Commissioner of Income Tax vs Tamil Nadu Small Industries Development Corporation Ltd.

Somasundaram, J.—At the instance of the Revenue, u/s 256(1) of the Income Tax Act, 1961 (hereinafter called ""the Act""), the following

question of law has been referred to this court for its opinion :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that registration of a conveyance deed transferring

certain buildings by the Government to the assess is not required and depreciation claimed should be granted ?

By G.O. Ms. No. 1899, dated August 24, 1970, three raw material depots at Guindy, Madurai and Coimbatore were transferred by the

Government of Tamil Nadu to the control of the assessee for Rs. 59,74,000. The sale consideration was adjusted as under :

Rs.

Subcription of share capital by the Government

to the appellant 50,00,000

Grant of loan by the Government to the appellant 9,74,000

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59,74,000

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The Income Tax Officer disallowed the claim for depreciation on the ground that the ownership of the properties referred to above was not

transferred in favour of the assessee by registered documents. On appeal, the Appellate Assistant Commissioner held that the ownership of the

properties had not been conveyed to the assessee by the Government of Tamil Nadu by registered deeds and hence the assessee cannot be

treated as the owner of the properties and consequently upheld the disallowance of depreciation made by the Income Tax Officer. As against the

order of the Appellate Assistant Commissioner, the assessee filed an appeal before the Tribunal in I.T.A. No. 1692/MDS/76-77. The Tribunal, by

its order dated March 23, 1978, held that by G.O. Ms. No. 1899, dated August 24, 1970, the Government of Tamil Nadu has transferred in

favour of the assessee the three raw material depots at Guindy, Madurai and Coimbatore and the sale consideration for the transfer has also been

paid and the assessee is in possession of the raw material depots. The Tribunal further found that the provisions of the Transfer of Property Act will

not apply to the transfer made by the Government of Tamil Nadu in favour of the assessee in view of section 2 of the Government Grants Act,

1895, and no registered conveyance is required for effecting the transfer in favour of the assessee and the assessee being the owner of the three

raw material depots is entitled to the depreciation claimed.

Aggrieved by the order of the Tribunal, the Commissioner of Income Tax obtained a reference u/s 256(1) of the Act to this court for its opinion

on the question of law referred to above.

Section 32 of the Act grants an allowance in respect of depreciation on the value of certain capital assets with a view to mitigating the rigour of

the general scheme of the Act subjecting income to charge, regardless of the exhaustion of or diminution in the value of the capital asset. As

pointed out by this court in the decision, Commissioner of Income Tax Vs. Sivanandha Mills Limited, , to which one of us is a party (Ratnam) J.),

in order to enable the assessee to claim the benefit of depreciation, the following conditions should be fulfilled : (i) the assets in respect of which the

depreciation is claimed should be buildings, machinery, plant or furniture, (ii) the assets must have been used for purposes of the assessee''s

business the profits of which are being charged; (iii) the assessee must be the owner of the buildings, machinery, plant or furniture, as the case may

be; (iv) the prescribed particulars relating to the buildings, machinery, plant or furniture must be duly made available by the assessee; and (v) the

aggregate of such allowances, made year after year, should not in any case be in excess of the actual cost of the buildings, machinery, plant or

furniture to the assessee, as if such allowance is equal cost of the assets, the benefit of such allowance cannot be given to the assessee with

reference to that asset. The question we have to examine in this tax case, is whether the assessee can be considered as the owner of the three raw

material depots entitled to the depreciation allowed u/s 32 of the Act. Learned counsel for the Revenue would contend that the ownership of the

three raw material depots has not been conveyed to the assessee by the Government of Tamil Nadu by registered documents and hence the

assessee cannot be treated as the owner of the properties in question. Learned counsel further submitted that the Government Grants Act, 1895,

applies only in the case of grants made by the Government and since in the present case there is an outright sale for consideration, the Government

Grants Act, 1895, is not applicable. It is the further submission of learned counsel for the Revenue that the expression ""other transfer of land or of

any other interest therein"", used in section 2 of the Government Grants Act, 1895, will take in only transfers akin to grants and it will not cover a

sale for consideration. We are unable to accept the above contention of learned counsel for the Revenue. Section 2 of the Government Grants Act,

1895, reads as follows :

Transfer of Property Act, 1882, not to apply to Government grants. - Nothing contained in the Transfer of Property Act, 1882, shall apply or be

deemed ever to have applied to any grant or other transfer of land or of any interest therein heretofore made or hereafter to be made by or on

behalf of the Government to, or in favour of, any person whomsoever; but every such grant and transfer shall be construed and take effect as if the

said Act had not been passed"".

A plain reading of section 2 of the Government Grants Act, 1895, reproduced above shows that the term ""other transfer"" used in the said

section will take in all forms of transfer of land or interest therein made by the Government for consideration. There is nothing in the language of

section 2 of the Government Grants Act, 1895, to restrict the meaning of the term ""other transfers"" only to grants and other transfers akin to grants

made by the Government and for holding that the expression ""other transfers"" will not cover other forms of transfer made by the Government for

consideration. The term ""other transfers"" occurring in section 2 of the Government Grants Act, 1895, is wide enough to cover the present transfer

of three raw material depots made by the Government of Tamil Nadu to the assessee for consideration. Therefore, the Government Grants Act,

1895, is applicable to such transfer made by the Government of Tamil Nadu in favour of the assessee in G.O. Ms. No. 1899, dated August 24,

1970.

In Kallingal Moosa Kutti v. Secretary of State for India in Council ILR 1919) 43 Mad 65 a Division Bench of this court, dealing with the

meaning of the expression ""grant or other transfer of land or of any interest therein"" used in section 2 of the Government Grants Act, 1895, has

held as follows (at page 68) :

This language shows in the first place that the word ''grant'' can be employed to denote a transfer of land. In the second place it is clear that all

transfers of land of every description are within the operation of the section. Mr. Menon''s suggestion that the Act is confined to the transfer of

prerogative rights possessed by the Crown and not to ordinary incidence of a mercantile transaction in which the Crown may be engaged is

opposed to the plain language of the statute"".

In Champa Lal and Others Vs. Rameshwar, , the Rajasthan High Court, while rejecting the contention raised in that case that section 2 of the

Government Grants Act, 1895, is not applicable to the sale deed as it is a commercial transaction and not a Government grant, held that the

Government Grants Act, 1895, does not make any distinction between a commercial transaction and a non-commercial transaction and that

section 2 of the said Act is applicable not only to grants but is also applicable to every transfer of land or of any interest therein.

In Express Newspapers Pvt. Ltd. and Others Vs. Union of India (UOI) and Others, , the Supreme Court has held that it is plain upon its terms

that section 2 of the Government Grants Act, 1895, excludes the operation of the Transfer of Property Act, 1882, to Government grants.

In view of the above position of law, we have to hold that section 2 of the Government Grants Act, 1895, is applicable to the transfer of the

three raw material depots made by the Government of Tamil Nadu in favour of the assessee in G.O. Ms. No. 1899, dated August 24, 1970, and,

therefore, the registration of the conveyance deed transferring the three raw material depots to the assessee is not necessary for effecting the

transfer of ownership in favour of the assessee. The Tribunal rightly held that the assessee is the owner of the three raw material depots and is

entitled to the depreciation allowance claimed. We, therefore, answer the question referred to us in the affirmative and against the Revenue. The

assessee will be entitled to costs of this reference. Counsel''s fee is Rs. 500.