Income-tax---

----Depreciation---Requisite conditions for claiming depreciation is "ownership" and "user" of building, plant, machinery, etc.---Assessee-firm constituted of seven partners---Four partners contributing money as capital while three partners bringing; their trucks into firm as capital contribution--Vehicles becoming assets of firm and used through agents appointed by firm and income from vehicles credited in books of firm, though registration continued in names of three partners---Registration under Motor Vehicles Act not an essential prerequisite for acquisition of ownership--"Owned by the assessee" not used in the sense that complete title should vest in assessee-- Assessee-firm was owner of vehicles and entitled to depreciation on them-- Indian Income Tax Act, 1961, S.32.

The assessee-firm was constituted of seven partners to carry on transport business. Out of the seven partners, four partners contributed money as capital while the other three partners brought their trucks into the firm as their capital contribution. The assessee-firm appointed three agents under three separate agreements for the supervision control and plying of the vehicles. The three vehicles were shown as the assets of the firm in its balance-sheet. The Assessing Officer rejected the claim of the assessee for depreciation under section 32 of the Income Tax Act, 1961, on the ground that the assessee failed to satisfy the requisite conditions that it owned and used the trucks. The Appellate Assistant Commissioner affirmed the order of the Assessing Officer. The Tribunal accepted that the three trucks became the assets of the firm and they were used through agents by the assessee-firm, though the registration of the vehicles continued in the names, of the three partners who initially acquired the vehicles. The Tribunal came to the conclusion that the assessee owned and used the trucks, that the income from the three trucks was credited in the books of the assessee-firm and that, therefore, it was entitled to depreciation under section 32 of the Act. On a reference:

Held, (i) that registration under the Motor Vehicles Act was not an essential prerequisite for the acquisition of the ownership of the motor vehicles but was only an obligation cast upon an owner of the vehicle for the purpose of running the vehicles in any public place. As the registration of the vehicles could not be made in the name of the firm, the registration continued in the names of the three partner, who initially owned the vehicles.

(ii) That the expression "owned by the assessee" in section 32 of the Act had not been used in the sense of the property, complete title in which vested in the assessee. The assessee would be considered to be an owner under section 32 if he was in a position to exercise the rights of an owner not on behalf of the person in whom the title vested, but in his own right.

(iii) That, therefore, the Tribunal was right in holding that the assessee owned and used the three vehicles and was entitled to depreciation under section 32 of the Act.

CIT v. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 (Bom.) and CIT (Addl.) v. U.P. State Agro Industrial Corporation Ltd. (1981) 127 ITR 97 (All) applied.

JUDGMENT

At the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question relating; to the assessment years 1975-76 and 1976-77 for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim depreciation under section 32 of the Income Tax Act, 1961, on the three trucks?"

The facts as found by the Tribunal are that the assessee-firm came to be constituted under a partnership deed, dated October 6, 1973. It consisted of seven partners, Sarvasri Moti Lal Agarwal, Anand Agrawal, Anil Agarwal, Pradeep Agarwal, Prem Ji Agarval, Murari Swaroop and Subhash Godbole. The firm was constituted to carry on transport business in the name and style: "Messrs Nav Dur ga Transport Company". Whereas, the first four partners contributed capital of Rs.600, Rs.700, Rs.600 and Rs.1,100, respectively, the other three partners brought their trucks into the firm as their contribution. The firm appointed three agents under three separate agreements for the supervision, control and plying of the vehicles. The three vehicles were shown as the assets of the firm in its balance-sheet.

Whereas, the Assessing Officer and the Appellate Assistant Commissioner rejected the claim of the assessee to get depreciation under section 32(1) of the Income Tax Act, 1961 (briefly "the Act"), on the ground that the assessee failed to satisfy the requisite conditions that it owned and used the trucks, the Appellate Tribunal accepted the contention of the assessee, holding that the three trucks became the assets of the firm and they were used through the agents by the assessee-firm. This is how the Appellate Tribunal concluded that the assessee owned and used the three trucks and it was entitled to depreciation tinder section 32(1) of the Act.

The Tribunal as a last fact-finding body categorically recorded a finding of fact that all the three vehicles became the assets of the firm and, as such, they have been used through agents by the firm and the income from the three vehicles were credited in the books of account of the assessee-firm. No doubt, the registration continues in the name of three partners, who initially acquired the vehicles.

In CIT v. Dilip Singh Sardar Singh Bagga (1993) 201 ITR 995, the Bombay High Court held that registration under the Motor Vehicles Act is not an essential prerequisite for the acquisition of ownership of the motor- vehicles, but is an obligation cast upon an owner of the vehicle for the purpose of running the vehicles in any public place.

As registration cannot be made in the name of the firm, the registration continued in the name of the three partners, who initially owned the vehicles.

In CIT (Addl.) v. U.P. State Agro Industrial Corporation Ltd. (1981) 127 ITR 97, this Court held that the expression "building owned by the assessee" in section 32 of the Income Tax Act, 1961, has not been used in the sense of property, complete title in which vests in the assessee. The assessee will be considered to be an Owner of the building under section 32 if he is in a position to exercise the rights of the owner not on behalf of the person in whom the title vests., but in his own right.

Applying the ratio of the aforesaid decisions, we are of the considered view that the Appellate Tribunal rightly reached the conclusion that the assessee owned and used the three vehicles within the meaning of section 32 of the Act.

We, therefore, answer the aforementioned question in the affirmative, that is, in favour of the assessee and against the Revenue.

M.B.A./4064/FCQuestion answered.