Commissioner of Income-tax Vs. Sahney Steel and Press Works (P.) Ltd. - Court Judgment

Excerpt:
direct taxation - depreciation - sections 22 and 32 (1) of income tax act, 1961 and sections 2 and 3 of wealth tax act, 1957 - assessee-company purchased building - building not registered in relevant previous year - whether assessee entitled to depreciation in respect of land and building for relevant assessment year - according to section 22 annual value of property consisting of land and building of which assessee is owner is chargeable to income tax - as per judicial precedent real test to determine whether assessee was owner is that he must be entitled to income from property and enjoys full rights of owner - held, property entitled to depreciation on building as assessee entitled to income from property and enjoys full right over it. - - if the thousands of evacuees who left practically all their properties as well as business in pakistan had been considered as the owners of those properties and business as long as the 'ordinance' was in force, then those unfortunate persons would have had to pay income-tax on the basis of the annual letting value of their properties and on the income, gains and profits of the businesses left by them in pakistan though they did not get a paisa out of those properties and businesses. cwt [1986]162itr888(sc) ,but the statement of law contained therein was neither disapproved not departed from.m.n. rao, j.1. at the instance of the revenue, the following question was referred to this court under section 256(1) of the income-tax act, 1961 (act 43 of 1961) (for short 'the act') : 'whether, on the facts and the circumstances of the case, the tribunal was right in holding that the assessee was entitled to depreciation in respect of the land and building at bombay for the assessment year 1973-74 ?' 2. the assessment year in question is 1973-74. the assessee is a private limited company carrying on business in armatures, laminations and stampings. for the purpose of this business, for its bombay office, it purchased a building in bombay on march 13, 1971. the conveyance deed in respect of that property was, however, not registered in the relevant previous year. the assessee claimed depreciation in respect of the building in the assessment proceedings for the assessment year 1973-74 and also in the assessment proceedings for the preceding assessment year 1972-73. the claim for depreciation was rejected by the income-tax officer for both the assessment years on the ground that the sale deed was not registered and so the assessee did not become the owner of the property in the relevant previous years. on appeal, the appellate assistant commissioner, following his decision on the same issue in the appeal for the preceding assessment year 1972-73 (obviously by then the appeal for the previous assessment year by the same assessee was decided), upheld the claim of assessee for depreciation for the assessment year 1973-74 also. the department appealed to the income-tax appellate tribunal. the tribunal following its earlier order for the preceding assessment year, rejected the contentions of the revenue. it relied upon the decision of the supreme court rendered in r. b. jodha mal kuthiala v. cit : [1971]82itr570(sc) and of the allahabad high court in cit v. bijli cotton mills ltd. : [1953]23itr278(all) , to arrive at the finding that the assessee was undoubtedly the owner of the property in the relevant previous year though the legal title was not complete for want of a registered conveyance deed and that the assessee was entitled to depreciation since the building was owned and used by it for the purpose of its business. 3. section 9 of the indian income-tax act, 1922, is in pari materia with section 22 of the income-tax act, 1961, which deals with income from house property. section 22 of the act, inter alia, says that the annual value of the property consisting of any buildings or land of which the assessee is the owner shall be chargeable to income-tax under the head 'income from house property'. section 32(1) of the act deals with depreciation in respect of buildings 'owned by the assessee and used for the purpose of the business.......'. in r. b. jodha mal kuthiala v. cit : [1971]82itr570(sc) , the question for decision before the supreme court was whether for the purpose of section 9 of the indian income-tax act, 1922, the owner must be the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. the property in that case consisted of a hotel in lahore. after the creation of pakistan, the property vested in the custodian of evacuee property, but technically the assessee continued to be the owner although he had no dominion over, or possession of, the same. the supreme court held that the real test was to ascertain whether the assessee was entitled to the income from the property. in that view, it held that the assessee was not the owner of the hotel in lahore during the relevant assessment year. the following observations of the supreme court are opposite (p. 575) : 'the question is who is the 'owner' referred to in this section is it the person in whom the property vests or is it he who is entitled to some beneficial interest in the property it must be remembered that section 9 brings to tax the income from property and not the interest of a person in the property. a property cannot be owned by two persons, each one having independent and exclusive right over it. hence, for the purpose of section 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right. for a minute, let us look at the things from the practical point of view. if the thousands of evacuees who left practically all their properties as well as business in pakistan had been considered as the owners of those properties and business as long as the 'ordinance' was in force, then those unfortunate persons would have had to pay income-tax on the basis of the annual letting value of their properties and on the income, gains and profits of the businesses left by them in pakistan though they did not get a paisa out of those properties and businesses. fortunately, no one in the past interpreted the law in the manner mr. mahajan wants us to interpret.' 4. in respect of the very same assessee for the previous assessment year, this court in r. c. no. 91 of 1978 answered an identical question on august 23, 1984, in favour of the assessee (cit v. shahney steel & press works (p.) ltd. : [1987]165itr399(ap) ). this court accepted the view of the calcutta high court in addl. cit v. steelcrete p. ltd. : [1983]142itr45(cal) and of the allahabad high court in addl. cit v. u. p. state agro industrial corporation : [1981]127itr97(all) . the same view was taken by the punjab and haryana high court in smt. kala rani v. cit . 5. sri. m. s. n. murthy, learned standing counsel for the revenue, cited to us a decision of the supreme court in nawab sir mir osman ali khan v. cwt : [1986]162itr888(sc) , in support of his contention, that in order to claim depreciation under section 32(1) of the act, the assessee must be the owner enjoying the full rights of the owner. without a formal deed of conveyance, although a person is in possession of the property, he cannot be treated as a legal owner. the decision in nawab sir mir osman ali khan v. cwt : [1986]162itr888(sc) concerns the question of liability to wealth-tax of certain properties belonging to the late nizam of hyderabad. under section 3 of the wealth-tax act, 1957, net wealth is taxable. section 2(m) of the wealth-tax act, defines 'net wealth' as meaning the assets 'belonging to the assessee on the valuation date'. the earlier ruling of the supreme court in r. b. jodha mal kuthiala v. cit : [1971]82itr570(sc) was also referred to in nawab sir mir osman ali khan v. cwt : [1986]162itr888(sc) , but the statement of law contained therein was neither disapproved not departed from. after referring to r. b. jodha mal kuthiala v. cit : [1971]82itr570(sc) , his lordship sabyasachi mukharji j., speaking for the court, observed at page 895 : 'we are, however, not concerned with this controversy that at the present moment. it has to be born in mind that in interpreting the liability for wealth-tax, normally equitable considerations are irrelevant.' therefore, it is not possible for us to depart from the principles laid down by the supreme court in r. b. jodha mal kuthiala v. cit : [1971]82itr570(sc) , while interpreting the meaning of the expression 'owner' occurring in the section 22 of the act which is in pari materia with section 9 of the indian income-tax act, 1922, for the purpose of determining the question whether the assessee is entitled to claim depreciation under section 32(1) of the act. 6. for the foregoing reasons, following r. b. jodha mal kuthiala v. cit : [1971]82itr570(sc) and expressing our respectful agreement with the view taken by another division bench of this court in r. c. no. 91 of 1978 dated august 23, 1984 : [1987]165itr399(ap) , we answer the question in favour of the assessee and against the revenue. there shall be no orders as to costs.