Income Tax Appellate Tribunal - Delhi
Food Corporation Of India vs Deputy Commissioner Of Income Tax on 16 October, 2002
Equivalent citations: (2003)79TTJ(DELHI)249
ORDER
Diva Singh, J.M.
1. These are two appeals filed by the assessee against the consolidated order dt. 22nd March, 1996, of CIT(A)-IV, New Delhi, pertaining to 1991-92 and 1992-93 assessment years.
2. Ground No. 1 in both the appeals is general in nature requiring no adjudication and ground No. 2 in both the appeals reads as under :
"2. The assessing/appellate authority has erred in reducing depreciation of Rs. 820.05 lacs for godowns owned by the assessee used by it for the purposes of its business, wrongly construing that godowns were constructed by the Food Corporation of India through Central Warehousing Corporation from the funds made available by the IDA (channelised through the Government of India) as being godowns owned by the CWC."
(Although for 1991-92 asst. yr., the depreciation reduced is Rs. 142.03 lakhs).
3. In 1991-92 assessment year, the assessee has raised another ground which reads as under :
"3. The assessing/appellate authority has erred in reducing the amount of depreciation claimed under s. 32 by Rs. 131.65 lacs (Rs. 37.60 lacs for building and Rs. 94.05 lacs for plant & machinery) in respect of building and plant & machinery erroneously presuming that the assessee had claimed depreciation on building and plant & machinery not put to use during the year."
4. Ground No. 4 in ITA No. 4014/Del/96 and ground No. 3 in ITA No. 4015/Del/96 are general in nature requiring no adjudication,
5. The relevant facts pertaining to ground No. 2 in both the appeals are that the assessee is a public sector company engaged in the procurement and distribution of foodgrains, fertilizers and other commodities. The facts as appreciated by the AO in 1991-92 assessment year are reproduced in the impugned order at p. 3 are as under ;
"Note No. 46 of the balance sheet indicates that the assessee has charged depreciation on godowns valued at 3282.86 lacs which are to be transferred to CWC after 15 years of construction. The assessee was asked to furnish the relevant papers regarding this transactions. Copy of an agreement between the CWC and FCI, dt. 29th Feb., 1980, was filed. The facts of the case is that FCI, the assessee-company, obtained a loan under a project assisted by the International Development Association. The loan amount was given by FCI to the Central Warehousing Corporation to construct the godowns. Under the agreement CWC is responsible for operational management of the godowns. FCI pays storage charges to CWC for storage of its stocks in these godowns of CWC. On the other hand, CWC reimburses to the assessee the loan instalments along with the interest that is payable by the assessee towards repayment of the above loan (Para 6 of the agreement referred to above). At the end of 15 years, full ownership of the godowns will be passed on to the CWC.
The assessee-company in addition to the above hires a large number of godowns from CWC. In respect of the above godowns hired by FCI, similar amount of storage charges are paid. The storage charges as mentioned in the note filed on 23rd March, 1994, are for utilization of the storage capacity. This does not appeal to the reason as the godowns are owned by the assessee-company. The amount paid to CWC for its godowns includes rent for utilization of space and maintenance of the godowns and other activities related to storage of grains. The same rates are paid for godowns owned by assessee-company. Thus, in effect the assessee pays rent for godowns owned by it which is not a normal business practice.
On the other hand, CWC reimburses the assessee with the loan instalment and interest completely. Thus, the assessee-company has not incurred any liability towards the acquisition of the assessee. The total liability of the assessee will be paid for by CWC over a period of time.
From the above, it appears that the assessee-company is only the de jure owner whereas the de facto ownership lies with CWC. The godown is effectively hired to the assessee by CWC and thus the assessee-company cannot even claim to be the beneficial owner of the assets. For depreciation to be allowed the company should necessarily be the effective and actual owner having practical control over the assets. Section 43 defines 'actual cost' as follows :
"Actual cost means the actual cost of assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly be any other person or authority."
Since the whole cost of the assets is being borne by the CWC, this has to be reduced from the cost of acquisition borne by the assessee as per the above definition to arrive at the actual cost of the assets to the FCI on which depreciation can be allowed. Actual cost of the assets to FCI would be reduced to nil. In view of the above reasons, depreciation allowance claimed in respect of these assets of Rs. 8,20,05,000 would be disallowed."
6. Similarly, in 1992-93 assessment year the assessee-company claimed depreciation at Rs. 142.03 lakhs on godowns constructed by Central Warehousing Corporation (hereinafter called as CWC). Note 41 of the balance sheet for the relevant assessment year indicated that the assessee has charged depreciation on godowns which are to be transferred to CWC after 15 years of construction. Thus, on the same analogy as in the earlier assessment year, the depreciation allowance claimed in respect of these godowns amounting to Rs. 142.03 lakhs was disallowed.
7. In appeal before the first appellate authority, the CIT(A), for the following reason, confirmed the action of the AO :
"Looking to the facts and circumstances of the case, I find that the AO has passed a well-reasoned order. Moreover, the assets i.e., godowns are not owned by the assessee-company and the rent is being paid by FCI for storage of its grains to CWC, the appellant is not entitled to claim depreciation. No interference is called for. The disallowance made by the AO amounting to Rs. 820.05 lacs stands confirmed."
8. For identical reasons, the disallowance of depreciation of Rs. 142.03 lakhs for 1992-93 assessment year was also confirmed.
9. Aggrieved by this, the assessee is in appeal before us.
10. Right at the outset referring to the case history of the assessments, it was submitted by the learned authorised representative of the assessee Dr. S. Narayanan that apart from these two assessment years in the past as well as in the subsequent assessment years, the AO has allowed the claim of the assessee under Section 143(3) of the Act and not under Section 143(1).
11. It was further contended that no depreciation on the said assets has been claimed by the CWC, for which submissions, reliance was placed upon the first paper book filed before us wherein at Sl. No. (c), there is a letter dt. 13th April, 1994, addressed to Shri G. Mohan, Addl. Financial Adviser, FCI by Shri B. Ashok on behalf of Central Warehousing Corporation which reads as under :
"Please refer to your D.O. letter No. DC&F/P&I/4(52)/86-87-IV/dt. 13th April, 1994, regarding treatment of base depots for purpose of depreciation in CWC's books.
It is hereby confirmed that the CWC does not include any of the value of the base depots in its books nor does it charge or provide for depreciation on these depots. It is also confirmed that for the year 1990-91 the cost calculation based on the rental fixed do not include the element of depreciation charged on these base depots godowns. You are aware that Shri M. Seetharam, AS&FA had decided to fix the same rate for the subsequent year 1993-94 i.e., subsequent rates are not based on cost."
12. Referring to the facts of the case, it was highlighted that tripartite agreement had been entered into between the CWC, FCI and Department of Food. Reference was made to the meeting held on 29th Feb., 1980, regarding management of storage depots being constructed- by CWC on behalf of FCI under the World Bank Project II. A copy of the said record of discussions under the IDA assisted project was also referred to. Clause 6 of the said discussion was specifically emphasized in order to contend that as per this agreement, the storage godowns under the World Bank Scheme were constructed by CWC on behalf of PCI and the entire finances for the same were initially provided by the Government of India to the FCI on 1 : 1 debt equity ratio and the CWC was to bear the FCI's liability both for the payment of interest charges and the repayment of the prescribed loan instalments to the Government of India. These payments as per this agreement would be received by the FCI from the CWC and will be made over in equal measure to the Government of India in discharge of its obligations. Clause 7 of this agreement was further emphasized which reads as under :
"7. At the end of 15 years, the full ownership of those godowns including railways sidings would pass on from the FCI to the CWC. For this purpose, the CWC would, at the end of 15 years, pay to the FCI the written down value of the assets less the total amount of loan instalments paid by it already during the course of the 15 years period. Thus, the CWC would have paid to the FCI at the end of 15 years the total written down value of the assets."
13. Reference was also made to Clauses 9, 10,11 and 12 of this agreement.
14. It was further submitted by the learned authorised representative that the assessment order suffers from an inherent inaccuracy insomuch as it is presumed by the AO that same rate is being charged/paid where the ownership rests with CWC.
15. Another inaccuracy pointed out was that although the assessment order does not mention Section 53A of the Act but an analogy has been drawn from the contract that the ownership will pass in 15 years. It was contended that although this section has not been specifically invoked but to be on the safer side. It was sought to be stated that the said section has no role to play.
16. Referring to the facts of the case, it was further stated that the entire amount received from the CWC has been passed on to the Government and the CWC was required to service only the loan component and the AO has completely missed this issue.
17. Referring to the letter dt. 23rd March, 1994, addressed to Dy. CIT, Special Range, New Delhi, which is placed at paper book pp. 53 and 54. It was highlighted that an agreement between the Government of India and the IDA was entered into on 6th Jan., 1978 regarding finance for construction of godowns by the Government of India to have an additional storage capacity. On the basis of which, it was reiterated the finance so received from the World Bank was passed on to the FCI at the ratio of 1:1 i.e., 50 per cent as loan "and 50 per cent as equity of the corporation. The 50 per cent loan provided for was to be repaid by the corporation to the Government of India along with interest and subsequently 50 per cent loan was also converted into equity of the corporation. It was further stated that subsequently, a tripartite agreement between the Government of India, FCI i.e., the assessee, and the CWC was entered on 29th Feb., 1980, for the construction of godowns by the CWC on behalf of the assessee for which the finance was undisputably provided by the assessee from the funds received by the assessee from the Government of India against the World Bank loan. It was further stated that as per this agreement with the CWC although the godowns were to be constructed by the CWC but they were to be the property of the assessee. The godowns were to be maintained by the CWC and utilized by the assessee on guarantee basis for a period of 15 years for which the assessee was to pay storage charges for utilizing the storage capacity. Accordingly, it was contended the CWC was to repay fund provided by the assessee on instalment basis along with interest. Referring to the arrangement, it was contended that the fund provided by the assessee to the CWC was treated as deposit with CWC at the initial stage and as and when the godowns were completed and the statement of expenditure incurred by CWC was received by the assessee, the assets were capitalized with a corresponding credit to deposit. As per this agreement, after 15 years, the godowns were to be handed over to the CWC at the written down value less the amount received back by the assessee against the finance provided to the CWC but, this fact, it was contended, does not tantamount to saying that the ownership of the godowns does not vest with the assessee. On the basis of which, it was contended that the CWC has been making the payments to the FCI and not to the Government of India and the FCI granted a loan and charged interest from the CWC and received the rent therefrom also. It was further contended that as far as the assessee was concerned, these were the assets used for the purpose of assessee's business as can be seen from the balance sheet and the said assets have not been sold. It was re-emphasized that no depreciation on the said assets has been claimed by the CWC.
18. Learned Departmental Representative Mrs. Bulbul Sen, on the other hand, placed heavy reliance on the orders of tax authorities.
19. It was vehemently contended by her that in a situation when the ownership vests with the CWC, there is no occasion how the depreciation could be claimed by the FCI. It was further argued that after examining the various arguments of the assessee, the tax authorities have rightly denied the claim of depreciation. Heavy reliance was placed on the fact that the CWC is regularly paying to the FCI specific amounts charged as part-payment. Reliance was placed upon the decision of the apex Court in the case of Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) for the proposition that the meaning of ownership in Section 32 should be given a wide meaning and even if a building which was not registered in the name of the assessee, their Lordships of the apex Court in that case have allowed the depreciation to the assessee as it was considered to be the owner of the building for the purpose of Section 32. Strength was drawn from the same analogy that herein despite the fact that registration has not taken place, the CWC can be termed to be the owner and the FCI i.e., the assessee has rightly been denied depreciation on the said godowns.
20. Referring to the tripartite agreement between the parties, it was contended that even if 50 per cent of the amount was treated to be as loan, it was a relevant point that it was serviced by the CWC. Referring to letters appended at flags (C) and (D), it was contended that the common rate has been arrived at by the CWC as far as the charges of Rs. 1 per bag per month effective from 1st April, 1990, are concerned. Accordingly, the 'argument put forth was that in case CWC is not the owner of the godowns, then how is the same rate being charged by it from the FCI for storage in godowns which belonged to the CWC and those which, according to the assessee, did not belong to the CWC but, in fact, belonged to the FCI itself. It was contended by the learned Departmental Representative that in that situation, the rates charged should have been different. It was contended that oranges and apples cannot be added together and have to be treated differently.
21. It was vehemently contended that CWC as per the agreement is already a part owner because after 15 years, the ownership was to pass over to the CWC and payments for the said transfer were being made by the CWC. Referring to the project agreement appended at flag 'H' internal p. 4 Article III, it was contended that the arguments of the assessee, namely, that as per the agreement between International Development Association and the FCI dt. 6th Jan., 1978, the corporation, vide Clause 3.01.(c) is barred from selling, letting out on lease, transfer or otherwise dispose of any of its property or assets required for the efficient operation of the project except in the normal course of business is concerned, it was contended that ample exceptions are carved out in Clause 3.02.(c) namely, that the corporation is entitled to take all actions which are "necessary" or "useful" in the conduct of its business or in the carrying out of the project. Accordingly, the contention put forth was that this embargo on transfer by way of selling or leasing out can be disregarded whenever the corporation i.e., the assessee considers the transfer to be necessary or useful. Attention as invited to the fact that why should CWC pay instalments if it is not enjoying the dominion on the said godowns. It was the learned authorised representative's contention that proof of dominion by itself shows that the ownership vested with the CWC and not with the assessee.
22. Reliance was also placed upon the decision of the apex Court in the case of CIT v. Podar Cement (P) Ltd. & Ors. (1997) 226 ITR 625 (SC) wherein the meaning of "owner" was held to be in the context of Section 22 as a person who is entitled to receive income in his own right. It was contended that therein their Lordships of the apex Court held that Section 22 does not require registration of sale deed. Referring to the decision in the case of Jodha Mal Kuthiala v. CIT (1971) 82 ITR 570 (SC), it was contended that owner must be that person who can exercise the rights of the owner not on behalf of the owner but in his own right. It was further contended by her that a property at the same time cannot be held by two different persons. Where the income is being received by the CWC simply because the title has not passed, it cannot be held that for the purpose of depreciation, the ownership vests with the assessee. Referring to s. 53A, it was contended that part-performance has been done by the CWC. The fact that it is operating the godowns and has dominion over the same is also evident. As such the assessee cannot claim depreciation.
23. Reliance was also placed on the decision of the apex Court in the case of Tamil Nadu Civil Supplies Corporation Ltd. v. CIT (2001) 249 ITR 214 (SC) wherein their Lordships have considered the decision rendered in the case of Mysore Minerals Ltd v. CIT (supra) and rejected the claim of the assessee.
24. Reliance was also placed upon the decision of the Allahabad High Court in the case of Addl. CIT v. U.P. State Agro Industrial Corporation Ltd. (1981) 127 ITR 97 (All) and N. Karuna and Anr. v. Appropriate Authority and Ors. (2001) 251 ITR 230 (AP).
25. Learned authorised representative, in reply, also placed reliance on the decision of the Supreme Court in the case of Mysore Minerals (supra) and contended that their Lordships of the Supreme Court after considering the decision in the case of Podar Cement (supra) have considered the various facets of ownership and, as such the contention put forth was that the full headnote in its entirety deserves to be considered so as to appreciate the various facts. It was further contended that only when gross written down value is paid after 15 years and the pay adjustments have been made, only then can it be said that the ownership has passed to the CWC. Referring to internal p. 4 Article III of the project agreement between IDA and FCI, it was contended that specific embargo has been placed on the assessee that it cannot dispose or destroy the godowns and the CWC is only to manage the said godowns and there is no question that any income from the godown is being earned by the CWC. The per bag per month storage charges are only a revenue expenditure on the basis of the quantity of storage.
26. We have heard the rival submissions and perused the material placed on our files. The undisputed facts of the case as we understand are that in 1990-91 assessment year, the AO, vide his order dt. 31st March, 1990, passed under Section 143(3), did not make any disallowance on account of depreciation charges on assets by the assessee wherein in 1991-92 assessment year for the first time taking into consideration Note 46 of the balance sheet, depreciation on godowns to the tune of Rs. 820.05 lakhs was disallowed. It is further borne out that the disallowance made in 1991-92 assessment year on identical terms was made by the AO in 1992-93 assessment year. The position as per the material placed before us is that as far as 1993-94 and 1994-95 assessment years are concerned, that orders were passed under Section 143(1)(a), dt. 28th Feb., 1994, and 29th May, 1995, without making any disallowance on account of depreciation on these godowns constructed by the FCI through the CWC. Whether any notice thereafter was sent under Section 143(2) of the Act and the assessment was made under Section 143(3) wherein the disallowance made in the earlier years was followed by the AO. nothing has been addressed on the said issue but again with reference to the material before us, it is seen that in 1995-96 assessment year the assessment was passed under Section 143(3) of the Act and same was the position for 1996-97 assessment year. Where again, assessment was made under Section 143(3) of the Act. A perusal of these orders shows that no disallowance on the said account was made in the hands of the assessee. Similarly for 1997-98 and 1998-99 assessment years, the assessments were made under Section 143(3), dt. 20th Aug., 1999, and 25th Aug., 2000, respectively, and in 1999-2000, the assessment as per the material before us was made under Section 143(1)(a). Copy of all these orders were placed before the Bench. These are the facts as far as case history of the assessments is concerned.
27. A perusal of the tripartite agreement at Sl. No. 2 in assessee's paper book shows that it is a record of discussion of meaning held on 29th Feb., 1980, regarding the management of storage depots being constructed by CWC for the assessee under the IDA assisted project during which the representatives of the Department of Food, FCI and CWC were present. A perusal of this shows that as a sequel to the meeting held on 16th Oct., 1979, certain exercises were to be made by FCI and CWC and the details of these exercises were circulated prior to this meeting and thus ultimately, final decision on certain issues was discussed whereupon it was agreed that the storage godowns under the World Bank Scheme would be construed by the CWC on behalf of FCI and the entire funding would be initially provided by the Government of India to the FCI and on 1:1 debt equity ratio. Further, the CWC would bear the FCI's liability both for the payment of interest charges and the repayment of prescribed loan instalments to the Government of India. These payments would be received by the FCI (assessee) from the CWC and be made over in equal measure to the Government of India by the FCI i.e., the assessee in discharge of its obligations.
28. A perusal of Clause 7 of this tripartite agreement further shows that it was further agreed that at the end of 15 days, the full ownership of these godowns including railway sidings would pass on from the FCI i.e., the assessee to CWC and for this purpose, the CWC would at the end of 15 years pay to the assessee the written down value of the assets less the total value of loan instalments paid by it already during the course of 15 years' period. Thus, the CWC would have paid to the FCI at the end of 15 years the total written down value of the assets.
29. It was further agreed as per Clause 8 of this tripartite agreement that the two corporations would continue to receive equity funds from the Government on the considerations relevant to them respectively and thus, would not disturb the other capital financial arrangements specific to the World Bank project funding in the instant context.
30. This tripartite agreement further shows vide Clause 9 that it was also agreed that the operational management of these godowns including the repairs, etc., would be the responsibility of the CWC and that the capital cost of the godowns would include the actual cost of railway siding, weigh-bridges and ancillary, etc., but the maintenance, repair and operational charges for the railway sidings as annually charged by the railways to the CWC during the 15 years' period would be reimbursed by the FCI every year. A perusal of this agreement shows that this was incorporated specifically for the reason that the CWC normally does not provide railway sidings and it was a special facility extended by them to the FCI. Similarly, other expenses for the use of railway siding such as shunting, rake and booking charges and levies were to be reimbursed by the assessee every month on the bills raised by the CWC along with other handling and transport charges. The CWC was further required to allow the proportionate rebate where the railway sidings were utilized for the benefit of the customers other than assessee.
31. Subject to this operational and management adjustments, the CWC was to charge the FCI i.e., the assessee for the storage charges in respect of those depots at the same pooled uniform rates and same conditions as applicable to its other godowns from time to time as is evident from Clause 10 of this agreement.
32. Clause 11 of the agreement explains that it was further agreed that in working out the pooled storage charges leviable from year to year during this 15 years' period, the depreciation charges in respect of these depots would not accrue to the account of the CWC since these charges would have been borne directly by the FCI i.e., the assessee.
33. A perusal of Clause 12 of this agreement shows that the guarantee of occupation of these godowns was also agreed to be 100 per cent for the full period of 15 years since it was agreed between the parties that these godowns would formally be the godowns owned by the FCI i.e., the assessee and during this period, the CWC was agreed to be only manning them.
34. It is also pertinent to state that in the course of the hearing, reliance has been placed by the learned authorised representative on a letter dt. 13th April, 1994, of Shri B. Ashok on behalf of CWC which is placed in the paper book at flag 'C' p. 9. It states that the CWC does not include any of the value of the base depots in its books nor does it charge or provide for depreciation on these depots. It is also confirmed therein that for 1990-91 assessment year, the cost calculation based on the rental fixed does not include the element of depreciation charged on these base depot godowns.
35. We have also considered at length the project agreement, dt. 6th Jan., 1978, between International Development Association and the FCI. A perusal of this project agreement shows that on the same date, the Department Credit Agreement between India and the International Development Association took place as a result of which, the IDA agreed to make available India an amount equivalent to one hundred and seven million dollars on the terms and conditions set forth in the Development Credit Agreement on the condition that the FCI i.e., the assessee agrees to undertake such obligations towards the IDA as set forth in the project agreement, dt. 6th April, 1978.
36. We have also taken into consideration art. in of the project agreement on which heavy emphasis has been laid upon by the assessee as well as the learned Departmental Representative. The same is being reproduced for ready reference :
"Management and operations of the corporation Section 3.01. The corporation shall at all times manage its affairs, maintain its financial position, plan its future expansion and carry on its operations, all in accordance with sound business, financial, administrative and engineering practices and under the supervision of experienced and competent management assisted by adequate and competent staff.
Section 3.02(a). The corporation shall at all times maintain is corporate existence and the right to carry on its operations and to acquire and retain ownership of all lands and maintain and renew all interests in land and other properties, and take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business or in the carrying out of the project.
(b) The corporation shall at all times operate and maintain its machinery, equipment and other property, and make all necessary repairs and renewals thereof, in accordance with sound engineering practices.
(c) Except as the association shall otherwise agree, the corporation shall not sell, lease, transfer or otherwise dispose of any of its property or assets required for the efficient operation of the project, except in the normal course of business. Section 3.03. The corporation shall take out and maintain with responsible insurers, or make other provision satisfactory to the association, for insurance against such risks and in such amounts as shall be consistent with appropriate practice."
37. To recapitulate, the agreements of the assessee have been that by virtue of Section 3.02(c) of Act in of this agreement, the FCI is barred from selling or alienating the property or assets without the approval of the IDA and the arguments of the learned Departmental Representative on the other hand, referring to Section 3.02(a), have been that there is no such absolute bar as whenever it is considered "necessary" or "useful" in the conduct of its business or in the carrying out of the project, the corporation i.e., the assessee with the approval of the IDA could sell or alienate the said property. As such, the bar is not absolute.
38. In this background, having given our utmost consideration to the points at issue, it is seen on a perusal of the agreement and documents placed before us that although there is a bar on the FCI to alienate or dispose of the property or asset except in the manner as laid out in Article III of the project agreement the issues before us can be adjudicated without getting into the niceties to determine whether it is an absolute bar or a conditional bar as it is not imperative to decide the same so as to adjudicate the issue before us. We have also seen that it was envisaged that after a period of 15 years, the ownership would pass to the CWC after certain adjustments have been made. We are unable to see how on the facts as they stand it can be said that the ownership has passed to the CWC. As per the facts as they stand before us, the uniform stand of the assessee as well as the CWC is that the ownership vests with the assessee. It is also their common stand that the depreciation is also to be accordingly claimed by the assessee. It is also a common stand that the operational functions and management functions are discharged by the CWC for the FCI i.e., the assessee as a result of it payments are being made to it to cover the revenue expenditure. All these facts on record are coupled by the undisputed fact that no depreciation on the said assets is being claimed by the CWC or by any other authority. Further, the depreciation claimed by the assessee is supported by the tripartite agreement entered into by the assessee with the CWC and the Department of Food. This is further supported by the project agreement which envisaged that the assessee would maintain its corporate existence at all times and acquire and retain interests in land and other properties and shall not sell, lease, transfer or dispose its assets. Thus, all these facts seen separately or cumulatively fully support the stand of the assessee and simply because as per the tripartite agreement, ownership was envisaged to be transferred after a period of 15 years after making certain adjustments, the fact cannot be ignored that till that event takes place, the uniform stand of assessee and CWC is that depreciation on account of ownership is to be claimed only by the assessee. We have also taken into consideration the fact that since there is nothing on record to show that depreciation is also being claimed by CWC and it is also not the case of the Revenue that depreciation is being claimed by the CWC, we are of the view that the claim of the assessee deserves to be allowed.
39. Thus, after a perusal of these various documents and consideration of various submissions advanced before us and the analysis of the proposition of law laid down by various Courts, it is seen that in no way could it be concluded on the facts as they stand that the ownership vests with the CWC. The said conclusion is possible only in the eventuality that the FCI passed the ownership to the CWC after necessary adjustments and the CWC is enjoying total control and resultant benefits of owners in its own right and not merely discharging certain functions on behalf of the owner for which it has received remuneration in return. At this juncture, we need not even go into the aspect that the FCI is reconsidering its decision and has decided not to pass on the ownership to the CWC after a lapse of 15 years as has been submitted by the learner authorised representative in the course of the hearing as we are firmly of the view that the eventuality of such a happening or non-happening is not germane to the issue as even without considering the same, the claim of the assessee has to be allowed. Whether any portion of the tripartite agreement is contrary to the terms and conditions of project agreement inasmuch as the possibilities of parting with ownership after 15 years is concerned is also not in the realm of the present issue as it is not necessary to go into the issue of what kind of future arrangement the assessee could or could not have entered into as a result of the project agreement as the issue to be decided in the present forum is whether to allow the claim of the assessee regarding depreciation or not ? Having considered the facts of the case at length, we have come to the conclusion that the claim deserves to be allowed.
40. Before arriving at the conclusion in favour of the assessee, we have taken into consideration the decision cited at Bar before us. The next point for our consideration at this juncture is to examine the position of law and its applicability on the facts as they stand before us. Thus, it is necessary to consider the decision relied upon by either side before us. In the decision of the Supreme Court in the case of Podar Cement (supra), the criteria for deciding the issue was beneficial ownership and was based on the fact that for the purposes of Section 22, owner is a person who is entitled to receive income in his own right, Therein, the requirement for registration of sale deed was considered to be not relevant. In the facts as they stand before us in the present case, the applicability and requirements of Transfer of Property Act with regard to registration is not an issue in the face of the categorical stand of CWC and the assessee borne out by the tripartite agreement and the conduct of the CWC in not claiming depreciation that the CWC was only managing the base depots for FCI and was not claiming any depreciation thereon or making any claim to be the owner of the said property and, in fact, as we have seen, the godowns continued to be owned by the FCI fact is supported by the project agreement entered into between the IDA and FCI and the subsequent and past assessments of the assessee.
41. Similarly, in the case of Mysore Minerals (supra), it is seen, it was held that the assessee was entitled to depreciation in respect of the seven houses in respect of which the assessee had not obtained a deed of conveyance from the vendor although it had taken possession and made part-payment of the consideration. Therein, the houses were allotted to the assessee by the Housing Board. Part-payment was received by the Housing Board and possession delivered to the assessee therein so as to confer dominion over the property on the assessee and thereafter, the assessee had in its own right allotted the quarters to the staff and they were actually being used by the staff of the assessee. Thus, on these facts, the assessee there was held to be entitled to depreciation. In the facts as they stand before us, there is no even a whisper that possession has been handed over to the CWC in the capacity of owners. The CWC has been clearly and specifically been appointed as a manager of the godowns owned by the FCI. At the cost of repetition, this fact is also borne out from the conduct of the CWC which is not claiming any depreciation on the said assets.
42. This is not a case where depreciation is being denied for want of registration but a case where depreciation is denied because the ownership is contemplated to be parted with after a period of 15 years after making financial adjustments with respect to the written down value of the said assets. In the facts as they stand, we are unable to appreciate how the claim can be denied in the face of the facts that the assessee is the owner of the assets presently which fact is supported by the tripartite agreement and project agreement and the only other interested party i.e., the CWC is not claiming any ownership rights on the said assets. Whatever may be the position after 15 years whether the ownership is parted with by the assessee on the basis of the tripartite agreement or on reconsideration, it is not parted with or for that matter the assessee is estopped from parting it as a result of the project agreement which acts as a bar which is absolute as per the learned Departmental Representative. The fact remains that as far as the present position is concerned, the ownership at present undisputably vests with the assessee which fact is not contested by the only other interested party i.e., the CWC and, accordingly, no depreciation on the assets has been claimed by it. This fact is further fortified by the past assessments and future assessments made in the case of the assessee.
43. In the aforementioned facts and position, we are of the view that undisputedly as the facts stand, ownership vests with the assessee. To go back to the basics, an asset owned by a person and used for the purposes of his business or profession cannot be denied depreciation for the reason that over a period of time on account of use, asset depreciates. In principle, it is a settled position of law that depreciation has to be claimed only by the owner and at the cost of reiteration, it is an admitted fact that no depreciation has been claimed by the CWC and, in fact, only the assessee has claimed depreciation which is supported by the tripartite agreement record of discussion of meeting held on 29th Feb., 1980, and the project agreement between IDA and the assessee. Thus, on these facts, the claim of the assessee cannot be ousted.
44. Our attention has also been invited to the decision of the Supreme Court in the case of Tamil Nadu Civil Supplies Corporation Ltd. v. CIT (supra) wherein their Lordships have considered the decision of Mysore Minerals Ltd. (supra) and rejected the claim of the assessee holding. "We will assume the correctness of the judgment but, on the facts found, it is not possible to reach the conclusion that the assessee had acquired dominion over the mills in question. There is nothing on the record which indicates this nor is that the finding of the Tribunal". Accordingly, it is necessary to see the decision of the Madras High Court which was upheld by the Supreme Court, The facts as appreciated by their Lordships of the Madras High Court in Tamil Nadu Civil Supplies Corp. Ltd. v. CIT (1997) 228 ITR 399 (Mad) are that for the period when depreciation and development rebate was claimed by the assessee during that times, the co-operative societies were the owners of the 13 rice mills and the Government was not the owner of those 13 rice mills. The Government, in fact, purchased those 13 rice mills from the co-operative societies and executed the conveyance deed in favour of the assessee's corporation in the year 1978. Thus, the contention of the assessee that the sale deeds executed in the year 1978 would relate back to the year 1972, when the possession was handed over to the assessee's corporation by virtue of the Government's orders was not accepted as during the said period, the Government was not the owner of the 13 rice mills and, in fact, the cooperative societies were the actual owners. Thus, it is seen that the facts therein were also diametrically different and do not render any help to the case of the Revenue.
45. The decision of the Andhra Pradesh High Court in the case of N. Karuna and Anr. v. Appropriate Authority and Ors. (supra) relied upon by the learned Departmental Representative also does not advance the case of the assessee.
46. Similarly, the facts as appreciated by the Allahabad High Court in the case of U.P. State Agro Industrial Corporation Ltd. (supra) also were diametrically different to the issue at hand.
47. Accordingly, for the detailed reasons given hereinabove, ground No. 2 raised by the assessee in both the years is allowed.
48. In the result, ITA No. 4015/Del/96 is allowed.
49. In ITA No. 4014/Del/96, another ground has been raised by the assessee which reads as under:
"3. The assessing/appellate authority has erred in reducing the amount of depreciation claimed under Section 32 by Rs. 131.65 lacs (Rs. 37.60 lacs for building and Rs. 94.05 lacs for plant and machinery) in respect of building and plant and machinery erroneously presuming that the assessee had claimed depreciation on building and plant and machinery not put to use during the year."
50. The relevant facts pertaining to this ground are that the AO observed from Note 4 to the statement of fixed assets that cost of building, plant and machinery, furniture includes value at Rs. 753.20 lakhs not put to use. The break-up of this figure category-wise was not furnished. Thus, the amount was reduced to depreciable cost of assets under both categories in equal proportion and depreciation was disallowed in the following manner :
Value "Building 376.60 lacs Plant & Machinery 376.60 lacs The depreciation claim amounting to Rs. 94.05 lacs on plant and machinery and Rs. 37.60 lacs on building is being disallowed, Total disallowance is Rs. 131.65 lacs."
51. As a result of this, depreciation claimed amounting to Rs. 94.05 lakhs on plant and machinery and Rs. 37.60 lakhs on building was disallowed which totally comes to Rs. 131.65 lakhs.
52. In appeal before the first appellate authority, it was brought to the notice of the first appellate authority that the correct note is Note 5 and not Note 4 to Schedule III. It was further pointed out that Note 14 which is also relevant was not considered by the AO. As such, reliance was placed upon the same. The learned CIT(A), not accepting the contention of the assessee, rejected the claim of the assessee in the following manner :
"I have considered the matter. The AO has passed a well reasoned order after taking into account all the facts and circumstances of the' case. I see no justification in interfering the action of the AO, The disallowance stands confirmed."
53. Still aggrieved, the assessee is in appeal before us.
54. The learned authorised representative invited our attention to the Notes to the Statement of Fixed Assets attached to and forming part of the balance sheet appearing at p. 83 in the Annual Report 1990-91 placed before us and reference was made to Note 5 and Note 15 appearing therein on the basis of which, it was contended that the AO has inadvertently not considered Note 15 and the learned CIT(A) has also upheld the finding without looking at Note 14 which was specifically brought to his notice.
55. The learned Departmental Representative placed reliance on the impugned order.
56. Having heard the rival submissions and perused the material placed on our files and given our utmost consideration to the contentions made, we are of the view that the matter requires verification. We have come to the said conclusion after considering Note 5 which has been relied upon by the AO and Note 14 which has been relied upon by the assessee. It is seen that Note 5 says :
"5. Gross cost of buildings, machinery and plant and furniture and fixtures as at 31st March, 1991, includes assets of Rs. 753.20 lakhs (Rs. 718.47 lakhs) not put to use."
57. And Note 14, on the other hand, reads as under :
"14. Depreciation is not provided on the assets not put to use during the year."
58. Accordingly, we are of the view that the issue for verification and thus fresh adjudication on this limited issue should be restored to the file of the AO with the direction to decide the same in accordance with law after necessary verification. Needless to say that the assessee will be afforded an opportunity of being heard. The ground raised is partly allowed for statistical purposes.
59. In the result, ITA No. 4015/Del/96 is allowed and ITA No. 4014 Del/96 is partly allowed.