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Issues Involved:
1. Ownership of assets and applicability of section 47 of the Indian Registration Act. 2. Entitlement to depreciation allowance and additional depreciation allowance. 3. Entitlement to depreciation allowance for labor houses constructed on unregistered land. 4. Classification of directors and promoters as 'agents' and the purpose of borrowed capital. 5. Disallowance of interest under section 40A(8) on interest paid to directors and promoters. Issue-Wise Detailed Analysis: Ownership of Assets and Applicability of Section 47 of the Indian Registration Act: The Tribunal held that the assessee was not the owner of the assets purchased effective January 1, 1983, as the conveyance deed was registered on May 25, 1984, after the end of the previous year. The High Court examined whether the assessee could be considered the owner under section 32 of the Income-tax Act, referencing various High Court rulings. The Court noted that several High Courts have interpreted "owner" to include those in possession of property under an agreement for sale, even without a registered deed. The Court concluded that the intention of the parties and the possession of the property should allow for a broader interpretation of "owner," thus answering the question in favor of the assessee. Entitlement to Depreciation Allowance and Additional Depreciation Allowance: The Tribunal denied the assessee depreciation and additional depreciation allowances on the assets purchased and constructed during the year, citing the lack of a registered deed. The High Court, however, referenced multiple cases where possession and control over the property were deemed sufficient for claiming depreciation under section 32. The Court emphasized that the definition of "owner" should be practical and equitable, allowing the assessee to claim depreciation despite the registration date. Thus, the Court ruled in favor of the assessee. Entitlement to Depreciation Allowance for Labor Houses Constructed on Unregistered Land: Similar to the previous issues, the Tribunal's denial of depreciation for labor houses was based on the unregistered status of the land. The High Court reiterated its stance on the broader interpretation of "owner" and the practical control over the property. The Court found that the assessee was entitled to depreciation for the labor houses, as the intention and possession were clear, ruling in favor of the assessee. Classification of Directors and Promoters as 'Agents' and the Purpose of Borrowed Capital: The Tribunal held that directors and promoters could not be classified as 'agents' under section 40A(8) of the Income-tax Act, as the borrowed capital was used for acquiring capital assets, not for the business's running. The High Court noted the Tribunal's factual finding that the loans were for asset acquisition and not regular business transactions. Consequently, the Court upheld the Tribunal's decision, agreeing that the borrowed capital did not qualify for the claimed interest deduction. Disallowance of Interest under Section 40A(8) on Interest Paid to Directors and Promoters: The Tribunal disallowed a portion of the interest paid to directors and promoters under section 40A(8), finding that the transactions did not constitute regular business dealings. The High Court upheld the Tribunal's factual determination, noting that the directors' accounts did not show regular transactions but rather specific advances for asset purchases. Therefore, the Court ruled that the disallowance of interest was justified. Conclusion: The High Court answered questions 1, 2, and 3 in favor of the assessee, allowing depreciation claims based on possession and practical control over the property. Questions 4 and 5 were resolved in favor of the Revenue, upholding the disallowance of interest and the classification of directors and promoters' loans. The references were answered accordingly, with no order as to costs.
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