1992 (6) TMI 71 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement of fractional owners to depreciation under section 32(1) of the Income-tax Act, 1961.
2. Applicability of the Supreme Court decision in Seth Banarsi Dass Gupta v. CIT to the present case.
3. Distinction between the terms "being the property of the assessee" in section 10(2)(vi) of the Indian Income-tax Act, 1922, and "owned by the assessee" in section 32(1) of the Income-tax Act, 1961.
4. The scope of rectification powers under section 154 of the Income-tax Act, 1961.

Detailed Analysis:

1. Entitlement of Fractional Owners to Depreciation:
The primary issue in these appeals was whether a fractional owner in a property (plant and machinery) in a rice mill is entitled to depreciation under section 32(1) of the Income-tax Act, 1961. Initially, the Income-tax Officer granted depreciation to each fractional owner. However, upon reconsideration and in light of the Supreme Court decision in Seth Banarsi Dass Gupta v. CIT, the Income-tax Officer withdrew the depreciation under section 154. The Tribunal upheld the view that fractional owners are not entitled to depreciation, aligning with the Supreme Court's stance that "the benefit of section 10(2)(vi) of the Act would be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim."

2. Applicability of the Supreme Court Decision in Seth Banarsi Dass Gupta v. CIT:
The Department argued that the Deputy Commissioner (Appeals) erred by not considering the binding Supreme Court decision in Seth Banarsi Dass Gupta, which explicitly stated that fractional ownership does not qualify for depreciation. The Tribunal agreed, emphasizing that the Supreme Court decision should have been followed, as it forms the basis for rectification under section 154. The Tribunal rejected the argument that the original assessments (prior to the Supreme Court decision) were justified, stating that the Supreme Court's ruling applies retrospectively to clarify the law.

3. Distinction Between "Being the Property of the Assessee" and "Owned by the Assessee":
The assessees contended that the terms "being the property of the assessee" in section 10(2)(vi) of the 1922 Act and "owned by the assessee" in section 32(1) of the 1961 Act have different connotations. They argued that "property" includes ownership, possession, and enjoyment, while "ownership" is narrower. The Tribunal, however, dismissed this distinction, citing authoritative legal interpretations that equate the two terms. The Tribunal referenced several decisions, including CIT v. Hindustan Cold Storage & Refrigeration (P.) Ltd., which support the view that both terms imply full legal ownership, not fractional ownership.

4. Scope of Rectification Powers Under Section 154:
The assessees argued that rectification under section 154 is not permissible where the matter admits of debate. They cited various judgments to support their claim that the Supreme Court decision does not obliterate prior debates on the subject. However, the Tribunal, referencing the Supreme Court decision in S.A.L. Narayana Row, CIT v. Model Mills Nagpur Ltd., held that the law enunciated by the Supreme Court applies to decisions rendered by income-tax authorities, even if those decisions predate the Supreme Court ruling. The Tribunal concluded that the original assessments were not correctly decided and that the Income-tax Officer was justified in invoking section 154 to rectify the mistake.

Conclusion:
The Tribunal rejected all contentions advanced by the assessees and upheld the Department's appeals. It concluded that fractional owners are not entitled to depreciation under section 32(1) of the Income-tax Act, 1961, aligning with the Supreme Court's decision in Seth Banarsi Dass Gupta v. CIT. The appeals were allowed, and the orders of the Deputy Commissioner (Appeals) were set aside.