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(3) Whether the Tribunal could hold that your petitioner was not the owner of the said plant and was not entitled to depreciation thereon when neither WPIL nor SIL claimed any ownership of the said plant and claimed any depreciation thereon ?
(4) Whether the claim for depreciation on the said plant could be denied when the rental income therefrom was assessed ?"

Section 32 : Own : Ownership : Meaning of:

2. The question is dependent on the interpretation of Section 32 of the IT Act, 1961 allowing depreciation to an assessee. The depreciation is available on the items mentioned in Section 32 on satisfaction of the conditions that the plant was owned wholly or partly by the assessee and such plant was used for the purpose of his business. The law is well-settled. The terms 'own', 'ownership' and 'owned' are generic and relative terms having a wide and also a narrow connotation. The ' meaning would depend on the context in which the terms are used. The decision in CIT v. Podar Cement (P) Ltd. is the trend-setter in the concept of ownership, for the purpose of finding out the meaning of the term 'owned' occurring in Section 32(1), assistance may be drawn from the ratio laid down therein. The term "owned" occurring in Section 32(1) must be assigned a wider meaning. Anyone in possession of a property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner though he may not have formal documents recognized as documents of title under the provisions of the respective laws governing the subject. A person having acquired possession over a property in his own right uses the same for the purpose of business though a legal title may not have been conveyed to him can be construed to be owned by the assessee. If it is proved that it is so owned and is used for the purpose of business, the benefit of Section 32 cannot be denied. In this regard we may rely upon the ratio decided in Mysore Minerals Ltd. v. CIT , cited by Mr. Bajoria in support of his contention.

The principle : The present case :

3. On the above principle in this case the learned Tribunal had held that the ownership of the assessee could not be established or accepted because of the reason that there was a stipulation that a third party, other than the lessee to whom the plant was leased out by the assessee, had a right to purchase. In order to appreciate the situation it would be necessary to briefly refer to the facts.

Facts :

4. A plant was being set up at the premises of M/s Maize Products, a division of Sayaji Industries Ltd. (SIL). M/s Western Plaques India Ltd. (WPIL) approached the assessee for leasing finance for the aforesaid effluent treatment and bio-gas generation plant in the process of being set up at the premises of M/s Maize Products of SIL. Pursuant to such approach the assessee itself acquired the said plant and leased out the same to WPIL upon taking symbolic possession. Admittedly, this was a movable property for which delivery of possession was not material, as was rightly held by the learned Tribunal. According to the terms of the agreement between SIL and WPIL, SIL had a right to purchase the plant, after expiry of a stipulated period of time. The learned Tribunal had held that this right to purchase by SIL hits the ownership claimed by the assessee.

5.1 It was not in dispute that the assessee carried business of leasing and finance. The Tribunal held that the agreement for leasing was genuine. The Department did not prefer any appeal nor had filed any cross-objection against such finding. Therefore, as found by the learned Tribunal, the transaction was held to be a lease and not a finance. The income generated out of such lease at the hands of the assessee, therefore, was business income. At the same time, we may note, that lease does not extinguish the right of ownership of the lessor; nor does the lessee acquire any rrght of ownership thereon. If it were finance transaction then the ownership would have accrued to WPIL. WPIL does not claim ownership. It does not claim any benefit under Section 36(1)(iii) for capital borrowed on the rent paid treating the same as interest on borrowed capital. Neither WPIL is taking the liability of repayment of the alleged principal. On the other hand, WPIL claimed the rent paid as revenue expenditure, i.e., business expenditure. Without the alleged right of SIL to purchase the plant after the alleged stipulated finance, as found in fact by the learned Tribunal, the assessee was the owner of the property. In other words the learned Tribunal, on facts, found that the assessee was the owner of the plant but for the alleged right of SIL to purchase the plant after the expiry of the alleged stipulated time.

There is a clear distinction between the case of a person having no inherent capacity to transfer a property and that of a person who has the inherent capacity to transfer the property but who has to exercise his powers for the benefit of or with the consent or approval of another person. In the first case, the transfer may be void but, in the second case, it is effective in law but may be voidable at the instance of the beneficiary or the person affected...".

6.4 In the present case, SIL has not claimed any right; nor WPIL has claimed any right. Neither SIL nor WPIL in their return had claimed depreciation for the plant. Neither WPIL claimed any benefit of payment of interest on capital borrowed. On the other hand, WPIL has treated the rental paid to the assessee for the plant as revenue expenditure. There is another aspect of the matter if it is finance then the assessee would be entitled to recover the principal. But in this case by reason of the agreement, the assessee would not be entitled to recover any principal. The entire rental receipt is being sought to be assessed but if it is concluded that the instalment would liquidate the principal, this rental received by the assessee would comprise of interest and principal. Then this principal Cannot be subjected to assessment as was sought to be done by the AO. The interest part was required to be segregated. There being no agreement for payment of interest and/or the rate of interest, it is not possible to calculate the rate of interest.