Tribunal grants depreciation without formal deed, emphasizes possession & payment for entitlement

The Tribunal allowed the appeal, directing the Income Tax Officer to grant depreciation to the assessee for the godown and reconsider the claim for additional depreciation on new machinery, as the prescribed particulars were not clearly defined. The Tribunal emphasized that possession and payment of consideration were sufficient for depreciation entitlement, even without a formal registered deed, citing relevant case law to support its decision.

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Issues Involved:

1. Entitlement to depreciation on a godown.
2. Requirement of registration for transfer of immovable property.
3. Validity of the release deed.
4. Claim of additional depreciation under section 32(1)(iia) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation on a Godown:

The assessee, a registered firm, claimed depreciation on a godown valued at Rs. 80,000, which was allegedly taken over for business purposes. The Income Tax Officer (ITO) denied the claim, arguing that the godown's transfer from Laxmi Trading Co. to the assessee-firm was not evidenced by a registered instrument of transfer. The assessee contended that the property belonged to partner Shri Chandra Prakash Agarwal, who contributed it as capital to the firm. The Tribunal found that the property stood in the name of Shri Chandra Prakash Agarwal and was treated as the firm's property in its books, thus establishing the firm's ownership for depreciation purposes. The Tribunal cited the Allahabad High Court's decision in Addl. CIT v. U. P. State Agro Industrial Corpn. Ltd. [1981] 127 ITR 97, which held that possession coupled with payment of consideration was sufficient for depreciation entitlement even without a formal registered deed.

2. Requirement of Registration for Transfer of Immovable Property:

The Tribunal examined the necessity of a registered document for the transfer of immovable property. The first appellate authority had upheld the ITO's view that the dissolution deed indicated a sale of property from Laxmi Trading Co. to the assessee-firm, requiring registration. However, the Tribunal found that the property was treated as the firm's asset at a value of Rs. 80,000, and there was no bar to the allowance of depreciation. The Tribunal referred to various High Court decisions, including CIT v. Amber Corpn. [1974] 95 ITR 178 (Raj.), which held that such contributions or transfers did not require registration under the Indian Registration Act.

3. Validity of the Release Deed:

The revenue objected to the validity of the release deed dated 30-12-1979, arguing that it required registration. The Tribunal noted that the release deed narrated the properties as partnership property of Laxmi Trading Co., which were allotted to Shri Chandra Prakash Agarwal upon dissolution. The Tribunal found no conflict between the release deed and the dissolution deed, which described the devaluation of the property. The Tribunal concluded that the dissolution deed could not be read as an instrument of transfer and that the property belonged to the firm, allowing the depreciation claim.

4. Claim of Additional Depreciation under Section 32(1)(iia) of the Income-tax Act, 1961:

The assessee claimed additional depreciation of Rs. 972 on new machinery costing Rs. 19,435. The ITO overlooked this claim, and the first appellate authority justified the assessment order by stating that the prescribed particulars were not furnished. The Tribunal remitted this claim back to the ITO for fresh consideration in accordance with the law, as it was unclear what further particulars were required.

Conclusion:

The appeal was treated as allowed, with directions to the ITO to allow depreciation in accordance with the law after giving the assessee an opportunity and to reconsider the claim of additional depreciation.

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