Beneficial ownership and capital incentive treatment govern depreciation, section 43B relief, and MAT interest computation.

Beneficial possession and effective control over office buildings, with substantial payment and enjoyment of dominion, are treated as sufficient for depreciation even without a registered conveyance deed. A sales-tax exemption granted to promote industrial development in backward areas is characterised as a capital receipt, and a tax waived by the notification is not a sum payable for section 43B disallowance. For MAT computation under section 115JA, the Assessing Officer's adjustment power is confined to the statutory Explanation, so arrears of depreciation reflected in duly prepared accounts are not re-opened beyond that limit. Interest under sections 234B and 234C is also stated to be inapplicable on deemed book profit taxation.

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Issues: (i) Whether depreciation on office buildings could be allowed when the assessee had possession and effective control but no registered conveyance deed; (ii) Whether sales-tax exemption granted under the State incentive scheme was a capital receipt and outside the disallowance under section 43B; (iii) Whether arrears of depreciation arising from a change in the method of depreciation could be excluded while computing book profit under section 115JA; (iv) Whether interest under sections 234B and 234C was leviable on income computed under section 115JA.

Issue (i): Whether depreciation on office buildings could be allowed when the assessee had possession and effective control but no registered conveyance deed.

Analysis: The assessee had paid substantially the entire consideration, obtained possession, and enjoyed dominion over the buildings. The transfer was treated as having occurred within the meaning of section 2(47) because the arrangement enabled enjoyment of immovable property and was in substance an intended sale. For depreciation, the expression "owned" in section 32 was applied in a wider sense, consistent with the principle that beneficial ownership and user for business purposes are sufficient even if legal title is not yet perfected by registration.

Conclusion: The issue was decided in favour of the assessee. Depreciation on the office buildings was allowable despite absence of a registered conveyance deed.

Issue (ii): Whether sales-tax exemption granted under the State incentive scheme was a capital receipt and outside the disallowance under section 43B.

Analysis: The exemption scheme was designed to promote industrial development in backward areas and the relief was quantified by reference to capital investment. The amount retained by the assessee was therefore not a trading receipt arising from ordinary business operations but an incentive tied to setting up units in the specified area. Since the tax was exempted by the notification itself, it was not a sum "payable" by the assessee within section 43B. The character of the payment was governed by its purpose, not by the mode in which the incentive was measured.

Conclusion: The issue was decided in favour of the assessee. The sales-tax exemption was a capital receipt and no disallowance under section 43B was warranted.

Issue (iii): Whether arrears of depreciation arising from a change in the method of depreciation could be excluded while computing book profit under section 115JA.

Analysis: The company's accounts were prepared in accordance with the Companies Act and were duly certified. The binding principle applied was that the Assessing Officer cannot go behind the net profit shown in the profit and loss account except to the limited extent permitted by the statutory adjustments in the Explanation to section 115JA. The treatment of arrears of depreciation in the accounts could not be re-opened beyond that limited statutory power.

Conclusion: The issue was decided in favour of the assessee. The book profit computation as accepted by the CIT(A) was upheld.

Issue (iv): Whether interest under sections 234B and 234C was leviable on income computed under section 115JA.

Analysis: The issue was governed by the view that when tax liability is determined on the basis of deemed book profit under the MAT provision, the levy of advance-tax interest does not arise in the same manner as under the normal computation provisions.

Conclusion: The issue was decided in favour of the assessee. Interest under sections 234B and 234C was not leviable.

Final Conclusion: The assessee succeeded on the substantive tax controversies, while the Revenue's appeals were rejected on all issues raised.

Ratio Decidendi: For depreciation and MAT purposes, beneficial possession and dominion over property may suffice over formal title where the transaction is in substance a transfer, and an incentive granted to promote industrial investment in backward areas is a capital receipt rather than trading income.

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