2008 (10) TMI 394 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to depreciation allowance u/s 32 of the Income-tax Act.
2. Ownership of the building for the purpose of depreciation.
3. Alternative claim for depreciation on common areas.

Summary:

1. Entitlement to Depreciation Allowance u/s 32:
The primary issue in this appeal was whether the assessee was entitled to a depreciation allowance u/s 32 of the Income-tax Act for a building located at Bangalore Airport Road. The assessee claimed depreciation of Rs. 12,79,59,928, but the Assessing Officer (AO) denied it, stating that the property was technically owned by the shareholders who had an undivided right and interest in the property, not the assessee.

2. Ownership of the Building:
The CIT (Appeals) upheld the AO's decision, relying on Supreme Court judgments in R.B. Jodha Mal Kuthiala v. CIT, CIT v. Podar Cements (P.) Ltd., and Mysore Minerals Ltd. v. CIT. The CIT (Appeals) concluded that the assessee was not the real owner of the building, as it had only a shell of ownership without any rights incidental to ownership. The assessee was merely in charge of maintenance and did not derive any income from the building.

The Tribunal examined the documentation, including the Memorandum of Association, Articles of Association, and the scheme for allotment of units. It found that the shareholders had absolute and exclusive rights to use and enjoy the property and its income. The Tribunal noted that the assessee's role was limited to maintaining the superstructure and that the shareholders were the real owners of the units.

The Tribunal also referred to the Supreme Court's judgment in Mysore Minerals Ltd., which held that for the purpose of section 32, the owner is the person who has paid the price, taken possession, and uses the asset for business purposes. The Tribunal concluded that the shareholders, not the assessee, fulfilled these conditions.

3. Alternative Claim for Depreciation on Common Areas:
The assessee raised an alternative claim for depreciation on common areas of the building. The CIT (Appeals) denied this claim, stating that common areas were incidental to the allotted areas and could not be viewed separately. The Tribunal upheld this view, noting that the assessee had taken monies from the allottees for the use of common areas.

Conclusion:
The Tribunal dismissed the appeal, confirming that the assessee was not entitled to depreciation u/s 32 as it was not the real owner of the building. The alternative claim for depreciation on common areas was also rejected.