2022 (12) TMI 945 - AT - Income Tax

Incorrect depreciation claim - fractional ownership - real ownership - assets are held/ utilized jointly with a sister concern as they share same premises for conducting business operations and accordingly the assets are capitalized in the proportion of ownership and therefore proportionate depreciation has been claimed - HELD THAT - Assessee does not dispute the fact that only one asset is the subject matter of dispute and the same was purchased by sister concern. The invoice is in the favour of the sister concern thus, the defacto and de-jure owner happens to be the sister concern. Merely because it has allowed to be share it to the sister concern, the assessee/ appellant, that does not give any right, title or interest in the nature of ownership to the assessee so as to be entitled for claim of depreciation u/s 32 of the Act. Said section provides that to claim depreciation assessee should be the owner of the asset and the asset must be used for the purposes of business or profession. Here in the case in hand both the requirements are not fulfilled as assessee is not the owner of the asset and the asset is not used for the purpose of business or profession of the owner, which is the sister concern but was used for the purpose of business of the appellant which was not the owner Merely entering into an agreement or understanding of user of a asset, a License may be created in favour of user, however, that does not vest the user with the interest of any nature akin to owner for the purpose of Section 32(1) of the Act. So also no claim of depreciation beyond the law is allowable on mutual understanding between the owner and the user. The grounds raised have no substance. The appeal of assessee is dismissed.

Summary

Issues:
Disallowed depreciation claim on jointly owned assets.

Analysis:
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) regarding the disallowance of depreciation claimed by the Assessee on jointly owned assets. The Assessee, a company providing services to hotels, claimed depreciation on assets held jointly with a sister concern. The Assessing Officer disallowed half of the depreciation claimed, amounting to Rs. 4,82,865, as both the Assessee and the sister concern had claimed depreciation on the same assets. The Assessee argued that the assets were held jointly and depreciation was claimed proportionately. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that depreciation should be allowed to the actual owner of the asset, which in this case was the sister concern, not the Assessee. The Assessee contended that the sharing of assets was based on a mutual agreement but was not sufficient to claim depreciation under Section 32 of the Income Tax Act. The Assessee relied on legal judgments to support their claim for depreciation on shared assets.

The Appellate Tribunal noted that the sister concern had purchased the disputed asset, making them the de facto and de jure owner. The Assessee's claim for depreciation was rejected as they were not the owner of the asset as required by Section 32 of the Act. The Tribunal distinguished the legal judgments cited by the Assessee, emphasizing that ownership is a crucial factor in claiming depreciation. Merely sharing assets based on an agreement does not confer ownership rights necessary for depreciation claims. The Tribunal concluded that no depreciation claim beyond legal provisions is permissible based on mutual agreements. Consequently, the appeal of the Assessee was dismissed, affirming the disallowance of depreciation on jointly held assets.

In conclusion, the Tribunal upheld the decision to disallow half of the depreciation claimed by the Assessee on jointly owned assets. The judgment emphasized the importance of ownership in claiming depreciation under Section 32 of the Income Tax Act and clarified that mutual agreements on asset sharing do not entitle parties to depreciation benefits beyond legal provisions. The legal judgments cited by the Assessee were deemed inapplicable to the present case, reinforcing the denial of the depreciation claim.