Case Law Details
SUPREME COURT OF INDIA
Mysore Minerals Ltd.
vs
Commissioner of Income-tax
Civil Appeal No. 5374 OF 1994,
[1999] 239 ITR 775 (SC)
Date of Pronouncement – 01.09.1999
JUDGMENT
R.C. Lahoti J.—The appellant-assessee is a private limited company. During the assessment year 1981-82 (accounting year ending on March 31, 1981), the assessee had purchased for the use of its staff seven low income group houses from the Housing Board. The assessee had made part payments and was in turn made allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of conveyance was not yet executed by the Housing Board in favour of the assessee. The assessee made a claim under section 32 of the Income-tax Act, 1961, in respect of depreciation of buildings used for the purpose of the business of the assessee. The claim was rejected by the Assessing Officer forming an opinion that the assessee had not become owner for want of deed of conveyance in its favour. The Commissioner of Income-tax allowed the appeal preferred by the assessee and directed the Assessing Officer to allow the assessee’s claim for depreciation inasmuch as the company was acting as the owner and could exercise the rights of the owner qua the houses. The Tribunal in an appeal preferred by the Revenue set aside the decision of the Commissioner of Income-tax. On an application under section 256(1) of the Act filed by the appellant, the following question was referred by the Tribunal for the opinion of the High Court:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assessee for depreciation in respect of the seven houses in respect of which the assessee has not obtained a deed for conveyance from the vendor although it had taken possession and made part payment of the consideration?”
The High Court relying on its own decision in Ramkumar Mills P. Ltd. v. CIT [1989] 180 ITR 464, answered the question in the affirmative, that is, against the assessee. The aggrieved assessee has preferred this appeal pursuant to a certificate under section 261 of the Act granted by the High Court.
Section 32 of the Act allows certain deductions, one of them being depreciation of buildings, etc., owned by the assessee and used for the purposes of the business or profession. It is the word “owned” as occurring in sub-section (1) of section 32 which is the core of controversy. Is it only an absolute owner or an owner of the asset as understood in its legal sense who can claim depreciation? Or, a vesting of title short of full-fledged or legal ownership can also entitle an assessee to claim depreciation under section 32? Learned senior counsel for the Revenue has submitted that the term “owned” should be assigned its legal meaning and so long as an assessee has not become an owner of the property in the sense that the title has not come to vest in him in the manner contemplated by law, he cannot claim benefit of deduction under section 32 of the Act. Under section 54 of the Transfer of Property Act, title in immovable property is transferred to a person by execution and registration of a sale deed. Admittedly, that having not taken place, the assessee is not entitled to the benefit. Learned counsel for the assessee has on the other hand placing reliance on the decisions of this court in R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 and CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625, submitted that the term “owned” in section 32(1) should be assigned a contextual meaning and keeping in view the underlying object of the provision vesting of a title in the assessee though short of absolute ownership should also entitle the assessee to the benefit of section 32(1).
Section 32 of the Income-tax Act confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the Legislature to the assessee. It is also well settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred.
What is ownership? The terms “own”, “ownership”, “owned”, are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used Black’s Law Dictionary (6th edition), defines “owner” as under:
“Owner. The person in whom is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right to enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subjectmatter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the term also includes one having a possessory right to land or the person occupying or cultivating it.
The term ‘owner’ is used to indicate a person in whom one or more interests are vested for his own benefit……….”
In the same dictionary, the term “ownership” has been defined to mean, inter alia, a “collection of rights to use and enjoy property, including right to transmit it to others ………… The right of one or more persons to possess and use a thing to the exclusion of others. The right by which a thing belongs to some one in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment and disposal; involving as an essential attribute the right to control, handle, and dispose.”
Dias on Jurisprudence (4th edition, at page 400) states:
“The position, therefore, seems to be that the idea of ownership of land is essentially one of the ‘better right’ to be in possession and to obtain it, whereas, with chattels the concept is a more absolute one. Actual possession implies a right to retain it until the contrary is proved, and to that extent a possessor is presumed to be owner.”
Stroud’s Judicial Dictionary gives several definitions and illustrations of ownership. One such definition is that the “owner” or “proprietor” of a property is the person in whom (with his or her assent) it is for the time being beneficially vested, and who has the occupation, or control, or usefruct, of it; e.g., a lessee is, during the term, the owner of the property demised. Yet another definition that has been given by Stroud is:
” ‘Owner’ applies ‘to every person in possession or receipt either of the whole, or of any part, of the rents or profits of any land or tenement; or in the occupation of such land or tenement, other than as a tenant from year to year or for any less term or as a tenant at will’.”
In State of U.P. v. Renusagar Power Company [1991] 70 Comp Cas 127, 149 (SC) is, was held that “the word ‘own’ is a generic term, embracing within itself several gradations of title, dependent on the circumstances, and it does not necessarily mean ownership in fee simple; it means, ‘to possess, to have or hold as property’ “.
In CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC), the question which came up for consideration before this court was whether the rental income from the house property which had come to vest in the assessee, but as to which the assessee was not legal owner for want of deed of title, was liable to be assessed as income from house property or as income from other sources. To be assessable as income from house property within the meaning of section 22 of the Act the property should be such “of which the assessee is the owner”. This court upon a juristic analysis of the underlying scheme of the Act and resorting to contextual and purposive interpretation, also having reviewed several conflicting decisions of different High Courts, held that the liability to be assessed was fixed on a person who receives or is entitled to receive the income from the property in his own right. vide para. 55, this court has held (page 653):
“We are conscious of the settled position that 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, Registration Act, etc. But, in the context of section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, ‘to tax the income’, we are of the view, ‘owner’ is a person who is entitled to receive income from the property in his own right.”
In R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC), it was held for the purpose of section 9 of the Indian Income-tax Act, 1922, that the owner must be the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. We may usefully extract and reproduce the following classic statement of law from Perry v. Clissold [1907] AC 73 (PC) quoted with approval in Nair Service Society Ltd. v. K.C. Alexander, AIR 1968 SC 1165 (page 1174):
“It cannot be disputed that a person in possession of land in the assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the world but the rightful owner. And if the rightful owner does not come forward and assert his title by the process of law within the period prescribed by the provisions of the statute of limitation applicable to the case, his right is for ever extinguished and the possessory owner acquires an absolute title.”
Podar Cement’s case [1997] 226 ITR 625 (SC), is under the Income-tax Act and has to be taken as a trend-setter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term “owned” as occurring in section 32(1) of the Act. In our opinion, the term “owned” as occurring in section 32(1) of the Income-tax Act, 1961, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the 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 the Transfer of Property Act, the 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 the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others.
Generally speaking depreciation is an allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. Black’s Law Dictionary (fifth edition) defined depreciation to mean, inter alia:
“A fall in value; reduction of worth. The deterioration, or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property ………… Consistent, gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings…….”
Parks in Principles and Practice of Valuation (fifth edition, at page 323) states: As for building, depreciation is the measurement of wearing out through consumption, or use, or effluxion of time. Paton has in his Account’s Handbook (third edition) observed that depreciation is an out of pocket cost as any other costs. He has further observed—the depreciation charge is merely the periodic operating aspect of fixed asset costs.
In Badiani P.K. v. CIT [1976] 105 ITR 642, the Supreme Court has observed that allowance for depreciation is to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes place.
An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.
It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature. The finding of fact arrived at in the case at hand is that though a document of title was not executed by the Housing Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common knowledge, under the various schemes floated by bodies like housing boards, houses are constructed on a large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of documents transferring title necessarily follows if the schedule of payment is observed by the allottee. If only the allottee may default the property may revert back to the Board. That is a matter only between the Housing Board and the allottee. No third person intervenes. The part payments made by allottee are with the intention of acquiring title. The delivery of possession by the Housing Board to the allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment.
For the foregoing reasons, in our opinion, the High Court was not right in taking the view which it did. The appeal is allowed. The judgment of the High Court is set aside. The question referred by the Tribunal to the High Court is answered in the negative, that is, against the Revenue and in favour of the assessee. No order as to costs.
