Depreciation ownership rules under section 32: unregistered immovable property was denied, but movable assets in possession qualified.

Depreciation under section 32 was denied on the factory building because ownership of immovable property had not passed without registration of the conveyance deed; the vendor still stood as owner, so the assessee could not claim depreciation on that asset. Depreciation was allowed on the plant and machinery, office equipment and furniture because those were treated as movable assets, title to movables could pass on delivery, and the assessee was in possession and using them; in the absence of any finding that the plant and machinery had become immovable property, they were regarded as owned by the assessee for section 32 purposes.

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Issues: (i) Whether depreciation under section 32 was allowable on the Bharatpur factory building when the conveyance deed had not been registered; (ii) Whether depreciation was allowable on the plant and machinery, office equipment and furniture acquired under the agreement.

Issue (i): Whether depreciation under section 32 was allowable on the Bharatpur factory building when the conveyance deed had not been registered.

Analysis: Depreciation under section 32 is available only in respect of assets owned by the assessee. For immovable property, ownership ordinarily passes only on registration of the conveyance deed. On the facts, the building stood in the name of the vendor and the sale deed had not been registered. The principle that a person may exercise certain rights of an owner for tax purposes did not displace the settled requirement of registration for transfer of title in immovable property. The assessee therefore could not be treated as owner of the building for depreciation purposes.

Conclusion: The claim for depreciation on the factory building was not allowable and was decided against the assessee.

Issue (ii): Whether depreciation was allowable on the plant and machinery, office equipment and furniture acquired under the agreement.

Analysis: Office equipment and furniture are movable assets, and title to movables can pass on delivery of possession. The assessee had been placed in possession and had been using the assets. As regards plant and machinery, no finding showed that they were embedded in the earth so as to assume the character of immovable property. In the absence of such a finding, and having regard to the long-standing allowance of depreciation in earlier years, the assets were to be treated as movable and owned by the assessee for section 32 purposes.

Conclusion: Depreciation on plant and machinery, office equipment and furniture was allowable and was decided in favour of the assessee.

Final Conclusion: The assessee was denied depreciation on the building but succeeded on the movable assets, resulting in a partial allowance of the departmental appeals and dismissal of the assessee's appeal on the remaining claim.

Ratio Decidendi: For purposes of depreciation under section 32, ownership of immovable property is not established without transfer of title by registered conveyance, whereas movable assets delivered into the assessee's possession may be treated as owned by the assessee absent any contrary legal characterisation.

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