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TMI Blog1975 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) the business of flour milling in its factory known as Crown Flour Mills. As it was incurring losses in its speculation business since a number of years and as the profits earned by it in its milling business were being wiped out by the speculation losses year after year, M/s. Meatles Ltd. decided to transfer the Crown Flour Mills to the assessee-company. The assessee-company also decided to start a flour milling business as its own original business was running in a loss and for that purpose, it decided to purchase the Crown Flour Mills from M/s. Meatles Ltd. The assessee-company and M/s. Meatles Ltd., therefore, executed an agreement dated February 1, 1975, by which M/s. Meatles Ltd. agreed to sell the Crown Flour Mills to the assessee-company in consideration of Rs. 8,75,000 by accepting the equity shares of an equal amount of the assessee-company and to sell the stock-in-trade and other assets and liabilities of the Crown Flour Mill for a sum of Rs. 3,75,063 and odd, the said amount being treated as a loan advanced to the assessee-company on interest at the rate of 5%. The assessee-company also agreed to purchase the Crown Flour Mills on the same terms. It was furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-company referred to the orders of the Tribunal in the wealth-tax and income-tax assessments of M/s. Meatles Ltd. for the assessment year 1957-58, in which another Bench of the Tribunal had held that there was a sale of the Crown Flour Mills by M/s. Meatles Ltd., Delhi, in favour of the assessee-company, although no sale deed had been executed, and that M/s. Meatles Ltd. was not the owner of the Crown Flour Mills and that the income from the Crown Flour Mills could not be included in the income of M/s. Meatles Ltd., Delhi. Following its orders in the wealth-tax and income-tax assessments of M/s. Meatles Ltd., Delhi, referred to above, the Tribunal held that the building, plant and machinery of the Crown Flour Mills was the property of the assessee-company within the meaning of section 10(2)(vi) of the Act and, as such, the assessee-company's claim for depreciation should be allowed. But, at the instance of the Commissioner of Income-tax, Delhi (Central) New Delhi, the Tribunal has referred the above-mentioned question to this court under section 66(1) of the Act. The relevant provisions of the Act are sub-section (1) and clauses (iv); and (vi) of sub-section (2) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age on the written down value thereof as may in any case or class of cases be prescribed." Under section 32 of the new Act, therefore, an assessee can claim depreciation in respect of the buildings, machinery, etc., by satisfying two conditions, namely: (i) that such buildings, machinery, etc., are owned by the assessee, and (ii) that they are used for the purposes of business or profession of the assessee. The condition relating to the use of the building, machinery, etc., is the same is prescribed in section 10(2)(vi) of the Act and there is no dispute on this point. The question for consideration is whether the condition regarding the ownership of the building, machinery, etc., by the assessee is the same as is prescribed under the Act, although the words used in section 10(2)(vi) of the Act are different, namely, "being the property of the assessee". In other words, the question is whether the words "being the property of the assessee" used in section 10(2)(vi) of the Act have the same meaning as the words "owned by the assessee" appearing in section 32(1) of the new Act. According to the learned counsel for the revenue, the meaning of the words used in section 10(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that the assessees were themselves carrying on business, because it is not only necessary for an assessee before becoming entitled to the deduction for depreciation under section 10(2)(vi) of the Act to be the owners of the property in respect of the property depreciated but that also that property must be used for the purpose of the business. There is no doubt, of course, that the assessee are the owners of the property; but is the property used for the purpose of business?" The learned judge ultimately held that the property was being used for the purpose of the business of the assessee. From the above observations, it would appear that the words "being the property of the assessee" appearing in section 10(2)(vi) of the Act were held to mean that the property must belong to the assessee or that the assessee must be the owner of the property. The next case cited by the learned counsel is a judgment of the Privy Council in Commissioner of Income-tax v. Buckingham Carnatic Company Ltd. The assessee-company in that case acquired the business of five other companies and took over the buildings and machinery of the latter. The total cost of the buildings and the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem. In carrying out the above obligation, the assessee-company had to make alterations in its own cables, service lines and meters and, in addition, it had to carry out replacement in the consumers' fans, radios, etc. The assessee-company claimed depreciation not only on the cost of the cables, service lines and meters replaced by it, but also on the cost of the consumers' fans, radios, etc., which were also replaced by it. The High Court allowed the assessee's claim in respect of the cables, service lines and meters but disallowed the assessee's claim in respect of the replacement of the consumers' fans, radios, etc. The reasons given by the High Court in allowing a part of the assessee's claim and disallowing another part thereof bring out the meaning of the words "being the property of the assessee" appearing in section 10(2)(vi) of the Act. The High Court observed thus: "In our view this argument overlooks the express words of section 10(2)(vi) of the Act. That clause provides for an allowance in respect of depreciation of such buildings, machinery, plant or furniture, being the property of the assessee........... The clause, therefore, clearly applies only to the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erected on the land belonging to the Government, the assessee was not the owner of the buildings and was not liable to be assessed on the net annual value of the buildings under section 9 of the Act. The High Court negatived the assessee's claim and upheld the assessment made by the Income-tax Officer holding that the assessee-club was the owner of the buildings notwithstanding the fact that it was not the owner of the land on which the buildings were erected. The learned counsel for the assessee seeks to rely upon this decision to support his contention that for the purpose of section 10(2)(vi) of the Act, the assessee need not be the full owner of the building, machinery, etc. In our view, this decision does not support the assessee's contention. The following observations of Beasley C. J. will make the position clear : "The rule in India which is different from that in England, is that a person who builds a superstructure upon the land of another man remains the owner of the superstructure and can at the end of his term remove that superstructure from the land, whereas in England a person who erects a building on the land of another cannot do so as the building at the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd by the Government or by a public authority the lessors were entitled to all compensation in respect of the land but compensation in respect of the buildings was to be divided between the lessors and the assessee. The question for consideration before the High Court was whether the rent derived from the buildings erected by the assessee was properly assessed in its hands under section 9 of the Act. The assessee's contention was that in view of the terms of the lease the buildings were not the property of the assessee and that, therefore, the income from the buildings was not assessable in its own hands. The High Court rejected this contention and held that during the currency of the lease the houses constructed by the assessee were its property and that, therefore, the income from such buildings was assessable in the hands of the assessee under section 9 of the Act. This decision does not advance the assessee's case any further, because it does not support the contention urged on behalf of the assessee that it was not the full owner of the houses but only a limited owner of the houses which it had constructed on the land. The learned counsel for the assessee also referred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation, in respect of the building constructed by him on the site in pursuance of the lease deed was rejected by the department, but was ultimately allowed by the High Court on the ground that the assessee was the owner of the building in question during the currency of the lease deed. In so holding the High Court followed the rule laid down by the Supreme Court in the case of Dr. K. A. Dhairyawan, already referred to. This case, is on par with the other cases cited by the learned counsel for the assessee and as we have already observed, these cases do not support the contention of the assessee that he need not be the owner of the building, machinery, etc., in order to claim depreciation under section 10(2)(vi) of the Act and that it is sufficient if he holds some interest in the said building, machinery, etc. The interest which the assessee has in the Crown Flour Mills is an interest of the nature described under section 53A of the Transfer of Property Act. The nature of such an interest has been explained by the Privy Council in S. N. Banerji v. Kuchwar Lime and Stone Co. Ltd. in the following terms:-- "But the words of the section make it quite plain that the section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly the property was worth more than Rs. 100 and it is not disputed that a registered sale deed was necessary to pass title from Abdul Aziz Khan to the appellant. No registered sale deed was executed in this case and therefore the property did not pass from Abdul Aziz Khan to the appellant even up to the time when Abdul Aziz Khan became an evacuee. It may be that if Abdul Aziz Khan had tried to get back the property, section 53A of the Transfer of Property Act would come to the aid of the appellant in defence. But the present suit has been filed to establish the right of the appellant as owner of the property and in such a suit the appellant cannot take the benefit of section 53A of the Transfer of Property Act." From the above discussion, we hold that the words "being the property of the assessee" appearing in section, 10(2)(vi) of the Act have the same meaning as the words "owned by the assessee" appearing in section 32(1) of the new Act and that these words merely clarify the position that already existed under section 10(2)(vi) of the Act. The interest which a person has in a property by virtue of section 53A of the Transfer of Property Act does not amount to ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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