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TMI Blog1987 (8) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) on 15-3-1972, an agreement was entered into between Shri Narendra Tanna and the assessee to take over the running Concern of M/s Narendra Ceramics including all its assets and liabilities. In consideration thereof, Shri Narendra Tanna was to be paid Rs. 5,09,293, 50 per cent thereof was to be paid by way of shares of Rs. 100 each of the assessee-company and the balance 50 per cent was to be kept with the assessee as deposit from Shri Narendra Tanna, (e) by virtue of the aforesaid agreement, the assessee took over the running concern of M/s. Narendra Ceramics including all its assets and liabilities with effect form 1-4-1972, (f) on 20-8-1975, Shri Narendra Tanna executed an affidavit wherein, inter alia, he had stated that the assessee was the owner of all the assets mentioned in the agreement dated 15-3-1972 and was carrying on business from 1-4-1972. He further stated that he was acting as trustee for and on behalf of the assessee till the sale deed was executed, (g) on 16-8-1976, a sale deed was executed between Shri Narendra Tanna and the assessee which was lodged with the concerned authorities for registration and (h) on 1-9-1978, the sale deed was registered in the regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eror was to execute in favour of the Company a document in respect of the immovable property. Admittedly no such document is registered till today. Therefore, the transferor continues to be the owner of the immovable property and no such assets can be said to have been transferred to the company under the law. Since the depreciation can only be allowed to the assessee if the assessee owns that asset and in the instant case the assessee is not an owner under the law, therefore, the assessee is not entitled for depreciation. Vide this office letter No. A (Com) MISC/75-76 dated 10-10-1975, the assessee was given an opportunity to show cause as to why the depreciation claimed on the assets should not be disallowed. 6. Shri Sanghavi, C. A. vide his letter dated 7-11-1975 stated that the business of the proprietary concern of Shri N. D. Tanna was taken over by the assessee with effect from 1-4-1972 and as such the assets van be said to have been transferred to the Company by an agreement. He further stated that the agreement though entered into yet require registration only. According to Shri Sanghavi registration of an agreement is mere formality. Therefore, it can be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deposit. Clause 5 of the agreement further lays down that the transfer shall be completed as soon as practicable by allotment of the shares to the transferor and issue of the deposit as aforesaid, against the transferor executing at the instance and costs of the Company and doing all assurances and things for vesting the said premises to the Company. As such the transfer can be said to have completed only when the 1/2 amount of the consideration is made by the company by way of issue of shares. From the balance sheet of the Company even for the subsequent years it is found that the Company has not yet issued the shares to the transferor till date. Therefore, it is clear that the ownership of the movable assets have not yet been legally transferred to the Company. As such the Company is also not entitled for depreciation on movable assets. Accordingly, the claim of the assessee for depreciation both on movable and immovable assets is rejected and disallowed. However, as per the terms of agreement Shri N. D. Tanna, Director of the Company ceases to carry on proprietary business and he shall carry business as the nominee of the Company after 1-4-1972. Therefore, it can be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection, section 47 of the Indian Registration Act can also be mentioned. According to that section, registered document operates form the date of its execution and not from the date of its registration. The appellant contended that since the said document has been given retrospective effect form 31-3-1972, the material date will be the said date. I am not inclined to agree with the said argument of the appellant. As mentioned in the Registration Act that a registered document operates from the date of its execution, in this case on 16-8-1976, the important date will be the said date. 18. In respect of transfer of movable properties, I am of the opinion that, apart from the views expressed above, the transfer was not complete as per the provisions of the agreement. As per clause 2 of the said agreement, the consideration for the transfer of the asset was to be completed by issue of 1/2 share in the share of the asset was to be completed by issue of 1/2 share in the share capital and the other 1/2 to be kept with the Company as a deposit. Clause 5 of the agreement further lays down that the transfer shall be complete as soon as practicable by allotment of shares to the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. The appellant's representative has claimed that the Income-tax Officer has failed to take into account that the movable assets became the property of the appellant-Company by delivery. It has been admitted that the building has not been transferred till date. It has also been admitted that the transfer of the building cannot be treated to be complete till it is transferred to the Company by a registered deed. The appellant's representative has claimed that there was no justification for not allowing the appellant's claim for depreciation on the movable assets as they were handed over top the Company by the previous owner, immediately the Company was formed. It has also been pointed out that there was no intention on the part of the appellant and the transferor to connect the transfer of movable assets to the transfer of the building The appellant's representative has filed a copy of the agreement between the previous owner and the Company dated 20th April, 1975. This agreement indicates that movable assets have been handed over immediately. In my opinion, the appellant-Company became the owner of the movable assets transferred by Shri Tanna on delivery and there is no justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . U.P. State Agro Industrial Corpn. Ltd. [1981] 127 ITR 97 (All.), CIT v. Shahney Steel Press Works (P.) Ltd. [1987] 165 ITR 399 (AP), Punjab National Bank v. CIT [1983] 141 ITR 886 (Delhi), CIT v. Steelcrete (P.) Ltd. [1983] 142 ITR 45 (Cal.) and CIT v. Salkia Ltd. Transport Associates [1983] 143 ITR 39 (Cal.) the learned counsel for the assessee strongly urged that since the assessee had full control over the assets acquired from M/s. Narendra Ceramics and since it had actually used the same in earning its profits, it was entitled to claim depreciation on all the assets, movable as well as immovable, acquired from M/s. Narendra Ceramics. In this connection, he also stated that assets so acquired were shown in the balance-sheet. The learned counsel for the assessee, however, was fair enough to state that the decision in the cases of CIT v. Tamil Nadu Agro Industries Corporation Ltd. [1987] 163 ITR 61 (Mad.), CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499 (Bom.), CWT v. Meattles (P.) Ltd. [1985] 153 ITR 201 (Delhi) and Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 (SC) were against the assessee. However, he hastened to state that these decisions are not direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom M/s. Narendra Ceramics, it was entitled to claim depreciation on these assets as contemplated under section 32 of the Act. 17. Relying on the order of the Tribunal in the case of W. H. Deeth (P.) Ltd. [IT Appeal Nos. 710 and 731 (Bom.) of 1974-75 dated 19-4-1975], the learned counsel for the assessee submitted that since Shri Narendra Tanna was nominee/trustee of the assessee-company the assessee would be entitled to claim depreciation on the assets acquired from him, as contemplated under section 32 of the Act. 18. Finally, the learned counsel for the assessee submitted that even assuming for the sake of argument that the asses see cannot be held to be the owner of the assets acquired from M/s. Narendra Ceramics in the strict legal sense, since the assessee had earned profits by exploiting the assets acquired from M/s. Narendra Ceramics, the assessee's real income cannot be determined without considering the wear and tear of the assets. In support of this submission, he relied on the order of the Tribunal in the case of Anilkumar Kanga Co. (IT Appeal No. 1571(Ahd.) of 1979, dated 6-4-1981). He also relied on the decision of the Hon'ble Supreme Court in the case of Metal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets for the assessment years 1975-76 and 1976-77 should be reversed. He, however, submitted that the order of the Commissioner (Appeals) in respect of granting of depreciation on immovable assets should be confirmed. 21. We have carefully considered the rival submissions of the parties as well as the material already brought on record to which our attention was drawn and we find considerable force in the submissions made on behalf of the assessee. It is no doubt true that the sale deed was registered on a date subsequent to the relevant previous years under appeal. However, it is not possible to ignore the affidavit dated 20-8-1975 of Shri Narendra Tanna wherein, he had clearly stated that the assessee was the owner of all the assets mentioned in the agreement dated 15-3-1972 and was carrying on business from 1-4-1972 and that he was acting as a trustee for and on behalf of the assessee till the sale deed was executed. Again, it is not possible to ignore the clear finding of the ITO viz. "however, that as per terms of agreement Shri N. D. Tanna director of the company ceased to carry on proprietary business and he shall carry on business as the nominee of the company after 1-4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned that there is one other ground each in respect of the assessment years 1973-74 and 1974-75 taken up by the assessee in its appeals. However, at the time of hearing, the learned counsel for the assessee did not press the same. We would, therefore, reject the same. 23. There is one more ground in the appeal preferred by the revenue in respect of the assessment year 1975-76.regarding the applicability of the provisions of section 37 (2B) of the Act. The ITO had disallowed Rs. 2,115 by invoking the provisions of that section. Before the Commissioner (Appeals) it was submitted on behalf of the assessee that since these expenses did not involve lavish entertainment, there was no justification for the ITO to disallow Rs. 2,115 under section 37(2B) of the Act. In support of this submission, reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Patel Bros. Co. Ltd. [1977] 106 ITR 424. Accepting the assessee's contention, the Commissioner (Appeals) deleted the disallowance of Rs. 2,115. 24. The learned representative for the department strongly relied on the order of the ITO and urged that the Commissioner (Appeals) was not justified in dele ..... X X X X Extracts X X X X X X X X Extracts X X X X
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