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2016 (12) TMI 1085 - HC - Income TaxEntitlement to depreciation under Section 32 - assessee was not the owner of the property in question and was in possession thereof as a lessee during the year under consideration - Held that - As decided in Podar Cement 1997 (5) TMI 2 - SUPREME Court the benefits under Section 53A of the TP Act could be considered for the purposes of income tax and permissibility of depreciation. Mysore Minerals Ltd. vs CIT (1999 (9) TMI 1 - SUPREME Court) the finding of fact arrived at in the case at hand is that though a document of title was not executed by the Housing Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common knowledge, under the various schemes floated by bodies like housing boards, houses are constructed on a large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of documents transferring title necessarily follows if the schedule of payment is observed by the allottee. If only the allottee may default the property may revert back to the Board. That is a matter only between the Housing Board and the allottee. No third person intervenes. The part payments made by allottee are with the intention of acquiring title. The delivery of possession by the Housing Board to the allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment.- Decided against revenue.
Issues Involved:
1. Entitlement to depreciation under Section 32 of the Income Tax Act for a lessee. 2. Interpretation of "ownership" for the purpose of depreciation. 3. Legal implications of unregistered lease agreements and subsequent agreements to sell. 4. Application of Section 53A of the Transfer of Property Act, 1882. 5. Judicial precedents and their relevance to the case. Detailed Analysis: 1. Entitlement to Depreciation under Section 32 of the Income Tax Act for a Lessee: The primary issue was whether the respondent-assessee, being in possession of the property as a lessee, was entitled to claim depreciation under Section 32 of the Income Tax Act. The assessee had entered into a lease agreement with an option to purchase the property. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected the claim on the grounds that the assessee was not the legal owner of the property, as the lease agreement was unregistered and did not confer ownership. 2. Interpretation of "Ownership" for the Purpose of Depreciation: The AO held that the term 'Owner' in the context of depreciation means the full legal owner, and mere possession under an agreement to purchase does not entitle the lessee to depreciation. The CIT(A) supported this view, stating that the assessee did not have the rights of an owner, such as the power of enjoyment, possession, exclusion of others, alienation, or disposal by will. 3. Legal Implications of Unregistered Lease Agreements and Subsequent Agreements to Sell: The lease agreement dated 16.04.1993 was unregistered, and the subsequent agreement dated 17.04.1993 provided the assessee with an option to purchase the property. The AO and CIT(A) emphasized that without a registered deed, the assessee could not be considered the owner. The Tribunal, however, noted that the non-registration did not negate the assessee's right to continue in possession under Section 53A of the Transfer of Property Act, 1882. 4. Application of Section 53A of the Transfer of Property Act, 1882: The Tribunal relied on the Supreme Court's judgment in CIT vs. Podar Cement (P) Ltd. (1997) 226 ITR 625, which held that the benefits under Section 53A of the Transfer of Property Act could be considered for income tax purposes, including depreciation. The Tribunal concluded that the assessee's possession and substantial payment towards the property indicated a transfer under Section 53A, thus entitling the assessee to depreciation. 5. Judicial Precedents and Their Relevance to the Case: The Tribunal's decision was influenced by the Supreme Court's rulings in Podar Cement and Mysore Minerals Ltd. vs. CIT (1999) 239 ITR 775 (SC). These judgments clarified that for the purpose of Section 32, the person in possession and using the property for business, even without a registered deed, could be considered the owner. The Tribunal held that the assessee's substantial payment and possession under the agreements amounted to ownership for depreciation purposes. Conclusion: The Delhi High Court upheld the Tribunal's decision, stating that the view expressed by the Tribunal in favor of the assessee did not call for any disturbance. The court concluded that the assessee was entitled to claim depreciation under Section 32 of the Income Tax Act, as the possession and substantial payments indicated ownership under Section 53A of the Transfer of Property Act, 1882. The appeal was dismissed, and the question of law was answered against the Revenue.
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