Depreciation ownership test under section 32 extends beyond registered title where possession and ownership rights are effectively transferred.

For depreciation under section 32 of the Income-tax Act, 1961, "owned by the assessee" is not limited to absolute legal title; it includes a person who can exercise ownership rights in his own right. Where the State had agreed to transfer the buildings for consideration, received the consideration, and delivered possession, section 53A of the Transfer of Property Act, 1882 protected the assessee's possession and prevented the State from enforcing its rights against it. The absence of a registered sale deed did not defeat ownership for the limited purpose of section 32, so depreciation was allowable.

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Issues: Whether the assessee was entitled to depreciation under section 32 of the Income-tax Act, 1961 on buildings taken over from the State Government without execution of a registered sale deed.

Analysis: Depreciation under section 32 is available to buildings owned by the assessee and used for the purposes of business. The expression "owned by the assessee" is not confined to absolute legal title; it extends to a person who can exercise the rights of ownership in his own right. Here, the State Government had agreed to transfer the property for consideration, had received the consideration, and had put the assessee in possession. By reason of section 53A of the Transfer of Property Act, 1882, the State Government was debarred from enforcing its rights against the assessee, and the assessee was in a position to deal with the property as owner so long as no transfer to a bona fide transferee without notice had occurred. The absence of a registered sale deed did not, in these circumstances, prevent the assessee from being treated as owner for the limited purpose of section 32.

Conclusion: The assessee was entitled to depreciation on the building, and the answer to the referred question was in the affirmative, in favour of the assessee.

Ratio Decidendi: For the purpose of section 32 of the Income-tax Act, 1961, ownership means the ability to exercise rights of ownership in one's own right, and not necessarily complete legal title evidenced by a registered conveyance.

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