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JUDGEMENTS I.T.R. 15/1983 Back To Index
OF JAMMU AND KASHMIR AT SRINAGAR.
Date of decision: 19th July,2000
Commissioner of Income-tax
Amritsar vs M/S J&K Tourism Development Corp., Srinagar.
Whether approved for reporting: Yes
JUDGEMENT AND ORDER
Per Dr. B. P. Saraf, Chief Justice: (Oral)
By this reference under section 256(1) of the Income-tax Act, 1961 ("Act"), the Income-tax Appellate Tribunal, Amritsar ("Tribunal") has referred the following question of law to this Court for opinion at the instance of the revenue:
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee is entitled to depreciation under section 32 in respect of the immovable properties, even though their ownership has not been transferred to the assessee under any registered written instrument?"
The material facts giving rise to this reference are as follows. In the year 1967, the Government of Jammu and Kashmir found that it was not possible on their part to look after the management of the tourist homes etc.With a view to encouraging tourism in the State, the State Government decided that a Corporation be put in charge and made responsible for the management of the tourist homes. Accordingly, a Corporation was floated under the name and style of " Jammu and Kashmir Tourism Development Corporation, Srinagar" ("Corporation"). Following Cabinet Decision No.58 dated 11th March, 1969, a Committee was set up for evaluating the assets of the various establishments which were to be taken over by the Corporation. On 31st March, 1971, it was decided to estimate the value of the establishments, which the Corporation had taken over from the Government on 16th April, 1970, at Rs.75 lakh. As brought out in the Committee Report for the year ending 31st March, 1971, except the Cafeteria of Cheshmashahi, which was taken over in March, 1971, all the establishments had actually been taken over by the Corporation on 16th April,1970. A Government order dated 2nd February, 1976 was passed which reiterated that all the assets, including buildings and establishments, had been transferred and would be deemed to have been transferred to the Corporation with effect from the date of taking over in lieu of share capital. The assessee- Corporation had issued shares in favour of the Government to the extent of the value of the assets as back as in the year 1970. On these facts, the assessee Corporation claimed depreciation in respect of the assets worth Rs 75 lakh which had been taken over by it from the State government on 16th April, 1970 on payment of consideration in the form of its shares of equivalent value. The Income-tax Officer disallowed the claim of depreciation on the ground that the assessee had not become the owner of the assets in the eye of law. According to him, since the transfer had not been affected by a duly registered instrument of conveyance, the legal ownership continued to vest in the Tourism Department of the State Government and the Corporation could not claim that the legal ownership vested in it. The Income-tax Officer, therefore, rejected the claim of the assessee-Corporation of depreciation in respect of the assets taken over by it from the State Government on the ground that it was not the "owner" of the same. The assessee appealed to the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) upheld the order of the Income-tax Officer and dismissed the appeal. The assessee went in further appeal to the Income-tax Appellate Tribunal ("Tribunal"). The Tribunal accepted the contention of the assessee that though the title of the properties in question was not transferred to the assessee- Corporation by a duly registered instrument of conveyance, the Government had parted with all its rights over the same and the dominion over the property vested in the assessee Corporation which, for all practical purposes, was the owner thereof and hence entitled to depreciation. The Tribunal, therefore, held that the assessee was the owner of the properties in question for the purpose of claiming depreciation under section 32 of the Act. Accordingly, the Tribunal allowed the appeal of the assessee and directed the Income-tax Officer to allow the assessees claim of depreciation. Aggrieved by the above finding of the Tribunal, revenue is before us by way of this reference for opinion on the question of law set out above.
The real controversy in this case is whether the assessee- Corporation is entitled to depreciation in respect of the assets taken over by it from the State Government on payment of consideration, even though it had not obtained a registered deed of conveyance in respect thereof. In other words, the controversy is whether, on the facts and in the circumstances of the case, the assessee can be deemed to be the "owner" of the assets in question for the purpose of allowance of depreciation under section 32 of the Act.
Depreciation is allowable under section 32 of the Act in respect of certain assets owned by the assessee and used for the purposes of the business and profession. Section 32 of the Act, so far as it is relevant, reads as under:
"32.Depreciation : (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed ."
The case of the revenue is that the expression "owned by the assessee" should be assigned its legal meaning and so long as the assessee does not become "owner" of the property in the manner contemplated by law, it cannot claim the benefit of deduction under section 32 of the Act. In the present case, the properties in question being immovable properties, the case of the revenue is that in view of the mandatory requirements of section 54 of the Transfer of Property Act and the Registration Act , in the absence of execution and registration of a sale deed, the title in those properties continues to vest in the State Government and the assessee- Corporation cannot claim to be the owner of those properties. The contention of the revenue, in other words, is that the assessee Corporation not being the legal owner of the properties, is not entitled to benefit of depreciation in respect thereof.
We have heard Mr. Anil Bhan, learned counsel for the revenue.
The above controversy, in our opinion, is no more res integra in view of the recent decision of the Supreme Court in Mysore Minerals Ltd v CIT (1999) 239 ITR 775. In that case also, the controversy before the Supreme Court was about the true meaning and purport of the word "owned" occurring in sub-section (1) of section 32 of the Act. The Supreme Court considered the following question:
" Is it only an absolute owner or an owner of the asset as understood in its legal sense who can claim depreciation? Or, a vesting of title short of full-fledged or legal ownership can also entitle an assessee to claim depreciation under section 32 ?
The Supreme Court observed that as section 32 of the Act confers a benefit on the assessee, it should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the legislature to the assessee. After a detailed and illuminating discussion on the various shades of meanings of the terms "own", "ownership" and "owned ", both wide and narrow, the Supreme Court felt that in the context of 32 of the Act, the term "owned" must be assigned a wider meaning. The Supreme Court held:
"In our opinion, the term owned as occurring in section 32(1) of the Income-tax Act, 1961, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. Building owned by the assessee the expression as occurring in section 32(1) of the Income-tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of others."
It was observed :
" .. [T]he very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset , is utilizing the capital asset and thereby losing gradually investment caused by wear and tear , and would need to replace the same by having lost value fully over a period of time. "
The Supreme Court also referred to its earlier decision in CIT v Podar Cement Pvt. Ltd.(1997) 226 ITR 625, where, interpreting the word "owner" in the context of section 22 of the Act, it was held that the requirement of registration of sale deed was not warranted. In that case, the Supreme Court was called upon to interpret the word "owner" of a house property appearing in section 22 of the Act. Under section 22 of the Act, income is assessable as "income from house property" in the hands of an assessee, if the assessee is the owner of the property. The Supreme Court held that , in the context of section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, " to tax the income", "owner" is a person "who is entitled to receive income from the property in his own right." While coming to this conclusion, the Supreme Court observed :
"We are conscious of the settled position that under the common law, owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, we are of the view, owner is a person who is entitled to receive income from the property in his own right."
In Mysore Minerals Ltd. .v. CIT (supra), the Supreme Court observed that the above decision, which is also under the Income tax Act, has to be taken as a trendsetter in the concept of ownership and assistance from the law laid down therein can be taken for finding out the meaning of the word "owned"" as occurring in section 32(1) of the Act.
Following the ratio of the above decision of the Supreme Court in Mysore Minerals Ltd v CIT (supra), we are of the clear opinion that ,on the facts and in the circumstances of the case, the tribunal was right in holding that the assessee was entitled to depreciation under section 32 of the Act in respect of the immovable properties taken over by it from the State Government, even though their legal ownership had not been transferred to the assessee Corporation. The question referred to us is therefore, answered in the affirmative, i.e., in favour of the assessee and against the revenue.
This reference is disposed of accordingly with no order as to costs.