COMMISSIONER OF INCOME-TAX VS A.B.C. INDIA LTD
1999 P T D 2014
[226 I T R 733]
[Gauhati High Court (India)]
Before D. N. Baruah and S. B. Roy, JJ
COMMISSIONER OF INCOME-TAX
Versus
A.B.C. INDIA LTD
Income-tax Reference No.2 of 1994, decided on 16/01/1997.
Income-tax---
---Depreciation---Flats and buildings--- "Owned by assessee", meaning of- Assessee paying full consideration and put in exclusive possession Registered deed of conveyance not executed in assessee's favour---Assessee not entitled to depreciation---Indian Income Tax Act, 1961, S.32.
In order to get the benefit of depreciation allowance in respect of building or property, the assessee must be the owner of the property, Without a valid registered document, the right, title and interest it immovable property does not pass to the transferee. Therefore, even where the assessee has paid the full consideration and is in exclusive possession, in the absence of a registered deed of conveyance in the assessee's favour, the assessee is not entitled to get the benefit of depreciation under section 32 of the Income Tax Act, 1961.
Nawab Sir Mir Osman Ali Khan (Late) v. CWT (1986) 162 ITR 888 (SC) rel.
CIT (Addl.) v. Sahay Properties and Investment Co. (P.) Ltd. (1983) 144 ITR 357 (Pat.); CWT v. Bishwanath Chatterjee (1976) 103 ITR 536 (SC); CWT v. H.H. Maharaja F.P. Gaekwad (1983) 144 ITR 304 (Guj.); CWT v. Manna G. Sarabhai (1972) 86 ITR 153 (Guj.); Kala Rani v. CIT (1981) 130 ITR 321 (P & H); Pir Bakhsh v. Mahomed Tahar AIR 1934 PC 235; Raja Mohammad Amir Ahmad Khan v. Municipal Board of Sitapur AIR 1965 SC 1923 and S.B. (House and Land) Pvt. Ltd. v. CIT (1979) 119 ITR 785 (Cal.) ref.
G.K. Joshi and U. Bhuyan for the Commissioner.
J.P. Bhattacharjee, Dr A.K Saraf and K.K. Gupta for the Assessee.
JUDGMENT
D.N. BARUAH, J.---In this reference under section 256(1) of the Income Tax Act, 1961(for short "the Act"), the following question has been referred for opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is entitled to depreciation on flats and buildings which have not been transferred to the assessee by the previous owner by registered deeds of conveyance
The facts for the purpose of answering this question may be narrated as follows:
The assessee is a limited company having transportation business and purchased flats and office premises on ownership basis at various places in India, i.e., at Bombay, Calcutta and Poona. However, there were no registered sale-deeds in favour of the assessee with regard to those flats and office premises. The assessee claimed depreciation allowance under section 32(1) of the Act. However, this was disallowed by the Assessing Officer, i.e., the Income-tax Officer, in view of the provisions contained in section 32 of the Act. As per the said section only the owner is entitled to get depreciation allowance. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) after hearing the parties confirmed the disallowance made by the Assessing Officer. Further appeal was preferred by the assessee before the Income-tax Appellate Tribunal and the Tribunal, however, decided the issue in favour of the assessee and allowed depreciation. While deciding the issue the Tribunal observed thus:
"The assessee in pursuance of the agreement purchased flats and buildings at Bombay, Calcutta and Puna, and full consideration amounts have been paid and the assessee is in exclusive possession, control of the same to the exclusion of the others and are in use. So that being the facts and circumstances, we think the ratio decidendi in the case of Madgul Udyog v. CIT is clearly applicable in this case also. The assessee could very well be considered to be the owner of these flats and buildings and in consequence is entitled to depreciation under section 32 of the Income-tax Act."
The Revenue being dissatisfied with the decision of the Tribunal requested the Tribunal to refer the said question under section 256(1) of the Act for the opinion of this Court. Hence, the present reference.
We have heard both parties.
This matter was heard at length on July 8, 1996, and the hearing was concluded on July 10, 1996. Thereafter, the matter was again listed for further hearing as certain clarifications were necessary.
Mr. G.K. Joshi, learned senior standing counsel for the Revenue/applicant, submits before us that though the assessee purchased the flats and office premise's, no deed of conveyance was registered and conveyance in respect of an immovable property without registration is invalid, therefore, the right, title and interest in respect of the aforesaid flats did not pass to the assessee and the assessee cannot be regarded as the owner. Accordingly, the assessee is not entitled to get the benefit of depreciation allowance as provided under section 32(1) of the Act. Mr. Joshi further submits that the expression "owned" appearing in section 32(1) has to be strictly construed and in the absence of any registration, the assessee cannot be said to own the property.
Mr. J.P. Bhattacharjee, learned senior counsel, assisted by Dr. A.K. Saraf, however, supports the decision of the Tribunal.
Section 17(1) of the Indian Registration Act envisages that certain types of document require compulsory registration. As per the said section any document transferring the right, title and interest of an immovable property whose value is of one hundred rupees and upwards is to be compulsorily registered. Section 49 of the Registration Act envisages that no document required by section 17 or by any provision of the Transfer of Property Act to be registered shall affect any immovable property comprised therein or confer any power to adopt or be received as evidence of any transaction affecting such property or conferring such power, etc. Non registration of any such document shall not confer any right, title and interest to the transferee. A deed of sale which is required to be registered not having been registered shall not confer any right, title and interest. Prior to the pronouncement of the Privy Council in Varada Pillai v. Jeevarathammal, there was considerable divergence of judicial opinion on the question whether an unregistered document, such as, sale-deed, lease, deed of gift, etc., which was compulsorily register able could be received in evidence to prove the nature of the possession of the transferee. It is now settled law that though an unregistered deed of sale, mortgage, lease, gift, etc., of which registration is obligatory, cannot be relied on for the purpose of establishing the title of the vendee, mortgagee, lessee, done, etc., yet it is admissible for the collateral purpose of explaining the nature and character of the possession of the transferee, as for instance, for the purpose of showing that the transferee has acquired a prescriptive title by adverse possession for the requisite period since the date of the transfer. But this is only for a collateral purpose. Whether a particular title is acquired by adverse possession is another question, which is not the subject-matter in the present reference.
In Pir Bakhsh v. Mahomed Tahar, AIR 1934 PC 235, the Privy Council negatived a defence based on the English equitable doctrine of part performance, and their Lordships' pronouncement does not prevent the acquisition of a title by adverse possession under the statute of limitation. One thing is clear that in the absence of a registered document the right, title and interest of the immovable property shall not be conferred to the transferee. Non-registration of a document can be at best be used for collateral purpose, i.e., a purpose other than that for creating, declaring, assigning, limiting or extinguishing a right to immovable property.
From this point of view, the assessee cannot be said to own the property, but it is necessary now to look the provisions of section 32 of the
Act, whether in such a case to get the benefit of section 32 of the Act, the assessee must own the property. We quote the section 32(1) of the Act:
"32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed---
(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed;"
From the reading of the aforesaid section it is abundantly clear that in order to get the benefit of depreciation allowance of a building or a property, the assessee must be the owner of the property. Therefore, the crucial question is what is the meaning of the expression "owner". According to Black's Law Dictionary, "own" means "to have a good legal title; to hold as property; to have a legal or rightful title to; to have; to possess". The meaning of "owner" as per the said dictionary is: "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". It is further mentioned that---"the term 'owner' is used to indicate a person in whom one or more interests are vested for his own benefit. The person in whom the interests are vested, has 'title' to the interests, whether he holds them for his own benefit or for the benefit of another. Thus, the term 'title' unlike 'ownership' is a colourless word; to say without more that a person has title to certain property does not indicate whether he holds such property for his own benefit or as trustee. In the earlier Act, the expression 'belonging' had been used. The dictionary meaning of the expression 'belonging' is 'that which is connected with a principal or greater thing; an appendage, an appurtenance; also, "Ownership"."'
Learned counsel for the assessee has relied on the decision of the Patna High Court in Add. CIT v. Sahay Properties and Investment Co, w.) Ltd. (1983) 144 ITR 357, the Calcutta High Court decision in S.B. (House and Land) Pvt. Ltd. v. CIT (1979) 119 ITR 785 and the Supreme ('01:11 decision in Nawab Sir Mir Osman Ali Khan (Late) v. CWT (1986) 162 l i a 888. This decision is also relied on by learned counsel for the Revenue.
Learned counsel appearing on behalf of the assessee submits before us that the expression "owner" should be understood in the context of the provisions of the Act. Learned counsel relying on the Calcutta High Court's decision in S.B. (House and Land) Pvt. Ltd. v. CIT (1979) 119 ITR 785, submits that in order to find out if the transaction or transfer of the building amounted to a sale, the real nature and essence of the transaction had to be considered. The recital clause in the deed of transfer is very much relevant. Learned counsel for the assessee further relies on the apex Court's decision in Nawab Sir Mir Osman Ali Khan (Late) v. CWT (1986) 162 ITR 888. Mr. Joshi, on the other hand, takes support of the said decision.
In Add CIT v. Sahay Properties and Investment Co. (P.) Ltd., (1983) 144 ITR 357 (Patna) the assessee acquired certain immovable property in' February, 1962, and paid the entire consideration and was also in actual physical possession of the entire properties contracted to be sold. The assessee was empowered by the vendor to use the properties in whatsoever manner the assessee liked and to receive and enjoy the entire usufructs thereof, with the only reservation that a formal deed of conveyance with registration in conformity with the Indian Registration Act would follow at the request of the assessee and once that request was made, it was incumbent upon the transferor to execute such a deed of conveyance and to get it registered. The assessee was assessed under section 22 in respect of the income from the property but the Tribunal held that the assessee was not the owner of the property and was not liable to be assessed as such. The Patna High Court held that the consideration money had been paid in full and the assessee had been put in exclusive and absolute possession of the property. It had been empowered to dispose of and even alienate the property. The assessee had the right to get the conveyance duly registered and executed in its favour, but had not exercised the option. The assessee was not entitled to say that because of its own default in having a deed registered it was not the owner of the property. Therefore, the assessee must be deemed to be the owner of the property within the meaning of section 22 and was assessable as such on the income from the property.
In S.B. (House and Land) Pvt. Ltd. v. CIT (1979) 119 ITR 785, the Calcutta High Court field that in order to find out if the transaction of transfer of the building amounted to a sale, the real nature and essence of the transaction had to be considered. The recital clause in the deed of transfer stated that the purpose was "to transfer by way of sub-lease". It had also been clearly indicated that what they wanted to transfer was the two-storeyed brick-built messuage or house and the structure situated on the "leasehold" land. This factor of intention had to be borne in mind in considering the effect of the document. The obligations and rights as contemplated in clause 8 of the head lease had not been parted with by the deed of assignment. Similarly, the option to have renewal of the lease had not been parted with by the deed of assignment. Then again, under sub-clause (iv) clause II of the head lease, it appeared that in case the property were acquired, then the compensation awarded would be divided between the lessor and the lessee. This would apply also in case of acquisition of the superstructure. This right to share the compensation in the event of acquisition under the Land Acquisition Act had also not been parted with in the deed of assignment. Hence, there has only been a transfer by way of sub- lease and not a sale divesting the transferor of all rights of ownership. The assessee, therefore, remained the "owner" of the property and was assessable as such.
From the decisions cited above it is clear that there must be a deed of transfer and it must clearly indicate the intention of transferor that the entire right, title and interest of the property was transferred to. In our opinion, these decisions are not applicable in the present facts and circumstances of the case. In the present case, tote assessee purchased many buildings and office premises at various places in India, i.e., Bombay, Calcutta and Puna, however, there is no registration of formal deeds, therefore, the Calcutta decision is widely different from the present case. Here, in the instant case, the question is whether without formal registration of deeds of conveyance the assessee can be regarded as "owner".
The Apex Court in Nawab Sir Mir Osman Ali Khan (Late) v. CWT (1986) 162 ITR 888 had the occasion to consider a similar aspect of the matter in connection with a wealth-tax case under the Wealth Tax Act, 1957. While considering the expression "belonging to the assessee" as appearing in the Wealth-tax Act, the Apex Court held that the expression "is capable of connoting interest which is less than absolute perfect legal title". In this connection, the Apex Court noticed the decision of the Gujarat High Court in CWT v. H.H. Maharaja F.P. Gaekwad (1983) 144 ITR 304. The assessee, in that case, owned two properties and had agreed to sell one property to a company. The vendees had paid Rs.30 lakhs in January, 1964, and were put in possession of the property. Thereafter, four instalments of Rs.17.5 lakhs each were paid and the property was conveyed by four deeds executed in 1970-71 and 1972. It was contended that at the relevant time, the property did not belong to the assessee. The Gujarat High Court held that receipt of part of the sale price and parting with possession would not divest the vendor of immovable property of his title to the property. The doctrine of part performance embodied in section 53-A of the Transfer of Property Act had limited application and afforded only a good defence to the person put in possession. The legal position and the relevant clauses of the agreement of sale showed that the assessee was the owner of the property at the relevant valuation dates. Therefore, according to the Gujarat High Court, the property agreed to be sold and which had been parted with, was includible as an asset of the assessee. '
In some cases the phrase "belonging to" is capable of connoting interest which is less than absolute perfect legal title, as held by the Apex Court in Raja Muhammad Amir Ahmad Khan v. Municipal Board of Sitapur, AIR 1965 SC 1923. In the said decision, the Apex Court observed that though the expression "belonging to" no doubt was capable of denoting an absolute title, it was nevertheless not confined to connoting that sense. Full possession of an interest less than that of full ownership could also be signified by that expression.
In Nawab Sid Mir Osman Ali Khan (Late) v. CWT (1986) 162 ITR 888, the Apex Court further observed that there was certain aspects which had to be borne in mind. Reliance was placed on the decision of the Gujarat High Court in the case of CWT v. H.H. Maharaja F.P. Gaekwad (1983) 144 ITR 304. It was contended before the Apex Court that if the Gujarat High Court's view was correct, then the assessee's contention on this aspect in the instant appeal cannot be accepted. On behalf of the assessee, it was submitted that the decision of the Gujarat High Court in CWT v. Manna G. Sarabhai (1972) 86 ITR 153 not having been taken into consideration by the Gujarat High Court in the later decision, the Gujarat High Court judgment on which the Revenue relied was not correct.
Against the decision of the Gujarat High Court in CWT v. H.H. Maharaja F.P. Gaekwad (1983) 144 ITR 304, a special leave petition was filed by the assessee, but it was dismissed by the Apex Court. The Supreme Court, however, observed that dismissal of a special leave petition in limine did not clothe the decision under appeal in the special leave petition with the authority of the decision of the Apex Court.
The Punjab and Haryana High Court in the case of Kala Rani v. CIT (1981) 130 ITR 321, while considering the meaning of "owner" under section 22 of the Income-tax Act, held that the assessee occupied the property after the execution of the agreement of sale-deed in his favour and after completion of the building, he was in a position to earn income from the property sold to him, though the registered sale-deed was executed subsequently, the assessee was the "owner" in terms of section 22 of the Act. The Apex Court observed that in all these decisions, including the decision of the Calcutta High Court in S.B. (House and Land) Pvt. Ltd. v. CIT (1979) 119 ITR 785, the question of ownership had to be considered only to the light of the particular facts of a case.
Regarding the Patna High Court decision in Addl. CIT v. Sahay Properties and Investment Co. (P.) Ltd. (1983) 144 ITR 357, the Apex 'Court observed that this was concerned with the expression "owner" in section 22 of the Act but the Apex Court granted special leave to appeal against this judgment After discussing all these decisions the Apex Court observed thus, (at page 899 of 162 ITR):
" ..though all statutes including the statute in question should be equitably interpreted, there is no place for equity as such in taxation laws. The concept of reality in implementing a fiscal provision is relevant and the Legislature in this case has not significantly used the expression "owner" but used the expression "belonging to". The property in question legally, however, cannot be said to belong to the vendee. The vendee is in rightful possession only against the vendor. Speaking for myself, I have deliberated long on the question whether in interpreting the expression "belonging to" in the Act, we should not import the maxim that equity looks upon a thing as done which ought to have been done" and though the conveyance had not been executed in favour of the vendee, and the legal title vested with '" the vendor, the; property should be treated as belonging to the vendee and not to the assessee. I had occasion to discuss thoroughlythis aspect of the matter with my learned brother and since in view of the position that legal title still vests with the assessee and the authorities, we have noted, are preponderantly in favour of the view that the property should be treated as belonging to the assessee in such. circumstances, I shall not permit my doubts to prevail upon me to the view that the property belongs to the vendee and not to the assessee. I am conscious that it will work some amount of injustice in such a situation because the assessee would be made liable to bear the tax burden in such situations without having the enjoyment of the property in question. But times perhaps are yet not ripe to transmute equity on this aspect in the interpretation of law much as I would have personally liked to do that. As Benjamin Cardozo has said, "The judge, even when he be free, is not wholly free'. The judge cannot innovate at pleasure. "
The Apex Court further held thus, (at page 900 of 162 ITR):
"It may be said that the Legislature having designedly used the expression 'belonging to' and not the expression 'owned by' had perhaps expected judicial statesmanship in the interpretation of this expression as leading to an interpretation that in a situation like this, it should not be treated as belonging to the assessee but, as said before, times are not yet ripe and in spite of some hesitation, I have persuaded myself to come to the conclusion that for all legal purposes, the property must be treated as belonging to the assessee and perhaps the Legislature would remedy the hardship of the assessee in such cases if it wants. Even though the assessee had a mere husk of title and as against the vendee no reality of title, as against the world he was still the legal owner and the real owner. "
While coming to the conclusion, the Apex Court in the aforesaid decision took notice of a decision rendered in CWT v. Bishwanath Chatterjee (1976) 103 ITR 536 (SC), where it was observed that the property is owned by one to whom it legally belongs. The property does not legally belong to the vendee as against the vendor, the assessee.
After considering all the aspects of the matter, the Apex Court to the said decision observed that though the assessee, Nawab Sir Mir Osman Ali Khan, received consideration money and possession was delivered by the vendor to the vendee, nevertheless, the ownership and title remained with the vendor, as there was no valid document of transfer. The expression "belonging to", no doubt, signifies the person holding the property without having full ownership. Even then also, the Apex Court held in the said case that though the expression is "belonging to" the assessee, there must be a valid transfer. The expression "owner" is a much comprehensive term which denotes the full owner as per law. Therefore, without a valid registered document, the right, title and interest would not pass to the assessee. In the present case, therefore, in our opinion, the assessee is not entitled to get the benefit under section 32 of the Act. Accordingly, we answer the question in the negative, i.e., in favour of the Revenue and against the assessee.
A copy of this judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the Income-tax Appellate Tribunal.
In the facts and circumstances of the case, we make no order as to costs.
M.B.A./1943/FC Reference answered