1990 (6) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation claim on the ship M.V. Jal Azad.
2. Ownership and legal title of the ship.
3. Compliance with the Merchant Shipping Act, 1958.
4. Applicability of CBDT Circulars and relevant case laws.

Detailed Analysis:

Depreciation Claim on the Ship M.V. Jal Azad:
The assessee claimed depreciation of Rs. 14,14,600 on the ship M.V. Jal Azad, asserting ownership based on several agreements and payments made to M/s. Jal Doot Shipping Pvt. Ltd. The Income-tax Officer disallowed the claim, stating that the assessee was neither the owner of the ship nor conducted any shipping business, as no income or expenses (except depreciation) were declared.

Ownership and Legal Title of the Ship:
The primary contention was whether the assessee was the owner of the ship for the purpose of claiming depreciation under section 32 of the Income-tax Act, 1961. The assessee argued that it was the de facto owner and referred to various case laws and CBDT Circulars supporting depreciation claims on assets taken on hire-purchase. However, the Departmental Representative countered that ownership under section 32 required legal title, which the assessee lacked due to non-compliance with the Merchant Shipping Act, 1958.

Compliance with the Merchant Shipping Act, 1958:
Section 42 of the Merchant Shipping Act, 1958 mandates prior approval from the Central Government for transferring or acquiring an Indian ship, and such transactions must be executed by an instrument in writing. The assessee and M/s. Jal Doot Shipping Pvt. Ltd. applied for approval but did not provide evidence of receiving it. Furthermore, the required instrument in writing was not executed, rendering the transfer void and unenforceable.

Applicability of CBDT Circulars and Relevant Case Laws:
The assessee relied on CBDT Circular No. 9 of 1943 and subsequent circulars, which allowed depreciation on assets acquired on hire-purchase. However, the Tribunal distinguished this case from hire-purchase scenarios, emphasizing that ownership under section 32 requires legal title, which was not transferred to the assessee. The Tribunal cited several case laws, including decisions of the Supreme Court and High Courts, to support the position that legal ownership is necessary for claiming depreciation.

Conclusion:
The Tribunal concluded that the assessee did not establish ownership of the ship as required under section 32 of the Income-tax Act, 1961. The claim of depreciation was rightly rejected by the Income-tax authorities due to non-compliance with the Merchant Shipping Act, 1958 and lack of legal title. The various agreements and payments made by the assessee did not suffice to transfer ownership of the ship.