TaxTMI 
TaxTMI 
2005 (2) TMI 53
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....g depreciation under section 32 of the Income-tax Act for the building occupied by the assessee-company by reversing the first appellate order confirming disallowance in assessment?" The controversy arose because the assessee-company admittedly is not the owner of the building under general law of the land inasmuch as the firm which constructed the building on the land belonging to it has not transferred the title to the land or the building to the assessee-company but only allowed use of the building by the assessee under an agreement dated February 1, 1989. While the assessee's case is that the right conferred on it under the above agreement and the reimbursement of construction cost by it to the firm make it eligible for depreciation as owner under section 32(1) of the Act, the Revenue's case is that the assessee, not being the owner of the building, cannot be granted depreciation, no matter it is allowed the use of the building by its owner, namely, the partnership firm. A large number of court decisions are cited before us by both parties. Though judicial opinion expressed in various decisions is not uniform, the settled position is that depreciation should not be declined ....
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....e company hereby agrees: (a) to advance to the firm such sum of money over and above the amounts, if any, already advanced for enabling the firm to complete the construction of the said building and to carry out such other work as are found necessary. 4. Both the parties to the agreement hereby covenant that- (a) The hospital building shall belong to the company on the company taking possession thereof, but, however, that the firm has and will have a lien on the hospital building and on any improvements or additions thereto until the money owing by the company to the firm by virtue of this agreement is fully paid of. (b) The land on which the hospital building situates shall always belong to the firm or its partners as the case may be and the company or any person claiming thereunder has no right whatsoever to sell, alienate, transfer, mortgage or hypothecate or otherwise dispose of the same to any person or persons; but however that the company is hereby permitted to do or construct such additional structures or building as it may find it necessary for its business, or to put up hoardings or other publicity materials to publicise its business. (c) Notwithstanding th....
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....er clause 3(g) either party is not entitled to any interest from the other. Apart from accounting entries in the books of account of the assessee, there is nothing in the agreement to indicate that the assessee can claim title for the building as a matter of right by paying the balance amount spent by the firm and shown as liability in its accounts. There is neither any provision in the agreement for the firm to enforce recovery of the balance cost of construction at any point of time from the assessee nor any provision obliging the firm to transfer the title to the assessee on receipt of balance construction cost. In other words, the agreement appears to have been made only for the purpose of claiming depreciation and not intended to be acted upon nor is it capable of enforcement as the same does not contain definite terms pertaining to transfer of title to the assessee. Probably the arrangement is informal as the beneficiary of both concerns is one and the same person and his family members. The question now to be considered is whether the right available to the assessee under the above agreement can be termed as "ownership" for the purpose of depreciation under section 32(1) of ....
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....to is only entered into for claiming depreciation and not intended ever to convey title of the building to the assessee-company, which is a necessary precondition for granting depreciation. Even though a large number of decisions are referred to by both sides, we feel all those decisions need not be gone into, but reference to some of those decisions will be sufficient for the purpose of disposal of these appeals. The assessee has heavily relied on the decision of this court in CIT v. Parthas Trust [2001] 249 ITR 120. However, we find this court approved the grant of depreciation because though land was not owned by the assessee, the building was constructed by the assessee at its own cost. However, in this case, it has to be noted that building is constructed by the partnership firm and not by the assessee and the assessee has only reimbursed the substantial amount of construction cost to the firm with no commitment from the firm that it will ever transfer the title in favour of the assessee-company. Therefore the decision of this court does not apply to the facts of this case. In the case reported in CIT v. Abrol Engineering Co. P. Ltd. [2001] 251 ITR 830, a Full Bench of the Pun....