Delhi High Court
Gowersons Publishers (Pvt.) Ltd. vs Commissioner Of Income Tax, New Delhi on 17 September, 1999
Equivalent citations: 1999VIAD(DELHI)135, 81(1999)DLT874, 1999(51)DRJ580, [1999]240ITR191(DELHI)
Author: Arun Kumar
Bench: Arun Kumar, D.K. Jain, J.B. Goel
ORDER Arun Kumar, J.
1. This is a reference under Section 256 of the Income-Tax Act, 1961 (hereinafter referred to as the Act) made at the instance of the assessee pertaining to assessment year 1975-76 seeking opinion of the High Court on the following question of law:-
"Whether on the facts and in the circumstances of the case the assessee company was entitled to claim depreciation under the provisions of Section 32 of the Income-Tax Act, 1961 in respect of factory building belonging to it and used by it for its business."
2. M/s. Goverdhan Kapoor and Sons, a partnership firm owned certain assets including immovable property. The firm entered into an agreement of sale with the assessee company on 1st October, 1972 whereby the running business of the vendors was sold to the assessee company. The assets of the Company included the building. During the assessment proceedings the assessee claimed depreciation under Section 32 of the Act on the building which was disallowed by the ITO an the ground that the property did not stand in the name of the assessee.
3. The assessee went in appeal. The learned appellate Assistant Commissioner allowed the appeal directing the ITO to allow depreciation on the building. The AAC held that though the building has not been transferred in the name of the assessee due to restriction on the transfer of leasehold property before the expiry of 10 years, the fact remained that the building had been taken over by the assessee from the partnership firm alongwith other assets. The building was reflected in the assessee's Balance Sheet. It was being used by the assessee for carrying on its business. The assessee was held entitled to claim depreciation with respect to the building.
4. The department went in appeal. The Tribunal reversed the order of the AAC. The Tribunal has recorded the following finding:-
"4. After hearing both the parties, we are of the view that the Appellate Assistant Commissioner was not justified in allowing the assessee's claim. Section 32(1) is so specific that it is not capable of interpretation. The words used the "buildings......owned by the assessee." What it means is that the assessee's title should be unobstructed which confers on the assessee the right of disposition or alienation of the property. As under the agreement the assessee took over all assets and liabilities. It might be the beneficial owner of the building or the constructive owner thereof but in the absence of the transfer of the title in favour of the assessee company it does not become the owner of the building because till the assessee has unobstructive title to that building it has no right of disposition or alienation of that building. As we are of the view that the building is not owned by the assessee, the assessee is not entitled to the depreciation on the building. We reverse the order of the Appellate Assistant Commissioner and restore that of the Income-Tax Officer. In view of the fact that we are of the view that the provisions of Section 32(1) are specific, we need not go into the case law relied upon by the learned counsel for the assessee which is otherwise not relevant to the issue."
5. The learned counsel for the assessee has submitted that though the phrase used in Section 32(1) is "owned by the assessee", the word "owned" has to be interpreted in the light of the law laid down by the Supreme Court in CIT Vs. Podar Cement Pvt. Ltd., wherein their Lordships have held:-
"Though under the common law "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of property Act, the Registration Act, etc. in the context of section 22 of the Income Tax Act, 1961 having regard to the ground realities and further having regard to the object of the Income-Tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted."
6. The learned counsel for the revenue, however, contended that the petitioner cannot be treated as owner of the property because it had no right to dispose of the same. A person cannot be said to be owner of a property without having a right to dispose it of. In other words according to the counsel this right is essential to the concept of ownership. The learned counsel has relied on a decision of this court in CIT Vs. Hindustan Cold Storage and Refrigeration Pvt. Ltd., (1976) 103 ITR 455. In this case section 10(2)(vi) of the Indian Income-tax Act, 1922 came up for consideration. The relevant phrase used in the said provision was "being property of the assessee". The phrase under consideration is "owned by the assessee" as used in Section 32(1) of the 1961 Act. It was held that in the absence of a sale deed executed in accordance with law, the assessee could not be treated as owner of the property and, therefore, it did not satisfy the condition under section 10(2)(vi) of the 1922 Act and was, therefore, not entitled to depreciation in respect of the property. This judgment was followed in another decision of this court in Sushil Ansal Vs. CIT, (1986) 160 ITR 308, wherein Section 22 of the 1961 Act which contains provisions of assessment of income of house property, came up for consideration. Relevant phrase used in Section 22 is "of which the assessee is the owner". The assessee had purchased certain flats in a building. He had obtained possession thereof after paying the consideration. He was being assessed to municipal taxes with respect to the flats. He claimed that the income from the flats was liable to be assessed under the head "income from house property". Rejecting the claim of the assessee for deduction of municipal taxes and one-sixth towards repairs on the basis that the income had to be computed under the head "Income from house property", the Income-Tax Officer assessed the entire amount to tax as "Income from other sources". The Appellate Assistant Commissioner accepted the claim of the assessee. The Appellate Tribunal, on appeal, found that there was no sale deed in respect of the flats in favour of the assessee, there was only an agreement to sell coupled with payment of the purchase price and handing over of possession. Holding that till regular sale deeds were executed in favour of the assessee, the title in the flats remained vested in the company, the Tribunal restored the conclusion of the ITO. Affirming the decision of the Tribunal and relying on the judgment in Hindustan Cold Storage (supra), this Court held that execution of an agreement to sell coupled with handing over of possession was not sufficient to confer on the assessee the right of ownership in the flats. It was further observed that tax under the head "income from house property" is in respect of ownership of the property and not occupation, possession or other kind of rights over house property.
7. The learned counsel for the assessee argued that the decision of this Court in Sushil Ansal's case (supra) was specifically over-ruled by the Supreme Court in CIT Vs. Podar Cement Pvt. Ltd., (1997) 226 ITR 625. In Podar Cement section 22 of the 1961 Act came up for consideration and it was held that execution of sale deed was not a sine qua non for invoking of the provisions of Section 22. In Sushil Ansal this Court had followed its earlier decision in Hindustan Cold Storage (supra). Since Sushil Ansal's case has been overruled, it was argued that the decision in Hindustan Cold Storage should also be taken as over ruled.
8. The main question for consideration is the meaning to be assigned to the word "owner" or "owned by" as used in Section 32(1) of the Act. Section 22 which uses the word "owner" deals with assessment of income from house property while Section 32(1) deals with allowing depreciation on buildings etc. owned by as assessee. In both the provisions the words "owner" or "owned" or "owned by" are used in the context of enjoyment of the property by the owner. So long as a person contains to enjoy the property as an owner, he can make out the case for assessment from the income of the property under Section 22 and claim depreciation thereon as per the provisions of Section 32(1). Thus the context in which the words "owner by" are used, relates to deriving benefit by way of income or by personal use of the property. The real test is the right to enjoy the property as owner. In other words what is to be seen is that the assessee should be in a position to enjoy the property in his own right. Right to dispose of the property as suggested by the learned counsel for the revenue does not appear to be germane to the object of the provisions. In the present case the fact is not disputed that the assessee has paid full price of the property and is using the building in question for its own business. The frame of the question which we are required to answer makes it clear. It is only that for reason of some restrictions which are applicable for a specified period, a formal sale deed cannot be executed in favour of the assessee with respect to the property.
9. We are unable to agree with the contention of the learned counsel for the respondent that since the assessee does not have a right to dispose of the property, it is not entitled to claim depreciation under section 32(1) of the Act. Principles of statutory interpretations support the view that we are taking in this behalf. This interpretation advances the object of the provision. Secondly this interpretation also upholds the principle that in taxing statutes, when there is need for interpretation, it should be in a manner favouring the assessee.
10. In Podar Cement (supra) the Supreme Court explained that though under the common law "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act etc. In the context of Section 22 of the Income Tax Act, 1961, having regard to the ground realities and having regard to the object of the Income Tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. In the light of the decision of the Supreme Court in Podar Cement (supra) the requirement of registration of sale deed in the context of section 22 is not warranted. What is to be seen is who is in a position to enjoy the property or reap benefits from it as owner. An assessee seeks to have the income from his property assessed under Section 22 only because he derives the income in his own right. The right to sell the property does not come in the picture. It is not germane to the issue. If for all practical purposes the assessee has a right to enjoy a property as owner he will be deemed to be the owner of the property even if a formal document conferring the title to the property in his favour is yet to be executed. The provisions of the Act have reference to the enjoyment of the property by the assessee as owner and nothing else.
11. The decision of the Supreme Court in Podar Cement, in our view leaves no scope for the argument that without a duly registered document of title in his favour, a person cannot be said to be owner of a property for purposes of sections 22 or 32(1) of 1961 Act. As observed by the Supreme Court, the Income Tax Act is concerned with provisions regarding taxing of income and, therefore, the income or benefit derived from a property by an assessee should really be the concern for purposes of provisions of this Act. In the context of these provisions right to alienate the property is secondary. An assessee who has right to enjoy the property for all practical purposes can be treated as its owner for purposes of these provisions of the Act.
12. The view that we have taken finds support from a recent decision of the Supreme Court in Mysore Minerals Ltd. Vs. CIT, Karnataka, . The case relates to claim of depreciation under Section 32(1) of the 1961 Act by an assessee with respect to a building regarding which the assessee did not possess a conveyance deed. It was held:-
"In our opinion, the term owned as occurring in Sec. 32(1) of the Income-Tax Act, 1961 must be assigned a wider meaning. Any one in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by Transfer of Property act, Registration Act etc. `Building owned by the assessee'-the expression as occurring in Section 32(1) of the Income-tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as Transfer of Property Act and Registration Act etc. but nevertheless is entitled to hold the property to the exclusion of all others."
13. We are of the opinion that the assessee company was entitled to claim depreciation under the provisions of Section 32 of the Income Tax Act, 1961 in respect of the factory building belonging to it and used by it for its business. Accordingly the question is answered in the affirmative, i.e. in favour of the assessee and against the revenue. The reference stands answered in the above terms.