revenue.
(ii) The valuation report further shows that the valuer Er. K. B. Swayin has taken the replacement cost on the basis of the present market value of new machinery and thereafter has estimated the value of the old machinery. The Assessing Officer has simply accepted the valuation without verifying the veracity of the computations, the basis of determination of the present market value of a new machine as well as the estimation of the value of the old machinery. Such non-application of mind was also an error.
(iii) Those old machinery are stated to have been purchased by the appellant from the OSEB at a cost of Rs. 25 crores on a sale and lease back arrangement although the written down value of the machinery was much lower. Immediately: after purchase the machinery are stated to have been leased back to the OSEB and the lease rent had been fixed on the basis of inflated cost. Since the OSEB has huge amount of accumulated loss, any gain due to the sale of old machinery at a price higher than the written down value has not increased the tax liability of the OSEB. On the other hand, the appellant has attempted to reduce its tax liability by claiming 100 per cent. depreciation on the basis of certain paper transactions showing purchase of machinery which the appellant never needed for its day-to-day business. Evidently, the entire arrangement was a colourable device which the Assessing Officer has failed to notice. He has not conducted any sort of inquiry to find out whether the transaction was genuine at all.
5. Aggrieved by the said order dated March 29, 2001, passed by the Commissioner under Section 263 of the Act, the appellant filed an appeal in I. T. A. No. 280/CTK of 2001 before the Tribunal, but the Tribunal dismissed the said appeal by the impugned order dated February 7, 2003. Paragraphs 5 and 6 of the impugned order dated February 7, 2003, of the Tribunal which contain the reasons for dismissal of the appeal are extracted hereinbelow :
"5. We have considered the submissions of both the parties and perused the orders of the lower authorities. We have also gone through the paper books filed before us. We find force in the observation of the learned Commissioner of Income-tax under Section 263. Before us also learned counsel tried to bring out that the matter could have been dealt by the AC on the basis of regular assessment under Section 143(3) and having found no adverse evidence completed the assessment which the Commissioner of Income-tax tried to find error in quoting it as prejudicial to the interests of the Revenue. From the foregoing discussion we are of the view that the AC had much more to assess which apparently was not made available to him on account of apparent interaction scheme of business activity and undertaken by the assessee as can be visualised from the public reported accounts for the financial year 1995-96. The AC failed to pinpoint as to how and why the assessee did not have any profitable share on investments as against earning less amount thereby disturbing the main objection of the assessee-company hitherto. We, therefore, uphold the initiation proceedings under Section 263 as justified and we do not find any merit in the appeal filed by the assessee for quashing the order under Section 263 of the Act.
6. In the result, the appeal of the assessee is dismissed."
6. The appellant has filed the present appeal against the aforesaid order dated February 7, 2003, of the Tribunal and on March 27, 2003, this court admitted the appeal and issued notices to the respondents and passed interim orders in Miscellaneous Case No. 15 of 2003 that in the meantime the attachment under annexure 3 will be lifted. On October 15, 2003, the court passed further orders in Miscellaneous Case No. 15 of 2003 that no action shall be taken by the respondents for realisation of the disputed demand from the appellant. On October 30, 2003, the court, after hearing learned counsel for the appellant, ordered that the appeal will be heard on the following four substantial questions of law;
"(1) Whether the assessment order passed by the Assessing Officer with regard to depreciation of 100 per cent. on the plant and machinery in question was in any way erroneous so as to justify interference by the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961 ? (2) Whether the decision of the Commissioner of Income-tax that the sale and the lease back agreement is a colourable device with which the Tribunal appears to have concurred is based upon any legal evidence or material or is based upon conjectures, suspicion and surmises and is otherwise perverse ?
(3) Whether the finding of the Tribunal that the plant and machinery which have been purchased by the assessee and leased out to the vendor is eligible for 25 per cent. depreciation is correct in law considering the fact that these plant and machinery are, used for reducing the high voltage to lower voltage and is energy monitoring system which is entitled to 100 per cent. depreciation under the law ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in affirming the decision of the Commissioner of Income-tax without considering the various submissions which v/ere placed before the Tribunal by the assessee and without considering the various facts regarding the sale and lease back agreement and without giving any reason for coming to such a decision ?"
7. Thereafter, on November 12, 2003, Dr. Debi Pal, learned counsel for the appellant and Mr. Akhil Mohapatra, learned standing counsel for the Income-tax Department, were heard on the aforesaid four questions.
8. The first substantial question of law is whether the assessment order passed by the Assessing Officer with regard to depreciation of 100 per cent. on the plant and machinery in question was in any way erroneous so as to justify interference by the Commissioner under Section 263 of the Act. In the order dated March 29, 2001, of the Commissioner under Section 263 of the Act, the Commissioner has taken the view that the Income-tax Rules provide for 100 per cent. depreciation on specific energy saving devices as mentioned in Rule 5, Appendix I, Part III(3)(iii)B, but the machinery of Rs. 25 crores mentioned in the valuation report submitted by the appellant do not at all fall under the aforesaid category and, for this reason, the appellant was not entitled to depreciation at the rate of 100 per cent. on these machinery arid the allowance of 100 per cent. depreciation was a clear error and was prejudicial to the interests of the Revenue. The Tribunal has upheld the aforesaid order passed by the Commissioner. Thus, according to the Tribunal, the plant and machinery which have been purchased by the appellant and leased out to the OSEB is not eligible to 100 per cent. but 25 per cent. depreciation. The third substantial question of law is whether this finding of the Tribunal that the plant and machinery which have been purchased by the appellant and leased out to the OSEB is eligible for 25 per cent. depreciation is correct in law. The first and third substantial questions of law being interrelated can be considered together.
9. Dr. Pal, learned counsel for the appellant, submitted that Rule 5, Appendix I, Part III(3)(iii)B, allowed depreciation at 100 per cent. on instrumentation or monitoring systems for monitoring energy flows and sub-item (a) thereunder mentioned "automatic electric load monitoring systems". He submitted that the certificate of M/s. Swayin Associates dated November 16, 2002, in annexure 18 to the appeal memorandum would show that the items of machinery which were purchased by the appellant from the OSEB and given back on lease to the OSEB comprise of circuit breaker, transformer, isolator, arrester, control panel, capacitor bank, etc., which are required for monitoring energy flow. He pointed out that the said certificate is also signed by a retired superintending engineer of Hindustan Aeronautics Limited, an expert on the subject. He argued that although the said certificate was filed before the Tribunal when the matter was heard, the Tribunal did not refer to or discuss the said certificate. He cited the decision of the Madhya Pradesh High Court in Panama Chemical Works v. Union of India [1992] 62 Excise Law Times 241, for the proposition that if an expert opinion of a valuer is submitted, in the absence of any contrary opinion of experts being on record, such an expert opinion of the valuer cannot be considered to be erroneous. He vehemently argued that it will be clear from the said certificate in annexure 18 to the appeal memorandum given by the expert that the machinery in question were "automatic electric load monitoring systems" described under sub-item (a) under heading "instrumentation and monitoring systems for monitoring energy flows" on which 100 per cent. depreciation is permissible under Rule 5, Appendix I, Part III(3)(iii)B of the rules. He further submitted that in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court, while discussing the scope and ambit of the power under Section 263 of the Act, has taken a view that the Commissioner can revise an order under Section 263 of the Act if it is not only erroneous and also prejudicial to the interests of the Revenue and not only on the ground that it is erroneous. He submitted that in the said decision, the Supreme Court further held that when the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. He argued that in this case the view taken by the Assessing Officer in the assessment order dated March 31, 1999, that 100 per cent. depreciation is to be allowed on the machinery in question is permissible in law and if the Commissioner does not agree with the view taken by the Assessing Officer, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue and the order passed by the Commissioner under Section 263 is not correct in law.
10. Mr. Mohapatra, learned counsel for the Income-tax Department, on the other hand, submitted that 100 per cent. depreciation is allowable for specific gadgets as mentioned in Rule 5, Appendix I, Part III(3)(iii)B, but all the machinery purchased and leased back by the appellant to the OSEB do not fall under the aforesaid category. He relied on a report dated November 7, 2003, of the Chief Electrical Officer, Bhubaneswar, a copy of which was furnished to us at the time of hearing and it was stated therein that only the following plant and machinery were energy saving devices :
__________________________________________________________________________________ Written down value of Name of the plant and machinery the plant and machin-
ery as shown _________________________________________________________________________________ 63 MVAR Capacitor bank at different grid, sub-station as 146.69 lakhs;
appearing at page 4(a) 15 of page 10 of the valuation report of K.B. Swayin 100 MVAR Capacitor bank at different grid, sub-station 193.20 lakhs;
as appearing at page 4(a) 15 of page 10 of the valu-
ation report of K. B. Swayin __________________________________________________________________________________ Total 339.89 lakhs __________________________________________________________________________________
11. According to Mr. Mohapatra, 100 per cent. depreciation therefore could only be allowed in respect of the aforesaid items valued at Rs. 3.39 crores provided the basic conditions for claiming depreciation as prescribed in Section 32 are satisfied. He submitted that the rest of the items of the machinery on which 100 per cent. depreciation has been claimed by the appellant comprise of installations in various transmission sub-stations such as 220/130 KV substation at Brajarajnagar, 220/33KV sub-station at Nayagarh, 132/33 KV sub-station at Bidanasi and consist of usual circuit breakers, transformers, lightning arresters, isolators, control panel, etc., which are normal components of voltage step-down system where high voltage transmission is stepped down to lower voltage. He vehemently argued that these are not "energy saving devices" as mentioned in Rule 5, Appendix I, Part III(3)(iii)B, and hence allowance of 100 per cent. depreciation on such machinery by the Assessing Officer in the assessment order dated March 31, 1999, was a clear error and was prejudicial to the interests of the Revenue. He argued that the revisional power conferred on the Commissioner under Section 263 of the Act is of wide amplitude and it enables the Commissioner to revise an order passed by an officer, if he finds the same to be erroneous and prejudicial to the interests of the Revenue. He submitted that the Commissioner could revise an order if he finds the same to be erroneous and prejudicial to the interests of the Revenue where the errors made in the order cannot be rectified under Section 154 of the Act by the Assessing Officer. Such power of the Commissioner under Section 263 is much wider than the power of the Assessing Officer under Section 154 of the Act. He cited the decision of the Supreme Court in South India Steel tolling Mills v. CIT [1997] 224 ITR 654, wherein it was held that Explanation (b) in Section 263 clearly prescribed that the word "record" includes all records relating to any proceedings under the Act available at the time of examination by the Commissioner under Section 263 of the Act. He argued that the Commissioner, therefore, can take into consideration any fact which comes on record, whether before or after the assessment, while exercising power under Section 263 of the Act. He also cited the decision of the Supreme Court in CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53, wherein it has been clarified that Section 263 of the Act empowers the Commissioner to make such further inquiries as may be considered necessary and the Commissioner can draw an inference that an order is bad in law even with reference to a document brought on record subsequent to the assessment. He also cited the decision of the Madras High Court in CIT v. Seshasayee Paper and Boards Ltd. [2000] 242 ITR 490, to show that the Commissioner has the powers under Section 263 of the Act to quash any order as the circumstances of the case may warrant and he may pass an order enhancing the assessment or modifying the assessment and he is also empowered to cancel an assessment and direct a fresh assessment. Finally, Mr. Mohapatra submitted that the finding of the Commissioner in the order under Section 263 of the Act on the claim of the appellant to 100 per cent. depreciation on the machinery in question as upheld by the Tribunal in the impugned order is a finding of fact and does not raise any substantial question of law and thus no appeal is available to the appellant on this point under Section 260A of the Act. He cited the decisions of the Supreme Court in Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314 and Sree Meenakshi Mills Ltd, v. CIT [1957] 31 ITR 28, and the decision of the Delhi High Court in Bhagat Construction Co. (P.) Ltd. v. CIT [2001] 250 ITR 291, in support of his contention that where the determination of an issue depends upon the appreciation of evidence or materials resulting in ascertainment of basic facts without application of any principle of law, the issue raises a mere question of fact and not a question of law. He submitted that questions Nos. 1 and 3 are not really substantial questions of law and are actually questions of facts which have been determined by the Commissioner in his order under Section 263 and by the Tribunal in the impugned order.
12. We are unable to accept the aforesaid submission of Mr. Mohapatra that questions Nos. 1 and 3 formulated by us in this appeal by our order dated October 30, 2003, are not substantial questions of law. The answer to the question as to whether 100 per cent. depreciation is allowable on the plant and machinery in question under Rule 5, Appendix I, Part III(3)(iii)B of the rules or only 25 per cent. depreciation is allowable in respect of the plant and machinery in this case does not depend only on findings of facts but also depends upon the interpretation of the provisions of the said Rule 5, Appendix I, Part III(3)(iii)B of the rules. In the oft-quoted decision of the Supreme Court in Sir Chunilal V. Mehta and Sons Ltd, v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314, the Supreme Court held (page 1318) :
"(7) Applying these tests it would be clear that the question involved in this appeal, that is, the construction of the managing agency agreement is not only one of law but also it is neither simple nor free from doubt. In the circumstances we have no hesitation in saying that the High Court was in error in refusing to grant the appellant a certificate that the appeal involves a substantial question of law. It has to be borne in mind that upon the success or failure of the contention of the parries, they stand to succeed or fail with respect to their claim for nearly 26 lakhs of rupees."
13. Thus, in the aforesaid case of Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314, the Supreme Court found that the question involved in the appeal before them involved the construction of the managing agency agreement which was not only one of law but also neither simple nor free from doubt and that on the answer to the said question of law, the success or the failure of the contention of the parties depends. In the present case, we find that the question as to whether 100 per cent. depreciation is allowable on the plant and machinery in question or only 25 per cent. depreciation is allowable on such plant and machinery depends on the interpretation of the provisions of Rule 5, Appendix I, Part III(3)(iii)B of the rules and this interpretation is also not free from doubt. No decision has been cited by either party before us either of the Supreme Court or of any other High Court as to what would be the correct interpretation of the aforesaid Rule 5, Appendix I, Part III(3)(iii)B of the rules. The parties stand to succeed or fail on the correct interpretation of the Rule 5, Appendix I, Part III(3)(iii)B of the rules. We are thus of the view that questions Nos. 1 and 3 framed by us in this appeal are substantial questions of law and an appeal is available to the appellant on the said substantial questions of law under Section 260A of the Act.
Coming now to the interpretation of Rule 5, Appendix I, Part III(3)(iii) B of the rules, the relevant portion of Appendix I as was applicable for the assessment year 1996-97 is extracted hereunder :
"APPENDIX I (see Rule 5) Table of rates at which depreciation is admissible Block of assets Depreciation allowance as percentage of written down value (1) (2) part A. Tangible assets :
III. Machinery and plant :
(3)(iii) Energy saving devices, being A. Specialised boilers and furnaces :
(a) Ignifluid/fluidized bed boilers
(b) Flamcless furnaces and continuous pusher type furnaces 100
(c) Fluidized bed type heat treatment furnaces
(d) High efficiency boilers (thermal efficiency higher than 75 per cent, in case of coal fired and 80 per cent, in case of oil/gas fired boilers) B. Instrumentation and monitoring system for monitoring energy flows :
(a) Automatic electrical load monitoring systems
(b) Digital heat loss meters
(c) Micro-processor based control systems
(d) Infra-red thermography
(e) Meters for measuring heat losses, furnace oil flow, steam flow, electric energy and power factor meters 100
(f) Maximum demand indicator and clamp on power meters
(g) Exhaust gases analyser
(h) Fuel oil pump test bench C. Waste heat recovery equipments :
(a) Economises and feed water heaters
(b) Recuperators and air pre-heaters
(c) Heat pumps 100
(d) Thermal energy wheel for high and low temperature waste heat recovery D. Co-generation systems :
(a) Back pressure pass out, controlled extraction, extraction-cum-condensing turbines for co-generation along with pressure boilers 100
(b) Vapour absorption refrigeration systems
(c) Organic renkine cycle power systems
(d) Low inlet pressure small steam turbines E. Electrical equipments :
(a) Shunt capacitors and synchronous condenser systems
(b) Automatic power cut off devices (relays) mounted on individual motors
(c) Automatic voltage controlle
(d) Power factor controller for AC motors 100
(e) Solid state devices for controlling motor speeds
(f) Thermally energy efficient, stenters (which require 800 or less kilo calories of heat to evaporate one kilogram of water) F. Burners :
(a) 0 to 10 per cent, excess air burners
(b) Emulsion burners 100
(c) Burners using air with high pre-heat temperature(above 300 C) G. Other equipments :
(a) Wet air oxidation equipment for recovery of chemicals and heat
(b) Mechanical vapour recompressors
(c) Thin film evaporators
(d) Automatic micro-processor based load demand controllers
(e) Coal based producer gas plants 100
(f) Fluid drives and fluid couplings
(g) Turbo charges/super-charges
14. It will be clear from Appendix I, Part III(3)(iii) extracted above that "energy saving devices" being A. Specialised boilers and furnaces, B, Instrumentation and monitoring system for monitoring energy flows. C. Waste heat recovery equipment, D. Co-generation systems, E. Electrical equipment, F. Burners and G. Other equipments have been allowed depreciation at the rate of 100 per cent. of the written down value of the machinery and plant. Thus, the expression "energy saving devices" has been used in the aforesaid rules in a very wide sense so as to include devices for saving energy of different forms such as heat, electricity, etc. The word "being" soon after the expression "energy saving devices" makes it clear that only the specific categories of energy saving devices mentioned under A to G are eligible to depreciation allowance at the rate of 100 per cent. of the written down value of the machinery and plant. Under category B, item (a) "Automatic electrical load monitoring systems" have been allowed such depreciation allowance at the rate of 100 per cent. of the written down value of the machinery and plant. The certificate dated November 16, 2002, of Swayin and Associates signed by Shri H. C. Palo, Superintending Engineer (Electrical), Hindustan Aeronautics Limited (Retired), which is said to have been placed before the Tribunal and is annexed to the appeal memorandum as annexure 18 is to the following effect:
"Swayin and Associates Consulting Engineers, Architects and Town Planners 77, Satyanagar, Bhubaneswar-751 007 (Orissa), India.
Reference No. ........
This is to certify that the property valued for M/s. Industrial Development Corporation of Orissa Ltd., as per schedule are electrical installation and instruments used in the sub-station for controlling and monitoring energy flow.
The items of machinery comprise of circuit breaker, transformer, isolater, arrester, control panel, capacitor bank, etc., which are required for control, flow and monitoring of energy. These items are having automatic devices for proper functioning of the system. They are necessary for ensuring safe and economical distribution of electrical energy.
(Sd.) H. C. Palo (Sd.) K. B. Swayin
(H. C. Palo) Er. K. B. Swayin
A. M. S. E. E. F. I. E. (India),
Superintending Engineer M. A. C. I. (U. S. A.), M. I.
(Electrical) Retd. HALTD A. B. S. E., M. CON'e, FI V, C. Eng. (I),
Chartered Engineer (F-11081)."
15. The aforesaid certificate given by an expert shows that the items of machinery in the sub-stations purchased by the appellant from the OSEB, are the instruments for controlling and monitoring energy flows and comprised of circuit breaker, transformer, isolator, arrester, control panel, capacitor bank, etc., which are required for control, flow and monitoring of energy. The machinery and plant purchased by the appellant from the OSEB, as per the said expert opinion, thus form part of automatic electrical load monitoring system and fall under item (a) of category B of "energy saving devices" mentioned in the aforesaid rules. The Commissioner in the order dated March 29, 2001 under Section 263 of the Act has held that the machinery of Rs. 25 crores mentioned in the valuation report do not fall under the aforesaid category B of Rule 5, Appendix I, Part III(3)(iii) of the Rules but has not referred to any opinion of an expert for coming to the said conclusion. When we put the question to Mr. Mohapatra, learned standing counsel for the Income-tax Department, as to whether the aforesaid view taken by the Commissioner in the order dated March 29, 2001, under Section 263 of the Act is supportable by any expert opinion, Mr. Mohapatra produced before us a copy of the communication dated November 7, 2003, of the Chief Electrical Inspector (T & D), Government of Orissa, which is subsequent to the order dated March 29, 2001, of the Commissioner and is to the following effect :
"Government of Orissa, Office of the Chief Electrical Inspector (T & D), Power House Chhak, Bhubaneswar-751 001.
No. 3839/Dated Bhubaneswar, the 7-11-2003.
From Chief Electrical Inspector (T & D), Orissa.
To The Commissioner of Income-tax, Government of India, Bhubaneswar.
Sub : Furnishing of information in regard to plant and machinery. Ref: Your L. No. Nil dated 6-11-2003.
Sir, With reference to your above letter, it is to intimate you that under annexure B only the items at 4(a) (15)-63 MVAR capacitor bank at differ- ent grid sub-stations and 4(a) (16)-100 MVAR capacitor bank at different grid sub-stations comes under the 'energy saving device' and can be categorised as energy saving device like other items in annexure-A(E) (a) Yours faithfully (Sd.) ........
7/11/2003, Chief Electrical Inspector (T & D)."
16. It will be clear from the aforesaid communication that as per the said expert opinion of the Chief Electrical Inspector (T & D), at least two of the items, namely, 63 MVAR capacitor bank and 100 MVAR capacitor bank at different sub-stations come under "energy saving devices". In the communication dated November 7, 2003, of the Chief Electrical Inspector (T & D) quoted above, he has not stated that the other items of machinery in the different grid sub-sections purchased by the appellant from the OSEB are not devices which can form part of "automatic electrical load monitoring systems". The Commissioner himself has observed in the order dated March 29, 2001, under Section 263 of the Act that the transmission sub-stations consist of usual circuit breakers, transformers, isolators, arresters, control panel, capacitor bank, etc., which are normal components of voltage step-down systems where high voltage transmission is stepped down to lower voltage. What the Commissioner lost sight of is that transmission of electrical energy is made at high voltage with a view to prevent loss of electrical energy during transmission and if after such transmission, any plant and machinery are used for stepping down the high voltage transmission to lower voltage, such plant and machinery for stepping down the high voltage to lower voltage are part of a larger system of saving electrical energy. We are thus of the view that depreciation is allowable on the plant and machinery in question under Rule 5, Appendix I, Part III(3)(iii)B of the Rules and the finding of the Commissioner in the order dated March 29, 2001, under Section 263 of the Act that the assessment order passed by the Assessing Officer allowing 100 per cent. depreciation on such plant and machinery was erroneous is not correct. For the self-same reasons, the finding of the Tribunal that the plant and machinery which have been purchased by the appellant and leased out to the OSEB is eligible for 25 per cent. depreciation is not correct. The first and third substantial questions of law are answered accordingly.
17. The second substantial question of law which has to be decided in this appeal is whether the decision of the Commissioner in the order dated March 29, 2001, under Section 263 of the Act that the sale and lease back agreement between the appellant and the OSEB is a colourable device, is based on no legal evidence or material or is based upon conjecture, suspicion and surmises and is otherwise perverse. The Tribunal in its impugned order has affirmed the said decision of the Commissioner. Thus the Tribunal has concurred with the decision of the Commissioner that the sale and lease back agreement between the appellant and the OSEB was a colourable device. The fourth substantial question of law which has to be decided in this appeal is whether in the facts and circumstances of the case the Tribunal is justified in law in affirming the decision of the Commissioner without considering the various submissions which were placed before the Tribunal by the appellant and without considering the various facts regarding the sale and the lease back agreement and without giving any reason to come to such a decision. The second and the fourth substantial questions of law therefore are interrelated and can be considered together.
18. Dr. Pal, learned counsel for the appellant, cited the decision of the Court of Appeal in Snook v. London and West Riding Investments Ltd. [1967] 1 All ER 518, in support of his submission that a transaction can be considered sham only if the legal rights and obligations of parties to the transaction are different from the actual legal rights and obligations which the parties intend to create. He submitted that in the present case, the transaction has created legal rights and obligations of three parties, namely, the appellant, the OSEB and the IPICOL, which are all State Government undertakings in which the State Government of Orissa owns 100 per cent. shares. In accordance with the transaction, the appellant has taken a loan of Rs. 20 crores by cheque from IPICOL and paid interest to IPICOL at 16.5 per cent. per annum by account payee cheques. The appellant has also paid a sum of Rs. 20 crores to the OSEB by an account payee cheque and retained a sum of Rs. 5 crores towards security deposit. The lease rent of Rs. 57.30 lakhs has also been paid by the OSEB to the appellant by account payee cheques every month. In the books of account of the appellant-company, all these transactions have been reflected and accounted for. The transaction therefore is a genuine one. He further submitted that the Commissioner while observing in the order that the entire arrangement between the parties was a colourable device was perhaps influenced by the observations of Chinnappa Reddy J., in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, at page 160, that the principle of avoidance of tax liability known as the Westminster principle has been departed from by the British courts in England and it is high time for the judiciary in India to part its way from the principle of Westminster and the alluring logic of tax avoidance and it should be examined whether a transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it. He submitted that Ranganath Misra J., who was also a party to the said judgment in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) did not share the aforesaid view of Chinnappa Reddy J., and observed at page 171 of the Income-tax Reports that tax planning may be legitimate provided it is within the framework of law and colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. He further submitted that in a recent judgment in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706, the Supreme Court has examined its earlier decision in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 at page 753 of [2003] 263 ITR and has observed at page 754 that far from being exorcised in the country of its origin, Duke of Westminster's case [1936] AC 1 (HL) contineous to be alive and kicking in England. He submitted that in the said judgment in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706, the Supreme Court did not approve of the views of Chinnappa Reddy J., and observed that the judgment of the Madras High Court in M.V. Valliappan v. ITO [1988] 170 ITR 238, has rightly concluded that the decision in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. He further argued that in the said case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706, the Supreme Court also quoted with approval the judgment of the Gujarat High Court in Banyan and Berry v. CIT [1996] 222 ITR 831, at page 850 of the Income-tax Reports that the principle enunciated in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) has not affected the freedom of the citizen to act in a manner according to his requirements and his wishes in the manner of doing any trade, activity or planning his affairs with circumspection within the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. Dr. Pal contended that the appellant thus was free to carry on its business activity and plan its affairs within the framework of law in such a manner so as to reduce its tax burden. He referred to the memorandum of association of the appellant-company to show that the purchase of the plant and machinery by the appellant from the OSEB and lease of the same to the OSEB were within the objects of the appellant-company as enumerated in the memorandum of association. He further submitted that sale and lease back agreements are a common feature in present-day business and have been recognised by the Institute of Chartered Accountants in their Accounting Standard No. 19. He referred to the decisions of the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, and in Collector of Central Excise v. Dai Ichi Karkaria Ltd. [1999] 7 SCC 448, to show that such sale and lease back agreements are in vogue. He also referred to Explanation 4A to Section 43 of the Act introduced by the Finance (No. 2) Act of 1996, with effect from October 1, 1996, to show that even Parliament has given legislative recognition to sale and lease back transactions. He submitted that the finding of the Commissioner in the order dated March 29, 2001, under Section 263 of the Act that the entire arrangement between the parties was a colourable device and the transaction was not genuine at all is not based on legal evidence or material but on conjectures, suspicion and surmises and is perverse and the Tribunal was not justified in affirming the said finding of the Commissioner.
19. In reply, Mr. Mohapatra, learned standing counsel for the Income-tax Department,, submitted that the decision of the Commissioner that the sale and lease back agreement is a colourable device is based on legal evidence and material. In this connection, he referred to the notice dated March 8, 2001, given to the appellant and in particular, paragraphs Nos. 1, 2 and 3 of the said notice and the order of the Commissioner dated March 29, 2001, and in particular, paragraphs Nos. 1 and 5 of the said order under Section 263 of the Act. He further submitted that the Tribunal has rightly concurred with this decision of the Commissioner that the sale and the lease back agreement is a colourable device and relied on paragraphs Nos. 2, 3, 4, 5 and 6 of the impugned order of the Tribunal. He argued that the order passed by the Commissioner under Section 263 of the Act and the appeal to the Tribunal against the order of the Commissioner are parts of an integrated process and the Tribunal has considered the order of the Commissioner in the light of the law as applicable the facts of the case. He submitted that the approach of the court in tax avoidance cases should be to look at the entire transaction as a whole and see if it makes any economic or commercial sense without attaching weight to the steps that go to make up the scheme, each of which may be legally valid. According to Mr. Mohapatra, the genuineness of the arrangement has to be judged not in relation to every step taken to achieve the results but in relation to the financial results. He cited the decision of the Supreme Court in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 in support of his aforesaid arguments. Finally, he submitted that any finding as to whether a transaction was colourable one or not is essentially one of fact and cited the decisions in CIT v. Shri Prithvi Raj Daga [1986] 159 ITR 193 (Raj) ; CIT v. Assam Frontier Tea Ltd. [1996] 221 ITR 311 (Gauhati) and Bhagat Construction Co. (P.) Ltd. v. CIT [2001] 250 ITR 291 (Delhi).
20. Question No. 2 in the present appeal is not whether the sale and lease back agreement as found by the Commissioner and the Tribunal is a colourable device or not but is whether the finding of the Commissioner as concurred in by the Tribunal on this factual question is based on any legal evidence or material or is based on conjectures, suspicion and surmises and is otherwise perverse. In our view, such a question is a question of law and since the success and failure of the parties in this appeal will depend upon our answer to the said question of law, this question of law is a substantial question of law. In CIT v. Shri Prithvi Raj Daga [1986] 159 ITR 193 (Raj) cited by Mr. Mohapatra, the question referred to the High Court by the Tribunal was whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the finding of the Department that the sale of the immovable property to M/s. Sujangarh Investment Corporation and Trading Co., Sujangarh, was sham, collusive and a colourable transaction and the High Court held that such a question is a question of fact. There was no reference to the Rajasthan High Court in the said case that the finding of the Tribunal was based on no evidence or material but was based on conjectures, suspicion and surmises and was perverse. Similarly, in CIT v. Assam Frontier Tea Ltd. [1996] 221 ITR 311 (Gauhati) cited by Mr. Mohapatra, one of the questions referred by the Tribunal to the Gauhati High Court was whether, on the facts and in the circumstances of the case, the transactions between the assessee and Apeejay Pvt. Ltd., based on the agreement dated November 1, 1985, is not a sham transaction, and whether such an agreement is not a colourable device used for reducing the tax liability by the assessee and the Gauhati High Court held that whether a particular agreement is a colourable or sham transaction is a finding of fact and no question, of law arose for decision. In this case before the Gauhati High Court also there was no reference of the question as to whether the finding of the Tribunal on the aforesaid question of fact was based on no evidence or no material and the finding of the Tribunal was based only on conjectures, suspicion and surmises and was otherwise perverse. In Bhagat Construction Co. (P.) Ltd. v. CIT [2001] 250 ITR 291 cited by Mr. Mohapatra, Chief Justice Pasayat of the Delhi High Court (as he then was) while dealing with the scope of an appeal under Section 260A of the Act, on substantial question of law summed up at pages 297 and 298 of [2001] 250 ITR 291 (Delhi) the tests to determine whether the question involved is one of fact or law and the following fourth test was indicated by his Lordship :
"(4) When any finding is based on no evidence or material, it involves a question of law. In other words, if the Tribunal acts on irrelevant materials and evidence, a question of law is involved."
21. In the said decision at page 301 of [2001] 250 ITR 291 (Delhi), Chief Justice Pasayat (as he then was) further held :
"A conclusion about the nature of a transaction, i.e., whether it is colourable or otherwise, if supported by material or evidence is essentially one of fact." (emphasis' supplied)
22. It will be clear from the aforesaid judgment of the Delhi High Court that only if the conclusion that a particular transaction is colourable is supported by material or evidence, the question is one of fact, but where such a conclusion that a transaction is colourable one is based on no material or evidence, the question is one of law and an appeal will be available under Section 260A of the Act to the High Court.
23. Coming now to the decision of the Supreme Court in McDowdl and Co. Ltd. v. CTO [1985] 154 ITR 148 on which great reliance has been placed by Mr. Mohapatra, we find that in the said decision, Chinnappa Reddy J., did observe that the time has come for us to depart from the Westminster principle as emphatically as the British courts have done, but Ranganath Misra j. speaking for the majority, observed that tax planning may be legitimate if it is within the framework of law. He, however, observed that colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. The aforesaid views of Chinnappa Reddy J. and Ranganath Misra J. were examined at length by the Supreme Court in the recent decision in Union of India v. Azadi Bachao Andolan at pages 754 and 755 of [2003] 263 ITR. B. N. Srikrishna J. delivering the judgment has not agreed with the view of Chinnappa Reddy J., in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) that the principle in Duke of Westminster's case [1936] AC 1 (HL) has been departed from subsequently by the House of Lords in England. After considering the decisions of the House of Lords in Craven (Inspector of Taxes) v. White (Stephen) [1990] 183 ITR 216 ; [1988] 3 All ER 495, and other cases B. N. Srikrishna J., at page 758 of [2003] 263 ITR has observed :
"With respect, therefore, we are unable to agree with the view that Duke of Westminster's case [1936] AC 1; 19 TC 490 (HL) is dead, or that its ghost has been exorcised in England. The House of Lords does not seem to think so, and we agree, with respect. In our view, the principle in Duke of Westminster's case [1936] AC 1 (HL); 19 TC 490 is very much alive and kicking in the country of its birth. And as far as this country is concerned, the observations of Shah J. in CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) are very much relevant even today."
24. In the said decision of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), B. N. Srikrishna J. has also examined the decisions of the Supreme Court after McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 in CWT v. Arvind Narottam [1988] 173 ITR 479 (SC) and Mathuram Agrawal v. State of Madhya Pradesh [1999] 8 SCC 667, wherein the views of Chinnappa Reddy J. in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) have not found approval and has come to the conclusion (page 760) :
"It thus appears to us that not only is the principle in Duke of Westminster's case [1936] AC 1; 19 TC 490 (HL) alive and kicking in England, but it also seems to have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell's case [1985] 154 ITR 148 (SC)."
25. Finally, the Supreme Court held in the said decision of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 at pages 762 and 763 :
"The judgment of the Privy Council in Bank of Chettinad's case [1940] 8 ITR 522, (PC) wholeheartedly approving the dicta in the passage from the opinion of Lord Russel in Westminster's case [1936] AC 1 (HL); [1935] 19 TC 490, was the law in this country when the Constitution came into force. This was the law in force then, which continued by reason of Article 372. Unless abrogated by an Act of Parliament, or by a clear pronouncement of this court, we think that this legal principle would continue to hold good. Having anxiously scanned McDowell's case [1985] 154 ITR 148 (SC), we find no reference therein to having dissented from or overruled the decision of the Privy Council in Bank of Chettinad's case [1940] 8 ITR 522 (PC), If any, the principle appears to have been reiterated with approval by the Constitutional Bench of this court in Mathuram's case [1999] 8 SCC 667 at page 12. We are, therefore, unable to accept the contention of the respondents that there has been a very drastic change in the fiscal jurisprudence, in India, as would entail a departure. In our judgment, from Westminster's case [1936] AC 1 (HL); 19 TC 490 to Bank of Chettinad's case [1940] 8 ITR 522 (PC) to Mathuram's case [1999] 8 SCC 667, despite the hiccups of McDowell's case [1985] 154 ITR 148 (SC), the law has remained the same.
We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents."
26. Thus, in the aforesaid judgment in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706, the Supreme Court has made it very clear that an act which is otherwise valid in law cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests. In other words, if a transaction is otherwise valid in law and results in reduction of tax to an assessee, the same cannot be brushed aside on the ground that the underlying motive of entering into the transaction by the assessee was to reduce its tax liability to the State. This proposition is also clear from the judgments of Chief Justice Pathak (as he then was) and Justice S. Mukharji in CWT v. Arvind Narottam [1988] 173 ITR 479 (SC). This case was under the Wealth-tax Act and three trust deeds had been prepared for the benefit of the assessee, his wife and children in identical terms and the Revenue placed reliance on the decision in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC). Chief Justice Pathak in his opinion at page 486 of [1988] 173 ITR held :
"Reliance was also placed by learned counsel for the Revenue on McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC). That decision cannot advance the case of the Revenue because the language of the deeds of settlement is plain and admits of no ambiguity."
27. Similarly, Justice S. Mukharji after noticing the judgment in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), held (page 487) :
"Where the true effect on the construction of the deeds is clear, as in this case, the appeal to discourage tax avoidance is not a relevant consideration. But since it was made, it has to be noted and rejected."
28. Therefore, if the sale and lease back agreement between the appellant and the OSEB is clear that the appellant had purchased the plant and machinery from the OSEB for a price of Rs. 25 crores and had leased out the same to the OSES on lease rent, the Commissioner cannot discard the said sale and lease back agreement on the ground that the underlying motive of the appellant to enter into the said transaction was to reduce its income-tax liability. The Commissioner could, however, discard the said transaction only if there were materials or evidence before him to show that the intention of the parties were different from what has been incorporated in the said sale and lease back agreement and the transaction was really a sham or dubious transaction and was a colourable device. In Snook v. London and West Riding Investments Ltd. [1967] 1 All ER 518 (CA), Lord Diplock L.J., explained the use of the word "sham" as a legal concept as follows (page 528) :
". . . it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create . . ."
29. After quoting the aforesaid observations of Lord Diplock L. J., the Supreme Court has observed in the case of Union of India v. Azadi Bachao Andolan at page 762 of [2003] 263 ITR :
"If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non est based upon some hypothetical assessment of the 'real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the-wisp."
30. Thus, the court will have to find out as to what was the real intention of the appellant and the OSEB in entering into the sale and lease agreement and such intention has to be gathered from the words in the said agreement in a tangible and in an objective manner and not upon some hypothetical assessment of the supposed motive of the appellant to avoid tax.
31. In the order dated March 29, 2001, under Section 263 of the Act, the Commissioner does not dispute that under the sale and lease back agreement, the appellant has purchased from the OSEB old machinery at the cost of Rs. 25 crores but has stated that the written down value of the said machinery was much lower. The Commissioner has also not disputed the position that immediately after purchase of the machinery, the appellant has leased back the machinery to the OSEB, but he has observed that the lease rent has been fixed on the basis of inflated cost. The Commissioner has further observed that since the OSEB has incurred huge amount of loss, any gain due to sale of the old machinery at a higher price than the written down value has not increased the tax liability of the OSEB, whereas the appellant has attempted to reduce its tax liability by claiming 100 per cent. depreciation on the basis of certain paper transaction showing purchase of machinery by the appellant which the appellant never needed for its day-to-day business. On the basis of this observation, the Commissioner has come to the conclusion that the entire arrangement was a colourable device which the Assessing Officer has failed to notice and he has not conducted any sort of inquiry to find out whether the transaction was genuine at all. No materials or evidence have been discussed by the Commissioner in the said order under Section 263 of the Act that the intention of the appellant and the OSEB in entering into the sale and lease back agreement was not to transfer the ownership of the machinery from the OSEB to the appellant and was not to lease back the machinery by the appellant to the OSEB. The only conjecture, suspicion or surmise which influenced the Commissioner to think that the whole arrangement was a colourable device and was not a genuine one is that the motive of the said sale and lease back agreement was to reduce the tax liability of both the appellant and the OSEB. The Tribunal in the impugned order has not relied on any other material or evidence but has only confirmed the aforesaid decision of the Commissioner that the sale and lease back agreement was a colourable device and not a genuine one and has refused to interfere with the said decision of the Commissioner. In our view, the decision of the Commissioner and the Tribunal that the sale and lease back agreement between the appellant and the OSEB is a colourable device and not a genuine one is not based on any legal evidence or material but is based on conjectures, suspicion and surmises and is not correct in law and we answer the second and the fourth substantial questions of law accordingly. There is yet another issue raised by the parties before us. In the order dated March 29, 2001, under Section 263 of the Act, the Commissioner has observed that the valuation report shows that the valuer Er. K. B. Swayin has taken the replacement cost of the machinery on the basis of the present market value of the new machinery and thereafter has estimated the value of the old machinery and the Assessing Officer has simply accepted the valuation without verifying the veracity of the computation, the basis of determination of the present market value of the new machinery as well as the estimation of the value of the old machinery and such non-application of mind was also an error. This view taken by the Commissioner has been reiterated by Mr. Mohapatra, learned standing counsel for the Income-tax Department before us. Under Rule 5, Appendix I, Part III(3)(iii)B of the rules 100 per cent. depreciation is allowed on the "written down value" of machinery and plant which are energy saving devices listed therein. We have already held that the machinery and plant purchased by the appellant and leased out to the OSEB, under the sale and the lease back agreement in the present case are automatic load monitoring systems covered under Rule 5, Appendix I, Part III(3)(iii)B(a) so as to be eligible for 100 per cent. depreciation on the "written down value" of machinery and plant. Dr. Pal, learned counsel for the appellant, submitted that the written down value of the machinery and plant purchased by the appellant and leased out to the OSEB, was Rs. 24.88 crores and the valuer has valued the assets at Rs. 25 crores. What is the written down value of such machinery and plant is a question of fact. Although Sub-section (6) of Section 260A of the Act provides that the High Court may determine any issue which has not been determined by the Appellate Tribunal, we are not in a position to decide this issue of fact. Sub-section (7) of Section 260A of the Act, however, provides that save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (in short, "CPC"), relating to appeals to the High Court, shall, as far as may be, apply in the case of appeals under this section. By virtue of the said provision, the provisions of Order 41 of the Code of Civil Procedure will apply. Order 41, Rule 23A of the Code of Civil Procedure, provides that where the court from whose decree an appeal is preferred has disposed of the case otherwise than on a preliminary point, and the decree is reversed in appeal and a re-trial is considered necessary, the appellate court shall have the same powers as it has under Rule 23. Under Order 41, Rule 23 of the Code of Civil Procedure, the appellate court may, if it thinks fit, by order remand the case, and may further direct what issue or issues shall be tried in the case so remanded. We accordingly remand the matter back to the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack, to decide the aforesaid issue of fact relating to written down value of the machinery and plant purchased by the appellant from the OSEB and leased back to the OSEB for the purpose of determining the exact quantum of depreciation that will be admissible on the plant and machinery under Rule 5, Appendix I, Part III(3)(iii)B(a) of the rules.
32. In the result, the conclusions of the Commissioner in the order dated March 29, 2001, under Section 263 of the Act and of the Tribunal in the impugned order dated February 7, 2003, on the aforesaid substantial questions of law are set aside, the order of reassessment dated February 25, 2002, passed by the Assistant Commissioner of Income-tax pursuant to the order dated March 29, 2001, of the Commissioner and the notice of demand raised and the attachment made pursuant to the said order of reassessment are also set aside and the matter is remanded to the Tribunal to determine the written down value of the machinery and plant purchased by the appellant from the OSEB, for the purpose of determination of the exact quantum of depreciation that will be admissible on the plant and machinery under Rule 5, Appendix I, Part III(3)(iii)B(a) of the Rules.
33. The appeal is allowed to the extent indicated above. Considering the facts and circumstances of the case, the parties shall bear their own costs.
S. Barman Roy C. J.
34. I agree.