1999 (1) TMI 50 - AT - Income Tax

Assessee entitled to depreciation on factory building despite lack of registration

ASSISTANT COMMISSIONER OF INCOME TAX. Versus SANGHVI TEXTILE ENGG. (P) LTD.

ASSISTANT COMMISSIONER OF INCOME TAX. Versus SANGHVI TEXTILE ENGG. (P) LTD. - TTJ 065, 425, Issues Involved:1. Entitlement to depreciation on a factory building not registered in the name of the assessee.Issue-wise Detailed Analysis:1. Entitlement to Depreciation on Factory Building Not Registered in the Name of the Assessee:The primary issue in these appeals is whether the assessee is entitled to claim depreciation on a factory building that was not registered in its name. The relevant facts are that the assessee, engaged in manufacturing textile machinery parts, entered into an agreement to purchase a factory building for Rs. 5,50,000 on 15th January 1985 and took possession on 21st June 1985. The assessee included the property in its gross block and reflected it in the accounting year ending on 30th June 1986. However, the Assessing Officer (AO) disallowed the depreciation claim, arguing that the assessee was not the legal owner as the property was not registered in its name.Appeal to CIT(A):The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the AO was unjustified in denying depreciation. The assessee cited several judicial decisions, including:- CIT vs. Sahney Steel & Press Works Ltd. (1987) 168 ITR 811 (AP)- Addl. CIT vs. U.P. State Industrial Corpn. Ltd. (1981) 127 ITR 97 (All)- Narendra Ceramics (P) Ltd. vs. ITO (1988) 24 ITD 135 (Ahd)- ITO vs. Dr. S. Surender Reddy (1989) 30 ITD 296 (Hyd)The CIT(A) allowed the assessee's claim, referencing the Tribunal's decision in Narendra Ceramics, which held that depreciation could be claimed on properties not registered in the assessee's name if the assessee had control and possession.Revenue's Argument:The Revenue, represented by Shri Yogendra Dave, contended that without a registered document, the right, title, and interest in immovable property do not pass to the transferee, thus disqualifying the assessee from claiming depreciation. The Revenue cited the Gauhati High Court decision in CIT vs. A.B.C. India Ltd. (1997) 226 ITR 733 (Gau) to support their stance.Assessee's Counter-Argument:Shri Rajesh C. Shah, representing the assessee, reiterated that the issue was settled in favor of the assessee by the Tribunal in Narendra Ceramics. He also noted that both the Gujarat High Court and the Supreme Court had dismissed appeals against this decision. He further referenced provisions of the Income Tax Act, specifically clause (v) of section 2(47) and sub-section (iiia) of section 27, which indicate that control over property in part-performance of a contract can be deemed ownership.Tribunal's Decision:The Tribunal considered the rival submissions and judicial precedents, including:- CIT vs. Orient Longman (P) Ltd. (1997) 227 ITR 68 (AP)- CIT vs. General Marketing & Mfg. Co. Ltd. (1996) 222 ITR 574 (Cal)- CIT vs. Amber Corpn. (1994) 207 ITR 435 (Raj)The Tribunal noted that these decisions supported the assessee's position that possession and control over the property, even without a registered title, sufficed for claiming depreciation. The Tribunal emphasized that when judicial views conflict, the interpretation favoring the assessee should prevail. The Tribunal also highlighted that the Department had allowed depreciation for the assessment year 1987-88, reinforcing the assessee's claim.Conclusion:The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was entitled to depreciation on the factory building despite the lack of registration in its name. The appeals by the Revenue were dismissed.Result:Both appeals by the Revenue were dismissed, affirming the assessee's entitlement to depreciation on the factory building.