2016 (8) TMI 1095 - AT - Income Tax

Tribunal rules in favor of assessee on property acquisition but denies depreciation claims under Income Tax Act

The Tribunal partially allowed the appeal, ruling in favor of the assessee on the issue of property acquisition under Sec. 50(1)(iii) of the Income Tax ... Sale of depreciable asset / office premises - acquisition of new building - Computation of WDV versus Addition u/s 50(1)(iii) - Did the assessee acquire the office building for a consideration in the relevant previous year for the purposes of Sec. 50(1)(iii) of the Act? - Held that:- Sec. 50 of the Act does not contemplate use of property to complete the process of acquisition of property. Acquisition is a process whereby the rights of the parties are crystallized in unequivocal terms and each party has complied with or is ready to comply with the mutual obligations. Here, in this case, all that has to be done by the assessee was done by parting with valuable consideration and starting the work of fit-outs well before the end of the financial year. Possession has both physical and psychological components and when once the assessee started with work of fit-outs, having discharged his obligation under the contract, his animus possidendi accompanies the act of corpus possidendi. The distinction between possession and occupation has to be kept in mind, which is relevant only for the purpose of determining the question of “use”, but not for the purpose of acquisition contemplated in Sec. 50(1)(iii) of the Act. Occupation could be equated to the term “use” as contemplated u/s 32 of the Act whereas it cannot be equated to the concept of possession to understand the completion of the process of acquisition in terms of Sec. 53A of the Transfer of Property Act. Here, in this matter, assessee did all that he has to do under the contract, and his further act of taking over the property in furtherance of his animus of owning the property thereby excluding every other from dealing with or interfering with the property, is suffice to hold that the assessee acquired the property during the financial year for the purposes of Sec. 50(1)(iii) of the Act. For these reasons, we are unable to accept the contentions of the Revenue that there was no property in existence before the end of the relevant financial year, that there was no agreement between the parties and there is no acquisition that took place during the relevant financial year. We hold that the assessee by his acts of parting with full sale consideration and gaining the ability to have every other person excluded from dealing with the property and by proceeding with the work of fit-outs has demonstrated that it acquired the property for the purposes of Sec. 50(1)(iii) of the Act. We hold the issue in favour of the assessee. Entitled to claim depreciation in respect of the building and machinery - Held that:- It is the admission of the assessee that there was no usage of the property before the Occupation Certificate was issued by the appropriate authority. As a matter of fact, it is the argument of learned counsel for the assessee before us that in order to have the benefit of Sec. 32 of the Act one has to satisfy the twin requirements of owning the property and making use of it on any day in the relevant previous year. Here, prior to ending of the relevant financial year, though the assessee had an opportunity to take possession of the property for the purpose of fit-outs, he cannot say that he has put the property to use for the purposes of claim of depreciation under Sec. 32 of the Act either in respect of building or machinery therein; as such, we hold that the assessee is not successful to show its entitlement to the relief of depreciation u/s 32 of the Act. Issues Involved:1. Acquisition of office building for consideration under Sec. 50(1)(iii) of the Income Tax Act.2. Entitlement to claim depreciation on the building and machinery under Sec. 32 of the Income Tax Act.3. Adequate opportunity of being heard and principles of natural justice.Issue-wise Detailed Analysis:1. Acquisition of Office Building for Consideration under Sec. 50(1)(iii) of the Act:The primary issue was whether the assessee acquired the office building for a consideration of Rs. 13,27,07,432/- in the relevant previous year for the purposes of Sec. 50(1)(iii) of the Act. The Assessing Officer (AO) contended that the mere payment of full consideration does not constitute acquisition without possession or usage. The CIT(A) upheld this view, emphasizing that possession and usage are essential for acquisition. However, the Tribunal found that the allotment letter, payment of the full sale consideration, and the commencement of fit-outs demonstrated that the rights of the parties were crystallized as of the date of the allotment letter. It was held that the assessee acquired the property during the financial year for the purposes of Sec. 50(1)(iii) of the Act, thereby succeeding on this ground.2. Entitlement to Claim Depreciation on the Building and Machinery under Sec. 32 of the Act:The second issue was whether the assessee was entitled to claim depreciation on the new office premises and machinery. The AO and CIT(A) denied the depreciation claims on the grounds that the property and machinery were not put to use during the relevant financial year. The Tribunal agreed with the Revenue, noting that the assessee admitted there was no usage of the property before the issuance of the Occupation Certificate. The Tribunal concluded that both ownership and usage of the property are required under Sec. 32 of the Act to claim depreciation. Consequently, the assessee failed to demonstrate entitlement to depreciation, and the Tribunal upheld the Revenue's stance on this issue.3. Adequate Opportunity of Being Heard and Principles of Natural Justice:The assessee claimed that both lower authorities erred in passing their respective orders without granting adequate opportunity to be heard, contravening the principles of natural justice. However, the Tribunal did not explicitly address this issue in the judgment, focusing instead on the substantive issues of acquisition and depreciation.Conclusion:The Tribunal allowed the appeal in part. It ruled in favor of the assessee on the issue of property acquisition under Sec. 50(1)(iii) of the Act, recognizing the acquisition based on the allotment letter, payment, and commencement of fit-outs. However, it upheld the Revenue's decision to deny depreciation claims under Sec. 32 due to the lack of usage of the property and machinery within the relevant financial year. The judgment emphasized the distinction between possession and occupation, and the necessity of usage for depreciation claims. The appeal was thus partially successful, with the assessee prevailing on the acquisition issue but not on the depreciation claims.