Tax ownership for depreciation includes beneficial possession; capital payments and mere tax provisions remain nondeductible.

Depreciation under section 32 is not confined to a person holding a registered sale deed; for tax purposes, "owner" includes one who, in substance, enjoys the rights of ownership and the income from the asset, so denial solely for want of registered title is unsustainable. A payment made to a vendor as part of acquisition consideration and to secure a competitive protection or enduring commercial advantage is capital expenditure, and therefore not deductible. A mere provision for urban land tax, where no tax was actually paid and no demand had crystallised in the relevant year, is also not allowable as a deduction.

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Issues: (i) Whether depreciation under section 32 of the Income-tax Act, 1961 could be denied merely because the assessee did not hold a registered sale deed for the building; (ii) whether compensation of Rs. 1 lakh paid to the vendor was capital expenditure and therefore not deductible; (iii) whether the provision made for urban land tax was an allowable deduction.

Issue (i): Whether depreciation under section 32 of the Income-tax Act, 1961 could be denied merely because the assessee did not hold a registered sale deed for the building.

Analysis: The allowance of depreciation depends on ownership in the sense relevant to the Income-tax Act. A person need not be the full legal owner with registered title if he is entitled, in his own right, to exercise the rights of ownership over the asset and to receive the income therefrom. The legal position laid down by the Supreme Court in Podar Cement, read with the earlier authorities referred to, shows that the term "owner" in section 32 is not confined to complete legal ownership. The Tribunal had rejected the claim solely for want of a registered sale deed, without examining the real nature of the assessee's rights in the building.

Conclusion: The disallowance of depreciation on that sole ground was unsustainable, and the matter was remitted to the Tribunal for fresh consideration on the correct legal test; the answer was in favour of the assessee on the legal principle.

Issue (ii): Whether compensation of Rs. 1 lakh paid to the vendor was capital expenditure and therefore not deductible.

Analysis: The payment formed part of the consideration connected with acquisition of assets and goodwill and also secured protection from competition by the vendor. An expenditure made to obtain an advantage of enduring benefit and to protect the business structure is capital in nature. The payment was not a recurring outgoing for the conduct of business but was made to acquire a lasting commercial advantage.

Conclusion: The amount was capital expenditure and was not allowable as a deduction; the issue was decided against the assessee.

Issue (iii): Whether the provision made for urban land tax was an allowable deduction.

Analysis: The assessee had only made a provision and had not actually paid the tax during the relevant assessment year. There was also no demand in that year. A mere provision, without an actual liability crystallising or payment being made, was insufficient for deduction.

Conclusion: The provision for urban land tax was not an allowable deduction; the issue was decided against the assessee.

Final Conclusion: The judgment grants relief only on the depreciation issue to the extent that ownership for section 32 is not limited to registered legal title, while upholding the disallowance of the compensation payment and the urban land tax provision.

Ratio Decidendi: For depreciation under section 32 of the Income-tax Act, 1961, "owner" is not restricted to a complete legal owner with registered title, but includes a person who, in his own right, enjoys the rights of ownership over the asset.

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