2014 (6) TMI 292 - HC - Income Tax

Assessee-society entitled to claim depreciation on transferred assets under Income-tax Act

Commissioner of Income Tax, Jaipur-II, Jaipur Versus M/s. Jawahar Kala Kendra

Commissioner of Income Tax, Jaipur-II, Jaipur Versus M/s. Jawahar Kala Kendra - [2014] 362 ITR 515 Issues Involved:1. Entitlement of the assessee-society to claim depreciation on transferred assets.2. Determination of ownership for the purpose of claiming depreciation under the Income-tax Act.3. Validity of disallowing depreciation in the third year after it was allowed in previous years.Issue-wise Detailed Analysis:1. Entitlement of the Assessee-Society to Claim Depreciation on Transferred Assets:The core issue revolves around the assessee-society's claim for depreciation on assets transferred from the Government of Rajasthan. The assessee-society, constituted as an autonomous body to promote art and culture, recorded the value of transferred assets in its books and began claiming depreciation from the assessment year 2005-06. This claim was allowed in the assessment years 2005-06 and 2006-07 but disallowed in the assessment year 2007-08 by the AO. The court noted that the assets remained the same and the assessee-society was using the property in its own right.2. Determination of Ownership for the Purpose of Claiming Depreciation:The Revenue argued that the assessee-society could not claim depreciation as it was not the legal owner of the assets, lacking title transfer documentation. However, the court referred to Section 32 and Section 43(1) of the Income-tax Act and emphasized that ownership for depreciation purposes does not necessarily require formal title transfer. The court cited the Supreme Court's ruling in Mysore Minerals Ltd. v. CIT, which interpreted 'ownership' to include dominion over the property and the right to use it for business purposes. The court also referenced the Delhi High Court's and Punjab and Haryana High Court's decisions supporting the notion that possession and use of assets for business purposes suffice for claiming depreciation.3. Validity of Disallowing Depreciation in the Third Year After It Was Allowed in Previous Years:The court observed that the assessee-society had been allowed depreciation in the previous two assessment years, and the assets in question had not changed. The court dismissed the Revenue's contention that the earlier allowance of depreciation was a mistake, asserting that the consistent use and possession of the assets by the assessee-society justified the depreciation claim. The court concluded that merely lacking formal title transfer documentation does not invalidate the depreciation claim, as the assessee-society had dominion over the assets and used them for its purposes.Conclusion:The court upheld the decisions of the CIT(A) and ITAT, affirming the assessee-society's entitlement to claim depreciation on the transferred assets. It ruled that the assessee-society was the de facto owner of the assets, using them for its objectives, and hence eligible for depreciation under the Income-tax Act. The appeal was dismissed, and no substantial question of law was found to warrant further consideration.