ORDER
Per V. P. Elhence, Judicial Member – 1 to 14 [These paras are not reproduced here as they involved minor issues.]
ITA No. 5677/Del/1988 (Appeal filed by the assessed)
15. The first ground relates to the depreciation claimed by the assessed in the sum of the ship M. V. Jal Azad. The basis facts in regard to the same are was follows. This ship wes originally owned by Scindia Steam Navigation Co. who sold it to M/s. Jaldoot Shipping Pvt. Ltd. for Rs. 74 lakhs. The certificate dated 18-10-1980 of the Mercantile Marine Department, Bombay (Ministry of Transport & Shipping) is to the effect that M/s. Jaldoot Shipping Pvt. Ltd. were the registered owners of M. V. Hal Azad. The Shipping, Carving and Marking Note issued by the Registrar of Indian Ships on 2-12-1980, showed that the name of the ship had changed to “Jyoti Vinod. M/s. Jaldoot Shipping Pvt. Ltd. passed a Resolution dated 5-2-1981 that this ship be sold to the assessed for Rs. 55.5 lakhs against Rs. 25.5 lakhs down payment and balance of deferred payment for 15 months @ 12 per cent interest per annum at quarterly rest. The deed of sale for the deal was to be executed on receipt of Rs. 10 lakhs and of the balance of Rs. 30 lakhs. On 6-2-1981 4 separate documents were executed namely (1) Agreement between M/s. Jal Doot Shipping Pvt. Ltd., and the partners of the assessed for sale of the ship in question : (2) Charter party between M/s. Jal Doot Shipping Pvt. Ltd., the owners of the ship and the assessed (described therein as Charters) whereby the owners agreed to let and the Charter agreed to hire the vessel for 15 month on the terms stated therein; (3) Time-charter party between the assessed (described as despondent owners) and M/s. Jal Doot Shipping Pvt. Ltd., Bombay (described as Charterers) providing that the owners had let and the charters had hired the vessel for the period of 15 months on the terms stated therein; (4) Management Agreement between the assessed (described as owners) and Jal Doot Shipping Management Services (Proprietor M/s. Jal Doot Shipping Management Services (Proprietor M/s. Jal Doot Shipping Pvt. Ltd.) as managers to the effect that the owners had acquired the vessel on bareboat charter-cum-sale from M/s. Jal Doot Shippings Pvt. Ltd. and that the manger would mange and operate the vessel as if they were owners thereof. On 16-6-1981 letters were addressed by the assessed as well as by M/s. Jal Doot Shipping Pvt. Ltd., to the Director General of shipping for Parmesan to sell of M. V. Jyoti Vinod (Ex. M. V. Jal Azad) by enclosing a copy of the Memorandum of Agreement of Sale; (5) Then there was the Instrument of sale in the prescribed Form No. 9 of the Merchant Shipping Act, 1958 read with section 48 of the Merchant Shipping Act, 1959 dated 20th June, 1981, which was got authenticated by a judicial Magistrate.
The assessed had made the following payments to M/s. Jal Doot Shipping Pvt. Ltd. :-
27-1-1981
–
Rs. 2 Lakhs (advance payment)
13-2-1981
–
Rs. 70,000
16-2-1981
–
Rs. 1.5 lakhs
25-2-1981
–
Rs. 1 lakhs
The assessed claimed to have plaid Rs. 10.5 lakhs as advance management money to M/s. Jal Doot Shipping. On the basis of the said document, the assessed claimed before the Income-tax Officer that it was the owner of the ship and that the ship was being chartered and used and therefore, depreciation was allowable we to it. Reliance in this connection had also been placed on the CBDT Circular No. 9 of 1943 dated 23-3-1943 in terms of which depreciation is allowable even on assets taken of hire purchase. The assessed claimed in its letter dated 26-3-1985 that the all the documents were with M/s. Jal Doot Shipping Pvt. Ltd. which suffering heavy losses and was under liquidation. The papers connected with the ship were said to be with the official liquidators. However, the Income-tax Officer found that none of the documents were registered and that the details of liquidation were not given. He also found that M/s. Jal Doot Shipping Corporation was a dormant company and having no business. The income-tax Officer also observed that the assessed could not say as to on what date it became the owner of the ship in question. He found that no income had been declared by the assessed from the ship nor any expresses had been debited except for depreciation claimed at Rs. 14,14,600 under section 32 of the Income-tax Act, 1961.
16. Before the learned CIT (Appeals) it was submitted on behalf of the assessed that the ship had in fact sunk in the next year. It was also stated that the assessed had not claimed insurance for the sinking of the ship from the Insurance Company. The learned CIT (Appeals) agreeing with the ITO confirmed the disallowance of depreciation, holding that the assessed was not the owner of the ship.
17. Before us, on behalf of the assessed, the learned counsel for the assessed reiterated the submissions made on behalf of the assessed before the Income-tax authorities. Firstly, he stated that the assessed was the owner of the ship. Secondly, he submitted that for claiming depreciation under section 32 the assessed was not required to be the full or legal owner. For this purpose, reliance was placed by him on the following decisions :-
(1) Charandas Haridas v. CIT [1960] 39 ITR 202 (SC) at page 208.
(2) CIT v. T. M. Aravinda Reddy [1979] 120 ITR 46 (SC).
He also referred to the Boards Circular No. 9 of 1943 regarding hire purchase and relied upon the decision of Delhi High Court in the case of Addl. CIT v. General machinery purchased on hire purchase could be treated as belonging to the assessed for the purpose of grant of depreciation and development rebate. Next, he pointed out that in respect of motor vehicles which were purchased during the relevant previous year but were not transferred in the assesseds own name in the certificate of registration, it was held by the Kerala High Court in the case of CIT v. Nidish Transport Corpn. [1989] 44 Taxman 351 that it did not effect the assesseds claim for depreciation with reference thereto. He submitted that the assessed being the defect owner of the ship in question, it was entitled to claim depreciation. On the other hand, Shri Subhash Kumar, the learned Departmental Representative referred to various provision of the Merchant Shipping Act, 1958 and stated that in terms section 42 of that Act provided that no person could transfer or acquire any Indian Ship without the previous approval of the Central Government and that any transaction effected in contravention of this requirement, was void and unenforceable. He also pointed out that a ship could be transferred by an Instrument in writing in the prescribed form and that this requirement having not been complied with, the assessed was not the legal owner of the ship. On facts also he sought to urge that the assessed did not have any defect control over the ship. He sought to distinguish case of hire-purchase and of registration under the Motor Vehicles Act. He referred to the decision of Delhi High Court in the case of CIT v. Hindustan Cold Storage & Refrigeration (P.) Ltd. [1976] 103 ITR 455 for the proposition that the expression “being the property of the assessed” with reference to depreciation ment that the assessed should own the asset and that if transfer deed was not executed, the assessed was not entitled to depreciation. Next, he referred to the decision of Rajasthan High Court in the case of Chaganlal Automobiles v. CIT [1985] 156 ITR 58 in which it was held that so long as under the hire-purchase agreement entire price had not been paid, the hire purchase could not become the owner of the asset in order to be able to claim depreciation. Analogy was also sought to be drawn by him from the decision of the Delhi Court in the case of Sushil Ansal v. CIT [1986] 160 ITR 308/25 Taxman 218A for the proposition that if a registered transfer deed was not executed, the assessed could not claim to be the owner of the house property. Reference was also made by him to the decision of Kerala High Court in the case of Parthas Trust v. CIT [1987] 35 Taxman 191/ [1988] 169 ITR 334 (FB) for the proposition that ownership referred to legal title in an asset for the purpose of claiming depreciation. He submitted that it was a mere device on the part of the assessed to avoid payment of the tax due. He, therefore, supported the order of the Income-tax authorities.
18. The rival submission as also the decision referred to above have been heard and duly considered. The claim of depreciation lies under section 32 of the Income-tax Act, 1961 which uses the expression owned by the assessed. Unlike section 27 which give a wider definition of “owner of the house property” for the purpose of section 22 to 26, no definition is given in the Act for the purpose of section 32. Section 2(47) defines “transfer in relation to a capital asset” and section 47 enumerates transactions which are not regarded as transfers. In the case of T. M. Aravinda Reddy (supra) the Supreme Court was examining the expression “purchase” used in section 54(1) and held that given its common meaning it meant “buy for a price by payment in kind or adjustment towards a debts or for other monetary consideration”. In the case of Hindustan Cold Storage & Refrigeration (P.) Ltd. (supra) the Hon’bel Delhi High Court held that in the absence of a registered sale deed in receipt of a flour mill (which is an immovable property of the value of more than Rs. 100), the title of the flour mill did not pass to the assessed company so as to be able to claim depreciation in respect thereof. The same view was expressed by a Full Bench of Kerala High Court in the case of Parthas Trust (supra) where it was held that ownership in section 32 refers to legal title of the asset. The cases of motor vehicles stands on a different footing. The transfer of ownership of vehicle is not matter governed by the provision of the Motor Vehicle Act, 1939. A motor vehicle is a movable property whose transfer is governed by the Sales of Goods Act. Transfer takes effect from the date of the sale. As between the transfer and the transfer the sale is complete even before the transfer is effected in the registration certificate. The failure to report the same to the registering authority may entail levy of plenty prescribed under section 31 or section 112 of that Act but beyond that it dose not affect the passing of title. This position was certified by the Supreme Court in the case of Panna Lal v. Chand Mall AIR 1980 SC 871 and has been followed by the Calcutta High Court in the case of CIT v. Salkia Transport Associates [1983] 143 ITR 39 and by the Kerala High Court in the case of Nidish Transport Corpn. (supra). The case before us is not of hire purchase nor even akin to it. But even in the case of hire purchase the strict position is that notice by the Rajasthan High Court in the case of Chagan Lal Automobiles (supra) namely that the asset becomes the property of the hire-purchase only on the payment of the entire price and not before. The ownership cannot pass to the hirer until any part of the hire purchase price remains unpaid. No doubt CBDT Circular No. 9 of March 23, 1943 and subsequent circulars dated June 26, 1959 and July 15, 1963 were been benevolent circular in this regard and they permitted machineries purchased on hire purchase to be treated as belonging to the hire purchaser. That is the reason for which those benevolent circulars were enforced and applied by the Delhi High Court in the case of General Industries Corpn. (supra). We have therefore to see as to what is the nature of the asset, the depreciation claimed in respect of which is in question and as to what is the law which governs the transfer of ownership in respect therefore. We have than to examine whether the assessed could be said to be owing the asset in question.
19. In the present case, the asset in question is a ship. Section 3(23) of the Merchant Shipping Act, 1958 provides that “owner” means –
(a) in relation to a ship, the person to whom the ship or a share in the ship belongs,
(b) in relation to a sailing vessel, the person to whom the sailing vessel belongs.
Section 42(1) of that Act mandates that no person shall transfer or acquire any Indian ship or any share or interest therein without the previous approval of the Central Government and any transaction effected in contravention of this provision shall be void and unenforceable. The assessed as well as M/s. Jal Doot Shipping Pvt. Ltd. did apply to the Director General Shipping for such approval on 16-6-1981 but it is neither the case of the assessed nor there is any evidence to show that such approval was given to the Central Government. Section 42(3) further requires that an Indian ship or a share therein shall be transferred only by an instrument in writing. There is no such instrument executed in writing in terms of this provision. Thus the so called memorandum of sale dated 20-6-1981 or the Agreement of sale dated 6-2-1981 or the Resolution dated 5-2-1981 of M/s. Jal Doot Shipping Pvt. Ltd. or other agreements dated 6-2-1981 of chartering or time charterparty or of management describing the assessed as “owners” would not alter the position. There is no concept of de facto ownership recognised under the Merchant Shipping Act, 1958 or under section 32 of the Income-tax Act, 1961 nor is it established on evidence as has been claimed by the assessed. We have considered in this connection, the other evidence relied upon by the assessed namely, the assesseds statement of account, and the money receipts granted by M/s. Jal Doot Shipping Pvt. Ltd. Mere agreement of transfer or acquisition is not an instrument of transfer. It is, therefore, unnecessary to examine whether the other requirements as to attestation etc. regarding the instrument of sale in the prescribed Form No. IX were fulfillled in this case as are referred to in section 42(4) of the Merchant Shipping Act, 1958. The fact that the ships carving and marking note dated 2-12-1980 under section 28 of the Merchant Shipping Act, 1958 showed that the name of the ship had been changed from “MV Jal Azad” to “MV Jyoti Vinod” would also not help the assessed. This marking was prior even to the agreement of the sale dated 6-2-1981. There is no evidence of any user by the assessed of the ship though user was sought to be established by the assessed on the basis of the various agreements dated 6-2-1981 referred to above. We are therefore of the view that ownership as required by section 32, not having been established, the assesseds claim of depreciation in respect of the ship in question, was rightly rejected by the Income-tax authorities.