Income Tax Appellate Tribunal - Hyderabad
Income-Tax Officer vs Bangaru Manikyam on 30 June, 1992
Equivalent citations: [1992]43ITD249(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. In these appeals by the Revenue, the only question which comes up for debate is whether a fractional owner in a property (plant & machinery) comprised in a rice mill is entitled to depreciation under Section 32(1) of the Income-tax Act, 1961. In the original assessments, the Income-tax Officer granted such depreciation, in favour of each of the fractional owners of the property (plant and machinery). However, the Incorne-tax Officer after realising that this was a clear rectifiable mistake as per the decision of the Hon'ble Supreme Court in the case of Seth Banarsi Doss Gupta v. CIT [ 1987] 166 ITR 783 : 32 Taxman 112A. after issue of notice of rectification to the assessee ultimately passed orders under Section 154 withdrawing the depreciation granted to each of the parties for each of the assessment years Under consideration. Against orders under Section 154 separately passed by the Income-tax Officer for each of the assessment years in the case of these assessees, the assessees preferred appeals before the Dy. Commissioner of Income-tax (Appeals), Visakhapatnam. The appeals of these assessees were clubbed together and disposed of by two separate orders dated 29-11-1988 by the Dy. Commissioner (Appeals), Visakhapatnam. On behalf of the assessees it was contended before the Dy. Commissioner (Appeals) that the provisions of Section 10(2)(ui) of the Indian Income-tax Act, 1922 are not quite analogous to the provisions of Section 32 of the Income-tax Act, 1961. The crucial use of words in Section 10(2)(ui) of the Indian Income-tax Act, 1922 were "being the property of the assessee" is not the same thing as the expression "owned by the assessee" used in Section 32 of the Income-tax Act, 1961. It was also contended that there was no provision analogous to Section 26 of the IT Act 1961 in the Indian Income-tax Act, 1922. However, it was argued that the matter is squarely covered by the order of this Tribunal 'A' Bench in the case of East Coast Packaging Ltd. [IT Appeal No. 397 (Hyd.) of 1982] which took the view that a fractional depreciation is admissible to the co-owners of the assets. It is stated that a reference against that decision was rejected by the Hon'ble A.P. High Court by its judgment dated 8-9-1986 passed in ITC No. 79 of 1985 in their file. Therefore, the Deputy Commissioner (Appeals) under each of the two common orders passed allowed the claims of the assessees and set aside the orders of the Income-tax Officer on the subject. Hence the second appeals by the Department. The appeals relate to assessment years 1981 -82, 1982-83, 1984-85, 1985-86, 1986-87 and 1987-88 in the case of each of the assessees.
2. The learned Departmental Representative contended that the order of the Deputy Commissioner (Appeals) are vitiated since they did not take into consideration, the binding decision of the Hon'ble Supreme Court covering the subject-matter of the appeals before him which is in the case of SethBanarsi Dass Gupta (supra). The assessee purchased 1 /6th share of Sheo Prasad in S.B. Sugar Mills Bijnore and with reference to his l/6th share in the plant and machinery of S.B. Sugar Mills, the assessee claimed depreciation. The question which cropped up ultimately before the Supreme Court was whether such fractional owner like the assessee is entitled to claim depreciation. The Hon'ble Supreme Court on the facts of the said case held at page 787 of the reported judgment as follows:
There is hardly any scope for doubt that the benefit of Section 10(2)(vi) of the Act would be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim.
The Hon'ble Supreme Court rendered the judgment on 29-4-1987 in Seth Banarsi Dass Gupta's case (supra). In view of the binding decision of the Hon'ble Supreme Court, the earlier decision rendered by the Tribunal in the case of East Coast Packaging Ltd. (supra) and the rejection of the reference ultimately by the-Hon'ble High Court against that order under Section 256(2) dated 8-9-1986 should be deemed to have been overruled and since the impugned order or Dy. Commissioner (Appeals) was passed on 29-11 -1988 which is much after the Supreme Court's decision the Supreme Court's decision should have been preferred and followed rather than the orders of this Tribunal over which reference was rejected by the Hon'ble High Court by their orders dated 8-9-1986 referred to by him in his impugned orders. It is submitted that it is well known principle of law that a Supreme Court decision would form the basis of rectification and therefore on the basis of Seth Banarsi Doss Gupta's case (supra) the action of the Income-tax Officer is within his powers inasmuch as the powers under Section 154 can be invoked for withdrawal of depreciation which was illegally allowed - Addl CIT v. Kanta Behan [1983] 140 ITR 187 : [1982] 9 Taxman 24 (Delhi) Anchor Pressings (P.) Ltd. v. CIT [1986] 16) ITR 159 : 27 Taxman 295 (SC)27 Taxman 295
3. Shri Y. Ratnakar, learned advocate for the assessees-respondents, countered the arguments advanced by the learned Departmental Representative by his following submissions:
(i) Where the matter admits of small debate, the powers of rectification would not be available to the Income-tax Officer.
(ii) The meaning of the words "owned by the assessee" used in Section 32(1) of the IT Act, 1961 are different and connotes different meaning than the words used "being the property of the assessee" in Section 10(2)(vi) of the Indian Income-tax Act. 1922.
He argued that the term 'property' includes 'ownership' but. converse is not true. According to him ownership may not include property. He submitted that property includes ownership, possession and enjoyment. He further argued that property is much wider than ownership. He brought to our notice a discussion on property by C.A. Gulanikar in his book on Gift-tax and Wealth-tax 7th Edn. at page 57 in which it is stated as follows:
Property is a bundle of rights. These rights reownership, possession and enjoyment. The three facets of property rights are comprehended by terminology 'belonging.
The Judgment of the Hon'ble Supreme Court in SethBanarsiDass Gupta's case (supra) does not obliterate a debate on the subject of the decision prior to the date of the decision and in support of this contention the learned counsel for the assessee relied upon the following Calcutta decisions reported in:
(i) Jiyajeerao Cotton Mills Ltd. v. ITO [1981] 130 ITR 710 (Cal.) at page 711 Headnote.
(ii) Export Enterprises (P.) Ltd. v. ITO [1983] 142 ITR 641 (Cal.) : 15 Taxman 299.
Next it was argued that ownership connotes different meanings in different contexts. In CIT v. Sahney Steel & Press Works (P.) Ltd. [1987] 168 ITR 811 (AP), though the assessee did not become full legal owner of the property by obtaining registered sale deed, still the assessee was held to be entitled to depreciation by the Hon'ble A.P. High Court. In view of the A.P. High Court's decision, the orders of the Income-tax Officer in the original assessments conceding depreciation to the assessee though they are fractional owners is perfectly justified. Whatever that may be, since the Supreme Court decision in Seth Banarsi Doss Gupta's case (supra) does not obliterate a debate on the subject-matter of the decision prior to the said decision and since the original assessment orders at least in some of the assessment years with which we are concerned In these appeals were passed prior to the Supreme Court decision rendered on 29-4-1987 at least with regard to those assessment years, the Income-tax Officer cannot Invoke the powers under Section 154. since there had to be a debate and long winding process of reasoning to be adopted before making out a case for invocation of powers under Section 154. The decision is an authority for what it actually decides and not for what logically follows from it. This argument is based upon the following Judgments:
(i) State of Orissa v. Sudhansu Sekhar Misra AIR 1968 SC 647 Headnote Clause (c)
(ii) Nav Nirman (P.) Ltd. v. CIT [1988] 174 ITR 574' (MP) [1989] 42 Taxman 39 Shri Ratnakar had brought to our notice an order passed in reference by A. Bench of this Tribunal In R.A. No. 211/Hyd/1982 in East Coast Packaging Ltd. 's case (supra). In fact he filed a copy of the rejection order dated 27-7-1983 passed by the Tribunal in the above reference application. Para 3 occurring in the above rejection order Is as follows:
Aggrieved, the assessee filed an appeal before the Tribunal. Theassessee's representative contended that the Commissioner of Income-tax (Appeals) was not justified in disallowing the claim on the ground that no depreciation is admissible where the asset is owned by more than one person, that the decision In 81 ITR 170 Is not applicable to the assessee's case since the wording used in 1961 Act is different from that used in 1922 Act, that since the asset to the extent owned by the assessee is earning income and such Income is subjected to tax the assessee is entitled to depreciation in respect of the cost to him and the use of the word "owner" has a wider meaning in that It includes a partial ownership also.
4. Having heard both sides, fully In the matter, we are unable to accept any of the contentions advanced by the learned advocate for the assessee. Taking up first the argument that the Supreme Court decision does not debar any debate on the subject prior to the decision being rendered that that on that score the original assessment orders passed by the Income-tax Officer for assessment years 1981-82, 1982-83, 1984-85, 1985-86 and 1986-87 being prior to the rendering of the Supreme Court decision on 29-4-1987, the grant of depreciation to the assessee on the ground that they were co-owners of plant and machinery is perfectly justified, we have to hold that this argument will not have any legs to stand in view of the binding decision of the Hon'ble Supreme Court in the case of S.A.L. Narayana Row. CIT v. Model Mills Nagpar Ltd. [1967] 64 ITR 67. In the facts of that case for the assessment year 1952-53, the assessee-company earned only total Income of Rs. 23,596. However, it had distributed a sum of Rs. 2,66,788 as dividend in the accounting year relevant to 1952-53. The Income-tax Officer by a separate order ordered the assessee-company to pay additional tax on the excess dividend declared by it. The order was complied with. Afterwards the Bombay High Court in Khatau Makanji Spg. & Wvg. Co. Ltd. v. CIT [1956] 30 ITR 841 held that the levy of tax on excess dividend was illegal. The assessee-company thereupon applied to the Income-tax Officer for refund of tax paid. The purport of the assessee's request in the application was that the tax collected from the assessee previously will be declared to be unlawfully collected and on that account it should be refunded. Virtually it means that a rectification of the previous order was sought for. The Income-tax Officer declined to accede to the request by order of his dated 2-11 -1957 stating that the assessment for the assessment year 1952-53 was completed long time back and before the judgment in the case of Khatau Makanji Spg. & Wvg. Co. Ltd. (supra). A petition was moved under Section 33A of the Income-tax Act, 1922 before the Commissioner of Income-tax who also rejected the application. In his order he held that if he has to construe the application of the assessee as one made for cancellation of levy of tax it was barred. But if it is construed as an application against refusal of rectification it was not maintainable since the error was not apparent from the records but was one which could be discovered by a process of elucidation, argument and debate. The assessee thereupon moved the High Court by filing a writ petition Under Section 226 of the Constitution of India. The prayer in the petition is to "revise the order dated 2nd November 1957, of the first respondent and issue direction in pursuance thereof." The High Court granted the application. When the matter came up before the Supreme Court, it held that in view of the Judgment of the Supreme Court in CIT v. Khatau Makanji Spg. & Wvg. Co. Ltd. [1960] 40 ITR 189, the levy of additional tax was illegal. Ultimately it upheld the order of the Bombay High Court. Thus it could be seen that though the Income-tax Officer while rejecting the claim of the assessee for refund of tax based upon a specific finding that the original assessment order for 1952-53 was passed long before the judgment of the Bombay High Court in Khatau Makanji Spg. and Wvg. Co. Ltd. 's case (supra) holding that the levy of tax on excess dividend was illegal, still duly taking the said fact also into consideration the Hon'ble Supreme Court held that the order directing to refund additional tax on the excess dividend passed by the Bombay High Court is perfectly justified though the said order relate to the assessment year 1952-53. In Sampath lyengar's Law of, Income-tax, 8th Edition, Vol. 4, reviewed by Justice S.Ranganathan, the true legal position is enunciated at page 4474 as follows:
A rectification may follow on the basis of a Supreme Court decision, though such decision does not obliterate the existence of debate or doubt prior to the date of such decision.
No doubt we have to accept the Calcutta High Court decisions rendered in Jiyajeerao Cotton Mills Ltd.'s case (supra) and Export Enterprises (P.) Ltd. 's case (supra) that the law laid down by the Supreme Court cannot be said to have retrospective operations in the sense that although a debate or conflict of judicial opinion is resolved and settled by the Supreme Court, it does not obliterate the existence of such debate, doubt or conflict prior to such decision. Yet, as per the correct interpretation of law and as per the decision of the Hon'ble Supreme Court in Model Mills Nagpur Ltd. 's case (supra), the law enunciated by the Supreme Court would equally apply to the decision rendered by the income-tax authorities and especially the question whether the particular decision or order of the income-tax authority contained a mistake apparent from records or not should be adjudged even with reference to a subsequently decided Supreme Court decision. In view of this true legal position, we are not prepared to accept the contention that the original assessments completed prior to the decision of Seth Banarasi Dass Gupta should be held to have been correctly decided. This contention of the assessee fails. In our opinion the Calcutta High Court decisions run counter to the decision of the Hon'ble Supreme Court in Model Mills Nagpur Ltd.'s case (supra) and, therefore, they cannot be followed.
5. The legal position argued by Shri Y. Ratnakar on the basis of Sudhansu Sekhar Misra's case (supra) and Nav Nirman (P.) Ltd. 's case (supra) is that a decision is an authority for what it actually decides and not for what logically follows from out of it In the headnote of the decision at page 647 of the report the ratio of the Supreme Court decision is brought out as follows:
A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it. It is not a profitable task to extract a sentence here and there from a judgment and to build upon it.
Though we have no quarrel with this principle, however, we are of the view that this does not advance the case of the assessee. If the contention of the learned advocate that the finding of the Supreme Court in Seth Banarst Dass Gupta's case (supra) that the benefit of depreciation can be granted if the assessee is full owner of the property but it is not admissible in respect of a fractional claim is not the ratio of the decision but it is only a casual observation, this argument is not appealable to us. In the facts of the case before the Supreme Court, the assessee who acquired l/6th share in S.B, Sugar Mills claimed that he was entitled to claim depreciation. Therefore, the question whether a fractional owner is entitled to claim depreciation pointedly came up for consideration before the Hon'ble Supreme Court and the Hon'ble Supreme Court before deciding the issue had fully considered the arguments advanced on this topic on either side and also kept before them the decision of the Hon'ble Allahabad High Court -- Seth BanarsiDass Gupta v. CIT [197l] 81 ITR 170 against which the appeal was preferred to the Hon'ble Supreme Court. In fact their Lordships of the Supreme Court extracted the relevant portion of the Allahabad High Court Judgment at pages 786 & 787 which is as under:
So far as the other question was concerned, the High Court held [1971] 81 ITR 170, 176 (All.):
The question, however, remains whether the assessee is entitled to claim depreciation on the ground that it has acquired 1/6th share in the S.B. Sugar Mills. It is to be noted that the assessee does not claim to be full owner of the property. All that the assessee claims is l/6th share in S.B. Sugar Mills.
The assessee claims allowance under Clause (vi) of Sub-section (2) of Section 10 of the Indian Income-tax Act, 1922. Clause (vi) is :
In respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee...
In order to qualify for an allowance under Clause (vi), the assessee has to make out that the building, machinery, plant or furniture is the property of the assessee. Mr. Shanti Bhushan appearing for the assessee urges that Clause (vi) is attracted even where an assessee owns a fractional share in the machinery. On the other hand, Mr. Brij Lal Gupta appearing for the Department urged that ownership of a fractional share in machinery does not attract clause (vi). The point is not free from difficulty.
The High Court ultimately came to hold (at p. 177 of 81 ITR) :
In order to qualify for an allowance under Clause (vi), the claimant must make out that the machinery is the property of the assessee. That test is not satisfied by the present assessee. The assessee does not claim to be the full owner of the machinery in question. All that is claimed for the assessee is 1 /6th share in the machinery. Such a fractional share will not suffice for granting an allowance for depreciation under Section 10(2)(vi) of the Act.
Having considered the relevant High Court's judgment which is appealed against and having heard the submissions of both sides, the Hon'ble Supreme Court gave its decision which is as follows:
There is hardly any scope for doubt that the benefit of Section 10(2)(vi) of the Act could be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim.
Therefore, this decision of the Hon'ble Supreme Court is a conscious decision on the subject of dispute and it is not a'casual observation. Simply because no elaborate reasoning is given for their decision, it cannot be held that the Supreme Court decision has no binding force. Thus we hold that what we have extracted above is the ratio decidendi of the Supreme Court and is not a casual observation.
6. Next let us take up the contention that the wording of Section 10(2)(vi) specially words "being the property of the assessee" covered much wider field than the words used in Section 32(1) of the Income-tax Act, 1961, more particularly, the words "owned by the assessee" occurring in it. It is contended that property is a much wider term than ownership. Property comprises of a bundle of rights, namely, ownership, possession and enjoyment. Virtually the argument is that Section 10(2)(vi) of the IT Act 1922 is much wider in its application than Section 32(vi) Whereas in Section 10(2)(vi) three facets of property right, namely, ownership, possession and enjoyment were comprehended in Section 32(1) only one out of such facts of the property, namely, ownership was contemplated. For that reason also it is contended that because the Hon'ble Supreme Court had decided in Seth Banarsi Dass Gupta's case (supra) a case falling Under Section 10(2)(vi) of the Indian Income-tax Act, 1922, the same reasoning should not be applied while dealing with a case under Section 32(1). At least in this respect the matter admits debate in which case the power of rectification cannot be exercised by the Income-tax Officer. There is a catena of decisions (against the contention) which lay down a ratio which is quite opposite to what is submitted by Shri Y, Ratnakar. In Chaturvedi and Pithisaria's Income-tax Law, 4th Edition Vol. I (1990 Edn.) at page 1065 the legal position was stated to be as follows:
Section 32(1) lays down clear conditions that depreciation can only be allowed in respect of a building, machinery, plant or furniture if the same is owned by the assessee and is used for the purposes of his business or profession [Seth Banarsi Dass Gupta v. CIT [1971] 81 ITR 170, 177 (All.).]. The words "being the property of the assessee" appearing in Section 10(2)(vi) of the 1922 Act have the same meaning as the words "owned by the assessee" appearing in Section 32(1) of the 1961 Act. "Owner", in this context, means the full legal owner, i.e., when the law recognises that the title has vested into such "owner". For instance, a mere possessor under the terms of an agreement to purchase shall not be entitled to depreciation allowance even though he uses the asset for his business.
The authorities cited under the above proposition are the following:
(i) CIT v. Hindustan Cold Storage and Refrigeration (P.) Ltd. [1976] 103 ITR 455 (Delhi),
(ii) Addl. CIT v. Hindustan Cold Storage and Refrigeration [1983] 15 Taxman 448 (Delhi),
(iii) Addl CIT v. Mercury General Corporation (P.) Ltd. [1982] 133 ITR 525 (Delhi), and
(iv) CIT v. Tamil Nadu. Agro Industries Corporation Ltd. [1987] 163 ITR 61. (Mad.).
We are of the view that the above represents the correct position of law and in view of the categorical decision cited above, we reject the contention that the scope of Section 10(2)(vi) of the Income-tax Act, 1922 is wider than the scope of Section 32(1) of the Income-tax Act, 1961. In view of our discussion, we are of the opinion that the arguments advanced by the learned counsel for the assessee have no force and therefore all of them are to be rejected. We also hold that the assessees herein were only fractional owners who were not entitled to depreciation on the basis of their fractional ownership in the assets commonly held with others.
7. In the result, the appeals are allowed.