1999 (9) TMI 1 - SC - Income Tax

Interpretation of statutes - Claim for depreciation u/s 32 - No execution of actual deed of conveyance - part payments - purchased low income group houses for its staff - delivery of possession - terms own ownership owned - HELD THAT - It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature. 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. Thus in our opinion the High Court was not right in taking the view which it did. The appeal is allowed. The judgment of the High Court is set aside. The question referred by the Tribunal to the High Court is answered in the negative that is against the Revenue and in favour of the assessee. No order as to costs.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the appellant-assessee, a private limited company, is entitled to claim depreciation under Section 32 of the Income-tax Act, 1961, for seven low-income group houses purchased from the Housing Board, despite not having a formal deed of conveyance executed in its favor. The specific issue is whether the term "owned" in Section 32(1) should be interpreted to include possession and dominion over the property without legal title.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 32 of the Income-tax Act, 1961, allows depreciation deductions for buildings owned by the assessee and used for business purposes. The controversy centers on the interpretation of the term "owned." The court examined precedents, including R. B. Jodha Mal Kuthiala v. CIT and CIT v. Podar Cement Pvt. Ltd., which discussed ownership in the context of income tax and the broader legal understanding of ownership.

Court's Interpretation and Reasoning

The court emphasized that the term "owned" should be interpreted in a manner that aligns with the legislative intent of providing tax benefits to those who invest in and use capital assets. The court noted that ownership is a relative term and can include possession and control over a property, even without legal title. The court relied on the principle that tax provisions should be interpreted favorably towards the assessee when two interpretations are possible.

Key Evidence and Findings

The evidence presented showed that the assessee had taken possession of the houses, made part payments, and was using the houses for its business purposes by allotting them to its staff. The Housing Board had delivered possession to the assessee, and the assessee exercised dominion over the property.

Application of Law to Facts

The court applied the broader interpretation of "owned" to the facts, concluding that the assessee had sufficient dominion over the property to qualify as the owner for the purposes of Section 32. The court highlighted that the legislative intent would be frustrated if neither the legal owner (the Housing Board) nor the beneficial owner (the assessee) could claim depreciation.

Treatment of Competing Arguments

The court considered the Revenue's argument that legal title was necessary for ownership under Section 32. However, it rejected this narrow interpretation, favoring a contextual and purposive approach that considers the practical realities and the objective of the Income-tax Act to tax income and provide benefits for asset depreciation.

Conclusions

The court concluded that the assessee, having possession and control over the property and using it for business purposes, was entitled to claim depreciation under Section 32, despite the absence of a formal deed of conveyance.

SIGNIFICANT HOLDINGS

The court established the principle that ownership for the purposes of Section 32 of the Income-tax Act can include possession and dominion over a property, even without legal title. The court held that "the term 'owned' as occurring in section 32(1) of the Income-tax Act, 1961, must be assigned a wider meaning," allowing those with beneficial ownership and control to claim depreciation.

The court's final determination was to allow the appeal, setting aside the High Court's judgment and answering the referred question in favor of the assessee, thereby entitling the assessee to claim depreciation on the houses in question.