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TMI Blog1987 (7) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... is in some respects a difficult one." Settlement Trusts of Chapman (No. 2) [1959] 2 All ER 47 (Ch D), Drewe [1966] 2 All ER 844 (Ch D), Lloyd [1967] 2 All ER 314(Ch D), Clitheroe's [1959] 3 All ER 789 (ChD), Cohen's [1959] 3 All ER 523 (ChD), Sainsbury, [1967] I All ER 878 (Ch D), Lister's [1962] 3 All ER 737 (Ch D), Van Gruisen's [1964] I All ER 843 (Ch D) and Zekelman [1971] 19 DLR (3d) 652 have all been discussed there at some length. Philip H. Pettit in " Equity and the Law of Trusts " deals with trusts and taxation under a separate topic. The discussion starts with the sentence: " With taxation at present level, it is obvious that revenue considerations are in practice commonly of vital importance in trust matters, particularly perhaps when the creation of a trust is under consideration." (See " Equity and the Law of Trusts " by Philip H. Pettit at page 19). " The Taxation of a Trust " is a separate chapter in the book " The Modern Law of Trusts " by David B. Parker and Anthony R. Mellows. In India too, a specialised publication is available : " Tax Planning for Public and Private Trusts " by Dr. Paras Diwan and B. K. Diwan. The last two decades witnessed a spurt in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 161 would not be available. The Appellate Assistant Commissioner took a different view. According to him, there was a valid trust. The Tribunal affirmed that conclusion. The Revenue took up the matter before this court. In the meantime, assessments were made in respect of later years as well. Against the adverse decisions of those years also, the Revenue took up the issue for a decision by this court. I.T.R. Nos. 84 to 86 and 125 of 1979 and 71 to 77 of 1981, thus came up for hearing before this court (We do not consider question No.1 in I.T.R. No. 20 of 1982, as it was not pressed). A Division Bench of this court consisting of K. Bhaskaran, Actg. C.J. and M. P. Menon J. by judgment dated October 12, 1984, considered the question. The reference was answered in favour of the assessee and against the Department. Three reasons which had been urged for turning down the claim of the assessee for an assessment under section 160(1)(iv) were referred to in paragraph 5 of the judgment as (at p. 351): " (i) the founder had no property to be transferred to the trust; (ii) the properties of the minors had been made the subject-matter of the trust without satisfying the condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the corpus of the trust were made. These journal entries filed were verified by me with reference to the books produced and are found correct. " In reaching the ultimate conclusion, the Division Bench referred to an earlier decision of this court in CIT v. V. S. Kumaraswamy Reddiar Trust [1982] 138 ITR 808, wherein the court had to consider the validity of a trust with somewhat similar features. We do not find any reason whatever to differ from the factual findings as reached by this court in relation to the very same assessee and the very same trust deed for the preceding years. Whether the founder had property with her to constitute a trust and whether the transfer of funds had been made by the majors as contended by the assessee or on behalf of the minors by their guardians, were questions of fact. This court, on an exhaustive and clear analysis of the materials before it, entered the finding that the author of the trust had the necessary funds for constituting the trust and that the contributions came not from the minors but from the major members of the two firms. As noted earlier, this conclusion was in conformity with the findings of the Appellate Assistant Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spiration and support from a decision of the Allahabad High Court in Addl. CIT v. U. P. State Agro Industrial Corporation Ltd. [1981] 127 ITR 97. The assessing authorities, however, did riot readily grant the claim of the assessee. Ultimately, the claims involved in the appeals of different years reached the Tribunal, demanding a decision. It so transpired that one set of appeals came before one Bench of the Tribunal and another batch came before another Bench. The two Benches of the Tribunal have, however, talked in two different voices. The Bench, which dealt with appeal I. A. Nos. 157, 158, and 271 (Coch) of 1980 took a view in favour of the assessee. The contrary view was expressed by the other Bench while disposing of the other appeals. It may straightaway be noticed that the question has now been considered by other High Courts also. The Allahabad and Patna High Courts are the forts sheltering a theoretical thought which would give support and sustenance to the contention put forward by the assessee. All other High Courts have arrayed themselves on the other side. It is not by mere counting of numbers that victory is declared in intellectual fights. Much depends upon the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch business ventures. When this is the basic idea, the essential ingredients of a claim for depreciation and for other allowances geared to the use of business assets could be easily identified. These deductions cannot be claimed by someone without any real connection with the asset, someone having only some nominal or casual connection. The claimant must be one with much more than some threads of rights. What is needed is a well-woven garment of ownership; not some or a few slender threads somehow gathered. Again, the section would not grant depreciation allowance to a person merely for the reason that he owns it. The user of the asset in the income-generating enterprise is equally essential. Are the twin requirements satisfactorily complied with in the present case ?-should be the question to be posed before the deduction under this head is conceded. The full ownership postulated on the part of a claimant has added relevance and significance in that context. It is unnecessary to traverse areas with which the case in hand is not directly concerned. The short question is whether a person who had not obtained a sale deed itself, could be treated as an owner for the purposes of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi and Bombay High Courts have taken the view that in the absence of a registered sale deed, a claim for depreciation has to fail by reason of non-satisfaction of one of the pre-conditions. These decisions have been surveyed exhaustively in a very recent decision (very recent from the point of view of reporting ; it was rendered on April 17, 1984) by the Madras High Court in Tamil Nadu Agro Industries Corporation Ltd. [1987] 163 ITR 61 (Mad), by Ramanujam and Ratnam JJ. With great respect, we are in agreement with the analysis, approach and conclusion as indicated in that decision. We agree with that High Court that the contrary views taken by the High Courts of Allahabad and Patna in Addl. CIT v. U. P. State Agro Industrial Corporation Limited [1981] 127 ITR 97 (All) and Addl. CIT v. Sahay Properties Investment Co. (P.) Ltd. [1983] 144 ITR 357 (Pat) do not lay down the correct law. Our entire agreement with the lucid reasoning of the Madras High Court in CIT v. Tamil Nadu Agro Industries Corporation Limited [1987] 163 ITR 61 (Mad), justifies the reproduction of the following extract from that judgment (at pages 70 and 71): " The use of the expression 'owned by the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the requirements under section 32 of the Act to be eligible for the grant of an allowance by way of depreciation. " We may add a few words more as regards the Allahabad decision in Addl. CIT v. U.P. State Agro Industrial Corporation Ltd. [1981] 127 ITR 97. The Allahabad High Court felt that the decision of the Supreme Court in R. B. Jodhamal Kuthiala v. CIT [1971] 82 ITR 570 (SC), which according to it, had been omitted to be noticed by the Delhi High Court in CIT. v. Hindustan Cold Storage and Refrigeration (P.) Ltd. [1976] 103 ITR 455 (Delhi), made all the difference. After anxiously considering the decision of the Supreme Court, we are clearly of the view that the Supreme Court decision does not contain any principle or logic which would induce us to take a different view of the construction of section 32. The Supreme Court case essentially dealt with the effect and impact of the Pakistan Evacuee Property Vesting Act. The assessee in that case had owned assets in Lahore in the form of a hotel. And for the purpose of establishing the hotel, the assessee had taken huge loans from banks. Interest payable on the loans so taken was claimed as deduction. It was in this context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n J. regarded " belonging " as meaning ownership in that context. (See Union Cold Storage Co. Ltd. v. Simpson [1938] 4 All ER 673 at p. 675). The implication of the term " belonging" had been examined by the English courts on earlier occasions also. Additional incentives had been offered to the industry by the later enactments. Some of those important enactments up to 1971 have been catalogued in Stoke's case [1984] 1 All ER 849, the Customs and Inland Revenue Act, 1878, Income-tax Act, 1918, Income-tax Act, 1945, Income-tax Act, 1952, Finance Act, 1957, Capital Allowances Act, 1968, an Finance Act, 1971. The purpose of these statutory provisions was undoubtedly to encourage investment (Robert Goff L.J. says so in his speech). Lord justice Fox observed (at p. 855): " The purpose of the statutory provisions is evidently to encourage investment in machinery and plant." Sections 41 and 44 of the Finance Act, 1971, dealt with allowances, the first year allowance and written down allowance subject to the condition that the machinery or plant belonged to the assessee. The Court of Appeal had occasion to consider the scope and amplitude of the term " belonging to " in that context. Co ..... 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