Legal ownership required for depreciation, while a duly executed trust deed supported representative assessee status under income-tax law.

A trust was treated as a valid representative assessee because the trust deed was duly executed and the factual findings showed the corpus was contributed by the major members, not the minors. For depreciation under section 32, legal ownership of the immovable asset was required; possession under an agreement to sell without a registered conveyance was insufficient. The claim to depreciation on properties taken under such an agreement was therefore rejected for want of completed title.

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Issues: (i) Whether the trust was created by a duly executed instrument in writing so as to constitute a representative assessee within section 160(1)(iv) of the Income-tax Act, 1961; (ii) Whether depreciation was allowable under section 32 of the Income-tax Act, 1961 in respect of immovable properties taken under an agreement without execution of a sale deed.

Issue (i): Whether the trust was created by a duly executed instrument in writing so as to constitute a representative assessee within section 160(1)(iv) of the Income-tax Act, 1961.

Analysis: The finding in the earlier assessment years for the same trust deed was that the founder had the necessary funds to constitute the trust and that the contributions to the corpus came from the major members and not from the minors. The validity of the trust depended on those factual findings, which had been accepted by the appellate authorities and affirmed earlier. No reason was found to depart from that conclusion for the later years, and the trust deed was treated as satisfying the legal requirements for a valid trust.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue.

Issue (ii): Whether depreciation was allowable under section 32 of the Income-tax Act, 1961 in respect of immovable properties taken under an agreement without execution of a sale deed.

Analysis: Depreciation under section 32 is available only where the assessee owns the asset and uses it for business. The expression "owned by the assessee" was construed as requiring legal title, not merely possession or beneficial interest. A mere agreement to sell, even with possession, did not amount to completed ownership of immovable property where no registered conveyance had been executed. The statutory scheme, read with the law governing transfer and registration of immovable property, did not permit depreciation on the basis of possession alone.

Conclusion: The claim for depreciation was rejected and was held to be not allowable.

Final Conclusion: The references were disposed of by upholding the trust as a valid representative assessee, while denying depreciation on the immovable properties for want of legal ownership.

Ratio Decidendi: For depreciation under section 32 of the Income-tax Act, 1961, the assessee must have legal ownership of the asset and mere possession or a contractual right to obtain title is insufficient; a valid trust, however, may be recognised on the factual finding that the corpus was contributed by the major members and the trust deed was duly executed.

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