Commissioner of Income Tax And Another vs Wep Peripherals Ltd.

Dilip B. Bhosale, J.—This income tax appeal is directed against the order of the income tax Appellate Tribunal, Bangalore Bench-A (for short "the Tribunal"), in I.T.A. No. 421 of 2005 pertaining to the assessment year 2001-02, whereby, the Tribunal allowed the appeal filed by the respondent-assessee. The appeal before the Tribunal, filed by the assessee was against the order dated February 3, 2005, passed by the Commissioner of income tax (Appeals)-III, (for short "CIT(A)") in I.T.A. No. 77/AC12(3)/CIT (A)III/2004-05. The appeal before the Commissioner of income tax (Appeals) was directed against the assessment order u/s 143(3) of the income tax Act, 1961 (for short "the Act"), dated October 11, 2004, passed by the Assistant Commissioner of income tax (for short "the Assessing Officer"). The Revenue has raised the following substantial questions of law:

(i) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that u/s 80-IB, deduction is allowable?

(ii) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the land and factory building, agreed to be purchased from M/s. Wipro Ltd., which had a right under a lease-cum-sale agreement, would be entitled to depreciation u/s 32(1) of the Act?

The factual matrix that is necessary for deciding this appeal is that, the assessee purchased the building, plant and machinery from one M/s. Wipro Ltd., by an agreement to sale dated August 30, 2000. When the assessee purchased the building, plant and machinery, it was a running unit/industrial undertaking. The transferor-Wipro, after taking the plot of land on lease from the Karnataka Industrial Areas Development Board (for short "KIADB") constructed the building and started the unit/industrial undertaking sometime in 1992-93. They started claiming and were getting deduction u/s 80-IB of the Act from April 1, 1993. As provided for under subsection (3) of section 80-IB, they were entitled to seek deduction for a period of 10 years, i.e., the period between April 1, 1993, and March 31, 2003. Before the expiry of the period of ten years, the unit/industrial undertaking was transferred, as aforementioned, to the assessee, vide agreement to sale dated August 30, 2000. After the transfer, the assessee also claimed deduction, since the period of ten years had not expired as contemplated u/s 80-IB. Admittedly, the transferor-Wipro had enjoyed the deduction till March 31, 2001. The Assessing Officer, however, disallowed the deduction on the ground that the transfer of business by Wipro to the assessee was not through amalgamation as contemplated by subsection (12) of section 80-IB. In other words, the Assessing Officer held that unless there is transfer of business through amalgamation, the transferee, such as the assessee, in the present case, is not entitled for deduction u/s 80-IB. The order of the Assessing Officer was carried in appeal by the assessee. The assessee relied upon the Board circular which says that deduction is relatable to the unit. Since the Board circular was issued in the context of the old provision, namely, section 84 of the Act, the Commissioner of income tax (Appeals) did not give benefit to the assessee. The Tribunal, however, granted that benefit to the assessee and, consequently, allowed the deduction for the assessment year 2001-02. It is in this backdrop, we have perused the relevant part of section 80-IB, which reads thus:

80-IB. Deduction in respect of profits and gains from certain industrial undertakings other, than infrastructure development undertakings.--(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in subsections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section...

(3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent (or thirty per cent where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) beginning with the initial assessment year subject to the fulfillment of the following conditions, namely:--

(i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991, and ending on the 31st day of March, 1995, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular undertaking;

(ii) where it is an industrial undertaking being a small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant (not specified in subsection (4) or subsection (5) at any time during the period beginning on the 1st day of April, 1995, and ending on the 31st day of March, 2002...

(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger.

The expressions employed in subsection (1) of section 80-IB "any business", "such business" and "eligible business" read with the expression "in the case of an industrial undertaking" as occur in subsection (3) of section 80-IB, in our opinion, it is a clear indication that the deduction contemplated under this provision is relatable to the unit/business/industrial undertaking. Therefore, whosoever is running the unit/industrial undertaking having domain over it, is entitled for deduction as contemplated by section 80-IB of the Act.

In so far as subsection (12) of section 80-IB of the Act is concerned, that is applicable only in the case, where there is an amalgamation or demerger. That does not mean that a transferor of industrial undertaking by any other mode is not entitled to claim deduction u/s 80-IB. In other words, it would not be correct to say that deduction u/s 80-IB is available only where transfer of the unit/industrial undertaking is under the scheme of amalgamation or demerger. It is not in dispute that the unit/industrial undertaking, in the present case, enjoyed the deduction u/s 80-IB from April 1, 1993, till August 30, 2000, i.e., till the unit/industrial undertaking was transferred to the assessee.

It is in this view of the matter, we do not find any reason to interfere with the findings recorded by the Tribunal allowing the claim of the assessee. Hence, the first substantial question of law is answered in favour of the assessee and against the Revenue.

In so far as the second substantial question of law is concerned, what we find from the admitted facts is that the transferor-Wipro, transferred running unit/industry includes building, plant and machinery to the assessee and since the date of transfer, the assessee started running the unit/industrial undertaking as owners. The agreement to sale to that effect was executed by Wipro in favour of the assessee on August 30, 2000. It has come on record that, thereafter, a lease agreement was executed by the KIADB in favour of the assessee on December 30, 2003, and then the sale deed on May 26, 2009. The execution of the lease agreement dated December 30, 2003, by the KIADB or the sale deed dated May 26, 2004, in favour of the assessee is an indication that the transfer by Wipro in favour of the assessee was not in contravention of the terms and conditions of the original lease agreement between the KIADB and Wipro. Since the date of transfer, the assessee is having domain over the unit/industrial undertaking. The Assessing Officer, however, disallowed the depreciation on the ground that the ownership rights over the land were not transferred in favour of the assessee. In other words, it was held that since the ownership rights over the land for the relevant assessment year was not with the assessee and, therefore, it is not entitled to depreciation. The order of the Assessing Officer was confirmed by the Commissioner of income tax (Appeals). The Tribunal, however, reversed the order passed by the Assessing Officer and the Commissioner of income tax (Appeals) relying upon the judgment of the Supreme Court in M/s Mysore Minerals Limited, M.G. Road, Bangalore Vs. The Commissioners of Income Tax, Karnataka, Bangalore, . It would be relevant to reproduce the relevant observations made by the Supreme Court in the said judgment, which reads thus (page 780):

In our opinion, the term ''owned'' as occurring in section 32(1) of the income tax Act, 1961, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by Transfer of Property Act, Registration Act, etc. ''Building owned by the assessee''--the expression as occurring in section 32(1) of the income tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others...

An overall view of the abovesaid authorities show that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilising the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.

It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not sub-serve the legislative intent.

In the present case, it is not in dispute that the assessee got into possession of the unit/industrial undertaking from Wipro by virtue of the agreement to sale and since then, is in possession thereof in its own right exercising such dominion over the same and have right to use, occupy and to enjoy its usufruct in its own right. In other words, the Wipro transferred their ownership right over the building, plant and machinery to the assessee, and since then the assessee has been using it in its own right for the purpose of the business, though legal title was conveyed by KIADB initially in 2003 by executing lease deed and then in 2009 by executing sale deed in favour of the assessee. In our opinion, having regard to the law laid down by the Supreme Court in this judgment, the Tribunal has rightly allowed the depreciation. The judgment relied upon by learned counsel for the Revenue in Tamilnadu Civil Supplies Corporation Ltd. Vs. Commissioner of Income Tax, , is of no avail to the Revenue, in view of the judgment of the Supreme Court in appeal against that order reported in Tamil Nadu Civil Supplies Corporation Ltd. v. CIT [2001] 249 ITR 214 (SC). The Supreme Court on the facts of that case, observed that it was not possible to reach the conclusion that the assessee had acquired domain over the mill in question. Such is not the case in so far as the present assessee is concerned. There is lot of materials placed on record, which indicate that the assessee had acquired dominion over the unit/industrial undertaking on August 30, 2000.

In the circumstances, we find no merit in the second substantial question of law and it is accordingly answered in favour of the assessee and against the Revenue. The appeal is dismissed. No costs.