Whether the assessee is entitled to depreciation under Section 32 of the Income Tax Act even when the assessee was not the owner of the property in question and was in possession thereof as a lessee during the year under consideration?
In the present case the assessee claimed depreciation for AY 1994-95 urging that it had paid a sum of Rs. 3.16 crores. The AO rejected the claim as is evident from the preceding discussion and a reading of his order would reveal that he confined his scrutiny to the lease agreement of 16.04.1993. The AO’s order is forthright with the subsequent agreement of 17.04.1993 which was in fact shown in the course of the proceeding and the assessee had made submissions based on its effect. Nevertheless, the AO’s order is singularly silent on the effect of this document. The order was premised and almost entirely on the basis that the lease agreement conferred the rights of a lessee/ occupant and in the circumstances the benefit of depreciation for the sum of Rs. 3.16 crores could not have been derived. The CIT(A) too proceeded on a similar tangent. At the same time we also notice that the AO did consider the effect of the ruling of this Court in Hindustan Cold Storage (supra) which appears to have some background on what was then perceived to be the correct interpretation of Section 53A. The Tribunal, however, had the benefit of the ruling of the Supreme Court in Podar Cement (supra).
To rewind a bit, the AO’s order was made on 30.08.1996. The decision in Podar Cement (supra) was delivered on 27.05.1997. Podar Cement (supra) examined various decisions of the High Courts; one set of High Courts holding that the benefits under Section 53A of the TP Act could be considered for the purposes of income tax and permissibility of depreciation, whereas the other set of High Courts had held otherwise. The relevant discussion in Podar Cement (supra) is as follows:-
“….23 We have noticed the reliance placed by the bar on the decision of this Court in Jodha Mal’s case which was concerned with the old Section 9(i) of the Act. In that case, this Court had occasioned to consider the meaning to be given to the words ‘of which he is the owner’. Of course, on facts the Court was called upon to decide whether the erstwhile admitted owner of the property is liable to pay income-tax on the house property under Section 9 even after the said property has been vested in the Custodian of Evacuee Property by virtue of Section 6(1) of the Pakistan (Administration of Evacuee Property) Ordinance, 1949. The contention of the Revenue in that was that notwithstanding the vesting of the house property in the Custodian the legal ownership remained with the assessee therein and, therefore, Section 9(1) of the old Act was attracted. This contention was repelled by this Court. Hegde, J. speaking for the Bench observed at page 575 :
“The question is who is the “owner” referred to in this Section? Is it the person in whom the property vests or is it he who is entitled to some beneficial interest in the property? It must be remembered that Section 9 brings to tax the income from property and not the interest of a person in the property. A property cannot be owned by two persons, each one having independent and exclusive right over it. Hence, for the purpose of Section 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right.”
24. The learned Judge observed that “it is true that equitable considerations are irrelevant in interpreting tax But, those laws, like all other laws, have to be interpreted reasonably and in consonance with justice”. Again at page 577, it was held that ‘for determining the person liable to pay tax, the test laid down by the Court was to find out the person entitled to that income”. Again at page 578 it was observed: “No one denies that an evacuee from Pakistan has a residual right in the property that he left in Pakistan. But the real question is, can that right be considered as ownership within the meaning of Section 9 of the Act. As mentioned earlier that Section seeks to bring to tax income of the property in the hands of the owner. Hence, the focus of that Section is on the receipt of the income. The meaning that we give to the word “owner” in Section 9 must not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance with the principles underlying the Act.” _
25. In our opinion, the above observations of this Court clearly fixes the liability on a person who receives – or is entitled to receive the income from the property in his own right. In spite of this, the assessing officers of various circles instead of uniformally following the ratio laid down in this case have taken different diametrically opposite views depending upon the pronouncements of the concerned High Courts in the circles on the scope of Section 22 of the Act. The High Courts of Allahabad. Punjab and Haryana, Rajasthan, Calcutta and Patna have taken the view by correctly understanding the ratio laid down in Jodha Mal’s case and the High Courts of Bombay, Delhi and Andhra Pradesh have taken a different view wrongly distinguishing on facts in Jodha Mal’s case.
26. In the Kala Rani’s case (supra), the Punjab and Haryana High Court after referring to the judgment of this Court in Jodha Mal’s case observed as follows:
“Thus, it cannot be accepted that before a person can be assessed under Section 22 of the Act, he must be the owner by virtue of a sale deed in his favour. As a matter of fact, what is being taxed under Section 22 of the Act is the income from house property or the annual value of the property of which the assessee is the owner.”
27. The High Court rejected the contention that the mere possession of the property in pursuance of an agreement to sell was not sufficient to burden the assessee with tax on any income under Section 22…”
The view of the Patna High Court in Addl. CIT vs Sahay Properties & Investment Co. (P) Ltd. (1983) 144 ITR 357 and Rajasthan High Court in Saiffuddin vs CIT (1985) 156 ITR 127 and Maharani Yogeshwari Kumari vs. CIT (1995) 213 ITR 541 was approved:
“…33. We do not think that it is necessary to set out extracts from the judgments of other High Courts taking similar view.
34. The contrary view taken by the other High Courts was mainly based on the facts that unless there is a registered deed conveying the property, the person in possession/enjoyment of the property cannot be considered as legal owner and, therefore, he cannot be called upon to pay the tax under Section 22 of the Act.
35. The law laid down by this Court in Jodha Mal’s case according to us, has been rightly understood by the High Courts of Punjab and Haryana, Patna, Rajasthan, etc. The requirement of registration of the sale-deed in the context of the Section 22is not warranted….”
The effect of the ruling in Podar Cement (supra) was considered again in Mysore Minerals Ltd. vs CIT (1999) 239 ITR 775 (SC) in the context of Section 32 of the Act itself. The Court declared the law as follows:
“….14. 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 …”
Having regard to the clear declaration of law by the Supreme Court in the two judgments discussed above, we are of the opinion that the view expressed by the Tribunal in favour of the assessee does not call for any disturbance.
Held: Non-registration of the agreement did not imply that the benefit otherwise available under Section 53A of the Transfer of Property Act, 1882 of being entitled to continue in possession in part performance of an agreement to sell, had to be denied.