Commissioner of Income Tax, Lucknow vs Guru Nanak Cane Crushing Factory

The Income Tax Appellate Tribunal, New Delhi has referred the following question of law u/s 256(1) of the income tax Act, hereinafter referred to as the Act, for opinion to this Court: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee firm was eligible for claiming depreciation in respect of temporary sheds which were transferred to the assessee by M/s. Guru Nanak Dairy by way of book entries and without registered conveyance deed?

The present reference relates to the assessment year 1978-79.

Briefly stated the facts giving rise to the present reference are as follows:

According to the respondent certain temporary sheds which originally belonged to Guru Nanak Dairy were transferred to it through book entries at a cost of Rs. 30,456. The conveyance deed in respect of transferring these sheds was not executed. The respondent claimed depreciation on the ground that it was owner of the sheds. The income tax Officer did not accept the plea, which order was upheld by the Commissioner of income tax (Appeals). Feeling aggrieved the respondent preferred second appeal before the Tribunal. Before the Tribunal it was submitted on behalf of the respondent that depreciation should have been allowed to the respondent in respect of the sheds and it is not necessary that for claiming depreciation u/s 32 of the Act a registered conveyance deed should be in existence. It was also pointed out that in respect of assessment years 1977-78 and 1981-82 depreciation has been allowed by the Commissioner of income tax (Appeals). The claim of the respondent was resisted on behalf of the Revenue on the ground that for claiming ownership of the sheds in question a registered conveyance deed is a precondition and in absence of it the respondent cannot claim to be its owner. Reliance was placed on a decision of the Supreme Court in the case of Late Nawab Sir Mir Osman Ali Khan Vs. Commissioner of Wealth Tax, Hyderabad, . The Tribunal after considering the rival submissions and after going through the decisions cited by the respective parties has allowed the appeal on the following grounds:--

We have given careful consideration to the facts of the case and the rival submissions. The expression ''building owned by the assessee'' used in section 32 of the 1961 Act has been interpreted by Their Lordships of the Hon''ble Allahabad High Court, and it appears from the tenor of the order of Their Lordships that, according to them, the phrase ''owned by the assessee'' would have slightly different connotation, when used in section 32, then the meaning of the said term as used in section 22 of the income tax Act, 1961. It is true that Their Lordships were, not aware of the opinion of the Lordships of the Supreme Court as expressed in the case of (Late) Nawab Mir Osman Ali Khan, supra (for it has been rendered only very recently) yet it would be wrong on our part to hold that the views expressed by Their Lordships regarding the meaning of the terms ''building owned by the assessee'' in the context of section 32 are not correct, because they do not squarely fall within the terms of the ratio of the (Late) Nawab Mir Osman Ali Khan''s case. The contention of the ld. Counsel for the assessee that the ratio of the (Late) Nawab Mir Osman Ali Khan''s case was rendered in a different context may be technically correct, but, according to us, Their Lordships have not left any room for doubt as to what they meant and, according to them, so is our understanding, the immovable property was conveyed through a registered conveyance deed. If the judgment of the Hon''ble Allahabad High Court in Additional Commissioner of Income Tax Vs. U.P. State Agro Industrial Corporation Ltd., were not there, we would unhesitatingly confirm the order of the ld. CIT(A). But, in the fact of the observations of the Hon''ble Allahabad High Court in the case of UP State Agro Industrial Corpn. Ltd. noted above we refrain from giving that finding. As noted earlier, the opinion of Their Lordships is that the meaning of the term in section 32 is different from what it is in section 22, that being the law obtaining in the State of Uttar Pradesh, we feel that we are obliged to follow it, whether according to our opinion, it may be correct or not. We, therefore, respectfully follow the judgment of the Hon''ble Allahabad High Court in Additional Commissioner of Income Tax Vs. U.P. State Agro Industrial Corporation Ltd., and hold that for the purpose of section 32 the assessee should be held as owning the temporary sheds whose possession it had and for which it had paid the value to the transferors. Accordingly, we reverse the order of the ld. CIT(A) and direct the income tax Officer to grant depreciation to the assessee.

We have heard Shambhoo Chopra, learned Standing Counsel for the Revenue and Sri Gaurav Mahajan, learned counsel appearing for the respondent-assessee.

The learned Standing Counsel reiterated the same arguments which were advanced before the Tribunal.

After hearing the learned counsel for the parties, we find that clause (iiia) has been inserted in section 27 of the Act by the Finance Act, 1987 w.e.f. 1-4-1988, which provides that a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 shall be deemed to be the owner of that building or part thereof for the purpose of sections 22 to 26 of the Act. The aforesaid amendment has been held to be clarificatory in nature and thus retrospective in its operation by the Apex Court in the case of Commissioner of Income Tax, Bombay etc. Vs. M/s. Podar Cement Pvt. Ltd. etc., .

The question regarding depreciation comes u/s 32 of the Act. In a case where a person claiming ownership of a building but has no registered conveyance deed in his favour came up for consideration before the Apex Court in the case of M/s Mysore Minerals Limited, M.G. Road, Bangalore Vs. The Commissioners of Income Tax, Karnataka, Bangalore, and the Apex Court has held that the term owned as occurring in section 32(1) of the Act 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 the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. The Apex Court has followed its earlier decision in Poddar Cement (P.) Ltd.''s case (supra). Respectfully following the aforesaid decision, we are of the considered opinion that for claiming depreciation in respect of the sheds in question it was not obligatory to have a registered conveyance deed and the respondent was the owner for the purpose of section 32 of the Act. Accordingly, we answer the question referred to us in the affirmative i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.