1999 (9) TMI 1 - SC - Income Tax

Assessee is a private limited company - Whether, the Tribunal was right in rejecting the claim of the assessee for depreciation in respect of the seven houses in respect of which the assessee has not obtained a deed for conveyance from the vendor although it had taken possession and made part payment of the consideration - Held, no

Summary

Issues Involved
1. Whether the assessee can claim depreciation under Section 32 of the Income-tax Act, 1961, for properties in possession but without a formal deed of conveyance.
2. Interpretation of the term "owned" in the context of Section 32 of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis

1. Claim of Depreciation without Formal Deed of Conveyance
The appellant-assessee, a private limited company, purchased seven low-income group houses for its staff from the Housing Board during the assessment year 1981-82. The assessee made part payments, received allotment, and took possession of the houses, but the Housing Board had not executed a formal deed of conveyance. The assessee claimed depreciation under Section 32 of the Income-tax Act, 1961, which was rejected by the Assessing Officer on the ground that the assessee had not become the owner due to the absence of a deed of conveyance. The Commissioner of Income-tax allowed the appeal, directing the Assessing Officer to allow the claim for depreciation, asserting that the company acted as the owner and could exercise ownership rights over the houses. However, the Tribunal set aside this decision, and the High Court upheld the Tribunal's view, leading to the present appeal.

2. Interpretation of the Term "Owned"
Section 32 of the Income-tax Act allows deductions for depreciation of buildings owned and used for business purposes. The core issue revolves around the interpretation of the term "owned." The Revenue argued that "owned" should be understood in its legal sense, requiring a formal transfer of title through a registered sale deed. The assessee contended that "owned" should be given a contextual meaning, allowing for depreciation claims even when the title is not fully vested but the property is in possession and used for business purposes.

The court referred to the definitions of "owner" and "ownership" in Black's Law Dictionary, emphasizing that these terms have a wide and narrow connotation depending on the context. The court also cited previous judgments, including CIT v. Podar Cement Pvt. Ltd. and R. B. Jodha Mal Kuthiala v. CIT, which supported a broader interpretation of ownership for tax purposes. The court noted that ownership implies a right to possess and use the property to the exclusion of others, even if a formal title has not been executed.

The court concluded that the term "owned" in Section 32(1) should be assigned a wider meaning, encompassing those in possession of property, exercising dominion over it, and using it for business purposes, even without a formal deed of conveyance. The court emphasized that depreciation benefits should align with the legislative intent to aid those who invest in and utilize capital assets.

Judgment
The court held that the High Court erred in its interpretation. The appeal was allowed, setting aside the High Court's judgment. The question referred by the Tribunal was answered in the negative, favoring the assessee and against the Revenue. The court found that the assessee, having taken possession and used the property for business purposes, was entitled to claim depreciation under Section 32, despite the absence of a formal deed of conveyance. No order as to costs was made.