Depreciation on owner-used assets upheld where present ownership remained with the assessee, while unused-asset disallowance needed verification.
Depreciation was held allowable on godowns constructed through the Central Warehousing Corporation because the tripartite arrangement showed the assessee retained present ownership, the corporation only managed the depots, and no depreciation was claimed by the corporation. A contemplated future transfer did not alter the ownership position during the relevant years, so the disallowance was deleted. On depreciation for building and plant and machinery said to have been not put to use, the assessment record and fixed asset notes were inconsistent and required reconciliation. The matter was therefore restored for fresh verification and adjudication on the factual use of the assets.
Issues: (i) Whether depreciation on godowns constructed through the Central Warehousing Corporation was disallowable on the ground that ownership vested in the Central Warehousing Corporation and not in the assessee; (ii) Whether disallowance of depreciation on building and plant and machinery on the premise that certain assets were not put to use required fresh verification.
Issue (i): Whether depreciation on godowns constructed through the Central Warehousing Corporation was disallowable on the ground that ownership vested in the Central Warehousing Corporation and not in the assessee.
Analysis: The tripartite arrangement and the project agreement showed that the godowns were constructed on behalf of the assessee, the assessee retained ownership during the relevant period, the Central Warehousing Corporation only managed the depots, and no depreciation was claimed by the Central Warehousing Corporation. The possibility of a future transfer after adjustments did not alter the present legal position. The principle applied was that depreciation is allowable to the owner of the asset used for business, and the facts did not establish transfer of ownership to the Central Warehousing Corporation during the relevant assessment years.
Conclusion: Depreciation on the godowns was allowable and the disallowance was deleted, in favour of the assessee.
Issue (ii): Whether disallowance of depreciation on building and plant and machinery on the premise that certain assets were not put to use required fresh verification.
Analysis: The assessment record and the notes to the fixed assets required reconciliation, as one note indicated that assets had not been put to use while another note stated that depreciation was not provided on assets not put to use. The factual basis of the disallowance therefore required verification before a final finding could be recorded.
Conclusion: The matter was restored to the Assessing Officer for fresh adjudication after verification, partly in favour of the assessee.
Final Conclusion: The appeal relating to depreciation on the godowns succeeded, while the separate depreciation issue concerning assets not put to use was sent back for reconsideration, leaving the overall relief partly in favour of the assessee.
Ratio Decidendi: For allowance of depreciation, present ownership and business use of the asset are decisive; a contemplated future transfer or managerial control by another entity does not by itself defeat the assessee's claim where ownership remains with the assessee and no depreciation is claimed by any other party.
TaxTMI 
AI Drafter ✕
TaxTMI 
