Full Judgment
2. The assessee claimed depreciation on an industrial shed acquired from Gujarat Industrial Development Corporation (GIDC) under an agreement for a consideration of Rs. 1,45,360 payable in instalments.
The AO disallowed the claim when he noted that the assessee had neither paid the full amount of price nor the deed of conveyance stood registered in its favour. The AO held that till the property was conveyed to the assessee, it could not become the owner thereof. The claim for depreciation was, therefore, disallowed.
In appeal, the Id. CIT(A) referring to the instructions of the CBDT regarding allowance of depreciation on assets acquired under such agreements directed the AO to allow necessary relief to the assessee.
3. The Id. DR argued that the AO was not justified in allowing depreciation without looking into the nature of contract entered into between the assessee and GIDC as also without taking note of the contents of the circular of the Board. He argued that the CIT(A) also overlooked the M.P. High Court judgment in the case of SardarTara Singh v. CIT[ 1963] 47 ITR 756.
4. The Id. counsel for the assessee argued that the shed involved has been purchased by the assessee from GIDC under an agreement of sale and under the terms of agreement, it has already paid a part of the consideration and had been given possession of the shed. He invited our attention to the terms of agreement. The Id. counsel contended that the assessee is owner as also the user of the shed notwithstanding the same having not been conveyed formally. He argued that the ratio in Sardar Tara Singh's case (supra) is not applicable to the facts of the case.
He relied on the judgment of the Delhi High Court in Addl. CIT v.General Industries Corpn. [1985] 155 ITR 430.
5. Rival parties are heard and relevant record seen. We have also gone through the terms of agreement between the assessee and the GIDC. The assessee was allotted the impugned industrial shed by GIDC vide their letter dated 4-2-1985 for Rs. 1,45,360. The letter of allotment contained terms of payment of the price after taking into account the amount of Rs. 29,072 already paid by the assessee. The remaining amount payable was Rs. 1,16,288 in 32 quarterly instalments with specified rate of interest. Under the agreement the assessee is described as 'Purchaser', but none-the-less the-agreement does not create in favour of the purchaser any interest in or charge on the allotted property and does not authorise or entitle the purchaser to transfer or assign the alleged property in any manner whatsoever. The purchaser, until the conveyance deed is executed, is given no right or interest in the alleged property whatsoever. Further, for the failure to pay the specified instalments, the purchaser is liable to be evicted in accordance with the prescribed procedure. The purchaser is also entitled to terminate the agreement of his own accord, subject to following the prescribed conditions. Clause 3 of the agreement stipulates that on the purchaser paying full price of the allotted property under the agreement, GIDC is to transfer the purchaser by executing conveyance deed. As is seen, the assessee does not become the owner of the property till the same is conveyed on full payment of the agreed price and in between no interest or right in the property is created in favour of the assessee. Manifestly, the assessee is not the owner of the property which is one of the basic conditions for the grant of depreciation. A perusal of the agreement also reveals that it is an agreement for sale of the property and not hire thereof and the instalments so paid under the agreement is payment on account of purchase price of the shed and not as hire charges. This is clear from condition No. 2(o) page 7 of the agreement. The instalment paid by the assessee is, therefore, by way of capital payments and not for hire of the shed. Therefore, till the property is conveyed to the assessee, it is not the owner thereof. The assessee is also not entitled to claim the amount of instalments paid as revenue. The same being capital. The order of the CIT(A) is reversed on this issue, and ground of appeal allowed.
6. The next grievance of the revenue is that the CIT(A) erred in directing the A.O. to deduct the capital subsidy from actual cost/WDV of the plant and machinery for the purpose of allowing depreciation.
This is a covered matter against the revenue by the judgment of the jurisdictional High Court in the case of CITv. Bhandari Capacitors (P.) Ltd. [ 1989] 178ITR 375 (MP).
7. In assessee's appeal its first grievance is that the CIT(A) erred in disallowing Rs. 1,376 by treating the same as penalty under Madhya Pradesh General Sales-tax Act. A perusal of the relevant details revealed that, only a sum of Rs. 260 constituted of interest of Rs. 215 under Section 17(3)(c)(ii) of the Madhya Pradesh General Sales Tax Act and Rs. 45 as penalty under Rule 69A is disallowable. The rest being sales tax and entry tax. The assessee accordingly gets relief of Rs. 1,116.
8. The next grievance of the assessee is against addition of Rs. 6,500 as unexplained cash credit under Section 68. It is argued that the amount received was share application money from assessee-company's Managing Director, Shri Ashok K. Patel and the provisions of Section 68 is not attracted. We are unable to accept the contention of the 1d.
Authorised Representative that the provisions of Section 68 are not attracted. Admittedly, the amount credited in the books of the assessee is cash received. The claim of the assessee that it is share application money does not take away the amount involved from the ambit of Section 68. We have also gone through the order of the CIT(A) on the issue and we entirely agree with his reasoning that on the facts and circumstances of the case, the amount is nothing but a cash credit which remained unexplained. Endorsing the finding of the CIT(A), we dismiss this ground of appeal.
9. Last ground regarding disallowance of depreciation of Rs. 14,536 on factory building is not pressed. This is also discussed and decided against the assessee in paras 2 to 5 above.