Depreciation claim fails where ownership rests only on possession and an unregistered transfer, not a registered conveyance.

Depreciation under section 32 of the Income-tax Act was denied because the assessee had not acquired legal ownership through a registered conveyance. Although the undertaking had been taken over, the assets were possessed and used as owner, and the transaction had been acted upon, the court held that for tax purposes ownership must be established according to law, not merely by possession, use, or an unregistered arrangement. The earlier precedent treating statutory vesting differently from contractual transfer controlled the issue, so the assessee could not claim depreciation on the footing that ownership had vested from the takeover date.

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Issues: Whether depreciation under section 32 of the Income-tax Act, 1961 could be claimed on buildings transferred by the Government to the assessee without a registered sale deed, and whether the assessee could be treated as owner from the date of takeover for the assessment year in question.

Analysis: The transfer of the undertaking had been agreed upon and acted upon by both sides, and the assessee had taken over the assets and used them as owner. Equity and the practical realities of the transaction strongly supported recognition of ownership in the assessee's favour. However, the authorities under the Income-tax Act must apply the statute as it stands. Following binding precedent, the court held that for the purpose of the relevant income-tax provision, legal ownership could not be treated as having vested merely on the basis of possession, use, or an unregistered arrangement where the sale deed was executed later. The earlier decision distinguishing statutory vesting from contractual transfer was treated as controlling.

Conclusion: The questions were answered in the negative and depreciation under section 32 was not allowable to the assessee on the footing that it was owner from 1-4-1972 without a registered conveyance.

Ratio Decidendi: For depreciation claims under section 32 of the Income-tax Act, 1961, ownership must be established in accordance with law, and an unregistered transfer coupled only with possession and use is insufficient to confer ownership for the tax benefit.

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