Ownership for depreciation and unexplained cash credits: shed depreciation denied, capital subsidy treatment upheld, and share money addition sustained.

Depreciation on an industrial shed was denied because the agreement to sell did not transfer ownership or any present proprietary interest before execution of the conveyance deed, so the assessee had only contractual possession. Capital subsidy was not required to be reduced from the cost base for depreciation, as the binding precedent applied in the assessee's favour. A claimed penalty-related disallowance was confined to the portion actually shown to be disallowable, with relief for the balance. Share application money credited in cash was sustained as unexplained cash credit because mere description could not exclude it from scrutiny and the explanation was not accepted.

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Issues: (i) Whether depreciation was allowable on an industrial shed acquired under an agreement of sale before execution of the conveyance deed; (ii) whether the capital subsidy was to be deducted from the actual cost or written down value of plant and machinery for depreciation; (iii) whether the sum of Rs. 1,376 was wholly disallowable as penalty, and (iv) whether the credit of Rs. 6,500 shown as share application money was liable to be treated as unexplained cash credit.

Issue (i): Whether depreciation was allowable on an industrial shed acquired under an agreement of sale before execution of the conveyance deed.

Analysis: The agreement described the assessee as purchaser, but it conferred no present interest, charge, transfer right, or assignable ownership in the shed until execution of the conveyance deed upon full payment. The instalments represented part-payment of the purchase price and not hire charges. Since ownership had not passed and the assessee had only contractual possession pending conveyance, the basic condition for depreciation was not satisfied.

Conclusion: Depreciation on the factory building was not allowable and the finding was against the assessee.

Issue (ii): Whether the capital subsidy was to be deducted from the actual cost or written down value of plant and machinery for depreciation.

Analysis: The question stood covered by the binding jurisdictional precedent relied upon in the order, under which the subsidy was not to be reduced from the cost base for depreciation purposes.

Conclusion: The issue was decided in favour of the assessee and against the revenue.

Issue (iii): Whether the sum of Rs. 1,376 was wholly disallowable as penalty.

Analysis: On examination of the particulars, only Rs. 260 represented disallowable interest and penalty, while the balance pertained to tax liabilities which were not to be disallowed in the same manner.

Conclusion: The disallowance was restricted to Rs. 260 and the assessee obtained relief for the balance.

Issue (iv): Whether the credit of Rs. 6,500 shown as share application money was liable to be treated as unexplained cash credit.

Analysis: The amount stood credited in cash in the assessee's books. Merely describing it as share application money did not take it outside the scope of the provision governing unexplained credits, and the explanation offered was not accepted on the facts.

Conclusion: The addition under the provision governing unexplained cash credits was sustained and the issue was against the assessee.

Final Conclusion: The revenue succeeded on depreciation of the factory building, while the assessee succeeded on the capital-subsidy issue and obtained partial relief on the sales tax-related disallowance; the addition for unexplained cash credit was upheld.

Ratio Decidendi: Depreciation requires ownership in law or beneficial ownership sufficient to pass the basic incidents of property, and a cash credit does not escape scrutiny under the unexplained-credit provision merely because it is described as share application money.

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