Kalpaka Tourist Home (P.) Ltd. vs Commissioner of Income Tax (Central)

K.S. Paripoornan, J.—At the instance of the applicant-assessee, the Income Tax Appellate Tribunal has referred the following question of law for the decision of this court:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in disallowing the claim of depreciation of the applicant company in respect of its building on the ground that the applicant company was not the owner of the building ?"

The respondent is the Revenue. We are concerned with the assessment year 1977-78 relevant to the accounting period ending by March 31, 1977. The assessee-company claimed depreciation on a building constructed for the purpose of running a hotel. The Income Tax Officer disallowed the claim on the ground that the company was not the real owner of the property. The assessee pleaded that the building was constructed with its own funds, that the initial investments by the shareholders, Sri M.A. Unneerikutty and his wife, were in the nature of advances only and that the assets were used by the assessee for its own business and that in consideration for allotment of shares in the company, the assessee was put in possession of the building and so it is entitled to depreciation on the building. The plea was rejected. In appeal, the Commissioner of Income Tax (Appeals) concurred with the said view. He held that the building did not belong to the assessee. In further appeal, the Appellate Tribunal held that it was unable to agree with the assessee that it should be considered the owner of the building, since there had been no registered deed conveying the immovable property to the assessee. Since the building is an immovable property, the transfer of ownership can only be by means of a registered deed of conveyance. Admittedly, in this case, there is no registered deed of conveyance transferring the property to the company. Holding that it is only the owner of the building who is entitled to depreciation and that since the assessee is not the owner, the Appellate Tribunal held that the assessee in the instant case is not entitled to depreciation. Dissatisfied with the order of the Appellate Tribunal dated August 18, 1983, the assessee filed an application for referring certain questions of law for the decision of this court. Two questions were formulated. But the Appellate Tribunal referred only one question which is extracted hereinabove.

We heard counsel for the applicant-assessee. It was argued that there was material to show that it was the assessee who constructed the building and in fact it was the owner. On these premises, depreciation, as claimed, should have been allowed. There is no substance in this plea. The Appellate Tribunal has categorically found that the assessee cannot be considered as the owner of the building, since there was no registered deed conveying the ownership of the property to the assessee. The assessee is not the owner and so is not entitled to the depreciation. A Full Bench of this court in Parthas Trust Vs. Commissioner of Income Tax, has held that the deduction u/s 32(1)--depreciation--cannot be claimed by someone without any real connection with the asset and that the claimant must be one with much more than some threads of rights. It was held that depreciation is claimable by the owner who uses the assets in question. In this case, as per the finding of the Appellate Tribunal, the assessee is not the owner of the building. If so, it follows that the Appellate Tribunal was justified in disallowing the claim of depreciation put forward by the company. The reasoning and conclusion of the Appellate Tribunal are justified in law.

We answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue.

The Income Tax referred case is disposed of as above.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal.