CASE NO.: Appeal (civil) 5374 of 1994 PETITIONER: MYSORE MINERALS LTD., M.G. ROAD, BANGALORE RESPONDENT: COMMISSIONER OF INCOME TAX, KARNATAKA, BANGALORE DATE OF JUDGMENT: 01/09/1999 BENCH: S. RAJENDRA BABU & R.C. LAHOTI JUDGMENT:
JUDGMENT
1999 (1) Supp. SCR 192
The Judgment was delivered by R. C. LAHOTI J.
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
CourtSection 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
preferredWhat 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 subject-
matter 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) CC 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
“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] A.C. 73 (PC) quoted with approval in Nair
Service Society Ltd. v. K. C. Alexander, 1968 AIR(SC) 1165
“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 ActIn 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 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 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 paymentFor 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
