1980 (11) TMI 41 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to depreciation on building purchased from the Government of Uttar Pradesh.

Summary:

Issue: Entitlement to depreciation on building purchased from the Government of Uttar Pradesh

The primary question referred to the court was whether the assessee, U.P. State Agro Industrial Corporation Ltd., Lucknow (the Agro Corporation), was entitled to depreciation on a building it purchased from the Government of Uttar Pradesh for the assessment year 1972-73.

The Income Tax Officer (ITO) disallowed the depreciation claim on the grounds that the Agro Corporation did not become the owner of the immovable property as no sale deed had been executed by the State Government. The Appellate Assistant Commissioner (AAC) upheld this decision, stating that without a registered sale deed, the properties were not owned by the Agro Corporation and thus, it was not entitled to claim depreciation.

Upon second appeal, the Income-tax Appellate Tribunal observed that for claiming depreciation u/s 32 of the I.T. Act, the assets must be owned by the assessee and used for business purposes. The Tribunal referred to the Supreme Court decision in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, concluding that the Agro Corporation could be considered the owner of the properties for the purposes of s. 32, despite the absence of a registered sale deed, as it was in possession and could exercise ownership rights.

The Tribunal sent the case back to the ITO to ascertain the value of the building, as depreciation could only be claimed on the building and not the land.

The High Court examined the scope of the expressions "property of which the assessee is owner" in s. 9 of the 1922 Act and "property owned by the assessee" in s. 32 of the 1961 Act, concluding that they have the same scope and ambit. The court held that the Agro Corporation, having been put in possession of the property and having performed its part of the contract, was in a position to exercise the rights of the owner under s. 53A of the Transfer of Property Act, even though the ultimate title had not vested in it.

The court distinguished this case from the Delhi High Court decision in CIT v. Hindustan Cold Storage and Refrigeration P. Ltd. [1976] 103 ITR 455, noting that the Delhi High Court did not consider the Supreme Court's decision in R. B. Jodha Mal Kuthiala's case, which clarified that ownership for the purposes of s. 32 does not require complete title.

In conclusion, the court answered the question in the affirmative, holding that the Agro Corporation was entitled to claim depreciation on the building, and awarded costs to the assessee.