1987 (4) TMI 7 - SC - Income Tax

Assessee fraction owner of an asset - Whether depreciation is allowable on the 1/6th share in S. B. Sugar Mills Bijnore which the assessee had acquired from Seth Shiv Prasad - admissibility of a claim of expenditure being payment of interest on a loan taken for purchase of shares - assessee is not entitled to set off his business loss and against the lease money received

Summary

Issues:
1. Assessment of receipts from lease termination as taxable income.
2. Allowability of depreciation on a fractional share in a business asset.
3. Set-off of carried forward loss against lease income.

Analysis:

Issue 1: Assessment of receipts from lease termination as taxable income
The case involved the receipt of sums from brothers in lieu of lease termination of shares in a sugar factory. The High Court held that these receipts constituted taxable income as per the Income-tax Act. The court emphasized that the nature of the receipts, received under compromise or amicable arrangement, was akin to profits from the business interest held by the assessee. The court ruled that the amounts were taxable and not capital receipts, affirming the Tribunal's decision. The Supreme Court upheld this finding, stating that the receipts were taxable income as they were received for the interest held in the business.

Issue 2: Allowability of depreciation on a fractional share in a business asset
The High Court deliberated on the claim for depreciation on a 1/6th share in a sugar mill. The court analyzed the provisions of section 10(2)(vi) of the Income-tax Act, which allows depreciation on the property owned by the assessee. The court concluded that ownership of a fractional share in the machinery did not qualify for depreciation under the Act. The Supreme Court agreed with the High Court's interpretation, emphasizing that the claimant must establish full ownership of the property to avail depreciation benefits. The court dismissed the appeal, stating that a fractional share was insufficient for claiming depreciation under the Act.

Issue 3: Set-off of carried forward loss against lease income
In another appeal, the High Court considered the set-off of an unabsorbed loss against lease income received by the assessee. The court referred to the conditions under section 24 of the Income-tax Act, emphasizing that the income against which the loss is set off should be from the same business where the loss was incurred. The High Court ruled against the assessee, stating that the letting out of the sugar mill was not the assessee's business. The Supreme Court concurred with the High Court's decision, dismissing the appeal and directing parties to bear their own costs.

In summary, the Supreme Court upheld the High Court's rulings on all issues, affirming the taxability of receipts from lease termination, denying depreciation on a fractional share, and rejecting the set-off of carried forward loss against lease income. The appeals were dismissed, and parties were directed to bear their respective costs.