1996 (7) TMI 136 - HC - Income Tax

Summary

Issues Involved:
1. Ownership of the property for depreciation purposes under Section 32 of the Income-tax Act, 1961.
2. Requirement of registration for the transfer of immovable property under the Transfer of Property Act and the Registration Act.
3. Applicability of the civil court decree in determining ownership and its impact on depreciation claims.

Issue-wise Detailed Analysis:

1. Ownership of the Property for Depreciation Purposes:
The primary issue was whether the assessee could claim depreciation on a building under Section 32 of the Income-tax Act, 1961. The conditions under Section 32 are that the depreciable asset must be owned by the assessee and used for the purposes of the assessee's business or profession. The assessee had taken over the business of a sole proprietorship through an agreement and a subsequent civil court decree. The Tribunal initially denied the depreciation claim, stating that the property had not been transferred by a registered sale deed. However, the High Court held that the assessee had become the lawful owner of the property by virtue of the civil court decree, which did not require registration, thus satisfying the ownership condition under Section 32.

2. Requirement of Registration for Transfer of Immovable Property:
The court examined whether the transfer of the property required registration under Section 54 of the Transfer of Property Act and Section 17 of the Registration Act. According to Section 54, the transfer of ownership in exchange for a price paid or promised for tangible immovable property of Rs. 100 and upwards must be made by a registered instrument. Section 17(1) of the Registration Act lists the documents that require compulsory registration, including instruments of gift and non-testamentary instruments that create, declare, assign, limit, or extinguish any right, title, or interest in immovable property.

However, Section 17(2)(vi) exempts court decrees from this requirement, except for decrees based on a compromise that do not relate to the subject matter of the suit. The court concluded that the decree in favor of the assessee did not require registration because it was based on an admission under Order 12, Rule 6 of the Civil Procedure Code and related to the subject matter of the suit.

3. Applicability of the Civil Court Decree:
The court addressed whether the civil court decree declaring the assessee as the owner could be considered for depreciation claims. The decree was based on an admission and not on a compromise, thus not requiring registration. The court held that the decree granted ownership rights to the assessee, effective from the date of the agreement, and thus the assessee was entitled to claim depreciation for the relevant assessment years. The court also noted that ownership could be transferred through various means, including court decrees, and not just through registered sale deeds.

Conclusion:
The High Court ruled in favor of the assessee, holding that the assessee had become the lawful owner of the property by virtue of the civil court decree, which did not require registration. Consequently, the assessee was entitled to claim depreciation under Section 32 of the Income-tax Act, 1961. The court's decision emphasized that ownership could be established through means other than registered sale deeds, such as court decrees, thus allowing the assessee to satisfy the requirements for claiming depreciation.