1997 (1) TMI 55 - HC - Income Tax

Transportation company denied depreciation on unregistered properties.

The court ruled against the assessee, a transportation company, in a dispute over claiming depreciation on unregistered flats and office premises. The ... Appellate Authority Issues Involved:1. Entitlement to depreciation on unregistered flats and buildings.2. Interpretation of the term 'owner' under Section 32(1) of the Income-tax Act, 1961.3. Applicability of the Indian Registration Act and Transfer of Property Act.4. Judicial precedents and their relevance to the case.Detailed Analysis:1. Entitlement to Depreciation on Unregistered Flats and Buildings:The primary issue was whether the assessee, a limited company in the transportation business, was entitled to claim depreciation on flats and office premises purchased on an ownership basis but not transferred by registered deeds of conveyance. The Assessing Officer disallowed the depreciation claim under Section 32(1) of the Income-tax Act, 1961, which stipulates that only the owner is entitled to such an allowance. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Income-tax Appellate Tribunal allowed the depreciation, reasoning that the assessee had paid full consideration and was in exclusive possession and control of the properties.2. Interpretation of the Term 'Owner' Under Section 32(1) of the Income-tax Act, 1961:The court examined the meaning of 'owner' as per Black's Law Dictionary, which defines it as 'to have a good legal title; to hold as property; to have a legal or rightful title to; to have; to possess.' The court noted that the term 'owner' implies full legal ownership, which includes the right to enjoy and dispose of the property. The court emphasized that for the purposes of Section 32(1), the assessee must legally own the property to claim depreciation.3. Applicability of the Indian Registration Act and Transfer of Property Act:Section 17(1) of the Indian Registration Act mandates compulsory registration of documents transferring the right, title, and interest of immovable property valued at one hundred rupees and upwards. Section 49 of the Registration Act states that non-registration of such documents does not confer any right, title, or interest to the transferee. The court referred to the Privy Council's decision in Varada Pillai v. Jeevarathammal, which established that an unregistered document cannot be relied upon to establish title but can be used for collateral purposes, such as explaining the nature of possession. The court also cited Pir Bakhsh v. Mohomed Tahar, which negated the defense based on part performance without registration.4. Judicial Precedents and Their Relevance to the Case:The court reviewed several judicial precedents, including:- Add. CIT v. Sahay Properties and Investment Co. (P.) Ltd. (Patna High Court): The court held that the assessee, who had paid the full consideration and was in possession, was deemed the owner despite the lack of a registered deed.- S. B. (House and Land) Pvt. Ltd. v. CIT (Calcutta High Court): The court emphasized the real nature and essence of the transaction to determine ownership.- Nawab Sir Mir Osman Ali Khan (Late) v. CWT (Supreme Court): The apex court held that the expression 'belonging to' connotes an interest less than absolute legal title but emphasized the necessity of a valid transfer for ownership.The court concluded that these precedents were not directly applicable to the present case, as the crucial question was whether the assessee could be regarded as the 'owner' without formal registration of deeds of conveyance.Conclusion:The court held that the assessee could not be considered the owner of the properties without a valid registered document of transfer. Consequently, the assessee was not entitled to the benefit of depreciation under Section 32 of the Income-tax Act. The question was answered in the negative, in favor of the Revenue and against the assessee. The court directed that a copy of the judgment be transmitted to the Income-tax Appellate Tribunal and made no order as to costs.