1997 (2) TMI 73 - HC - Income Tax

Assessment Year, Depreciation And Development Rebate, Ownership Of Asset, Scientific Research Expenditure

Summary

Issues Involved:
1. Entitlement to depreciation and/or development rebate for the assessment years 1973-74 and 1974-75.
2. Deduction of Rs. 55,000 as a contribution to the Paddy Processing Research Centre.

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation and/or Development Rebate:
The primary issue was whether the assessee, a state-owned corporation, was entitled to claim depreciation and development rebate for the assessment years 1973-74 and 1974-75 for thirteen modern rice mills transferred to it by the Government. The Tribunal had denied these claims, stating that the properties did not legally vest with the assessee as the owner due to the lack of a registered transfer document.

The assessee argued that the Government orders and subsequent sale deeds executed in 1978 indicated that the rice mills were vested in the assessee-corporation from 1972. The assessee relied on Section 53A of the Transfer of Property Act and the Government Grants Act, 1895, to assert that registration was not necessary and that the ownership should be considered from the date of possession in 1972.

The Tribunal, however, upheld that the properties were owned by co-operative societies and not the Government at the time of the initial orders, thus invalidating the application of the Government Grants Act. The Tribunal maintained that proper conveyance deeds executed in 1978 could not retroactively effectuate ownership from 1972, and Section 53A of the Transfer of Property Act could not be used to establish ownership retrospectively.

The court reiterated that for claiming depreciation under Section 32 of the Income-tax Act, 1961, the assessee must be the legal owner of the assets. The court referenced CIT v. Tamil Nadu Agro Industries Corporation Ltd. [1987] 163 ITR 61, which emphasized that ownership must mean legal title to the asset. The court also cited Hamda Ammal v. Avadiappa Pathar [1991] 1 SCC 715, clarifying that Section 47 of the Registration Act relates to the date of execution of the sale deed and not to any anterior date.

Ultimately, the court concluded that the assessee was not the legal owner of the assets in the assessment years under consideration and thus was not entitled to depreciation and development rebate. Question No. 1 was answered in the negative and against the assessee.

2. Deduction of Rs. 55,000 as Contribution to the Paddy Processing Research Centre:
The second issue pertained to whether the assessee was entitled to deduct Rs. 55,000 as a contribution to the Paddy Processing Research Centre. The Tribunal had allowed only one-third of the expenditure, amounting to Rs. 33,628, based on the total expenditure incurred by three entities.

The assessee contended that after taking over the research centre in November 1973, it bore the entire expenditure amounting to Rs. 98,587 and claimed Rs. 55,000 as its contribution. The Tribunal's division of expenditure into three parts was deemed arbitrary by the assessee, arguing that no evidence supported such a division.

The court agreed with the assessee, stating that the actual expenditure incurred by the assessee should be allowable under Section 35 of the Act. Since the actual expenditure was shown as Rs. 55,000 and incurred after the research centre was handed over to the assessee, the entire amount should be deductible. Question No. 2 was answered in the negative and in favor of the assessee.

Conclusion:
The court upheld the Tribunal's decision on the first issue, denying the claim for depreciation and development rebate, but reversed the Tribunal's decision on the second issue, allowing the full deduction of Rs. 55,000 as a contribution to the Paddy Processing Research Centre.