TMI Blog2008 (10) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... right was given to the shareholders under a scheme and an agreement in writing, that the right was given irrevocably and perpetually to the shareholders, that they had absolute and exclusive right to use and enjoy the property and the income therefrom and that in these circumstances it was the shareholders, who were the owners of different units in the building and therefore the assessee cannot be granted depreciation. 3. On appeal, the CIT (Appeals), relying on the judgments of the Supreme Court in the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 , CIT v. Podar Cements (P.) Ltd. [1997] 226 ITR 625 and Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 held that the assessee was not the real owner of the building, that it had only a shell of ownership without any other rights that are incidental to and inherent in the ownership, that the assessee was merely in charge of maintenance of the building, that it did not derive any income from the building and that in such circumstances, the assessee company was not eligible for the depreciation. The decision of the Assessing Officer was accordingly confirmed. 4. The assessee is in further appeal before the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be recognized as shareholder with all consequent rights in respect of the constructed area. Article 3( vii ) made a member liable to pay to the company maintenance charges in respect of the constructed area allotted to him at such rates as are fixed by the company from time to time. It is significant to note that clause ( c ) of Article 7 provided that a member shall not transfer or otherwise dispose of his rights in the constructed area allotted to him without the transfer or disposal of the shares and deposit held by him. A transfer of rights over the constructed area without transfer of the corresponding shares and deposits was not recognized. Clause ( e ) provided that on the death of a member, his shares shall be registered in the names of the persons who succeeded to them and upon whom the rights of the deceased member devolved. 6. A copy of the scheme for provision of the residential/commercial units in the building at Airport Road, Bangalore has been filed before us at our instance. Paragraph 1 of the scheme contains the proposal of the company under the scheme, which is to "develop the property into residential and commercial units and to provide them on what is pop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ) a separate agreement will be entered into with the shareholder for granting the aforesaid rights and reducing the above terms and conditions into writing; ( e ) the shareholder shall have the right to raise a loan on the security of the shares, deposit and the right over the constructed area without encumbering the property owned by the company; ( f ) after the completion of the superstructure and delivery of possession, the shareholder shall maintain his constructed area and bear all the maintenance expenses (internal), repairs, insurance etc.; ( g ) the unit shall be used for residential or commercial purposes by the shareholder or his tenant and only for the purpose for which it was allotted. 8. In paragraph 7 of the scheme, the rights of the assessee-company were spelt out under the head "Ownership". It was proclaimed that the company will be the absolute owner of the land as well as the entire superstructure. This was, however, subject to the stipulations that the company cannot encumber the property after completion of the structure and delivery of possession and it cannot carry on any activity other than maintaining the superstructure constructed by it. 9. Pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right to subjacent and lateral support from other parts of the building, right to use common services such as water supply, sewage, pipes and cables etc., right to lay cables or wires and other common facilities. The restrictions on the members includes the prohibition to construct any additions to the existing unit allotted to the Member, the duty to use the services and facilities in such a manner as not to diminish their value, not to store hazardous or dangerous goods in the unit, not to park vehicles in any place other than the car park, not to throw dirt or rubbish in common areas and so on and so forth. It was the responsibility of the Member to exclusively bear and pay the corporation tax and any other taxes levied and payable in respect of the unit allotted to him, to undertake internal repairs and maintenance of the unit, to pay electricity and water charges and any other specific taxes or levies arising out of usage of the unit for any specific purpose. Schedule B to the agreement described the unit allotted to the member. As per the specimen agreement, the shareholder concerned namely, one Mr. Ziaulla Sheriff was the unit holder. He was allotted a commercial unit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and made part payment of the consideration. The depreciation claim was made under section 32 of the Act and was rejected by the High Court. After a survey of several earlier authorities in which the words "own", "owned" and "owner" were considered and judicially interpreted, the Supreme Court held as follows : "In 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the company. Paragraph 6 of the scheme gave the shareholder the absolute possession, use and enjoyment of the constructed area and the right to let-out the same and enjoy the income/usufruct therefrom. It was not possible for the shareholder to disintegrate the shares and the deposit from the right over the constructed area. In other words, he cannot sell the shares, the deposit and the constructed area to three different persons. This shows the close and intimate connection between the shares and deposit on the one hand and the constructed area on the other. In other words, the amount paid for the shares and deposit represent consideration for the constructed area and the undivided interest in the land and the shares and deposit would be worthless without the constructed area and the undivided interest in the land. The scheme also provided that a shareholder can raise a loan on the security of the unit, that is, shares, deposit and the rights over the constructed area without encumbering the property of the company. The internal maintenance, insurance, repairs and property taxes are payable by the shareholder, though it was clarified in the course of the arguments before us th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in which section 27( iii ) were considered, while interpreting the meaning of the word "owned" in section 32. In the case of Mysore Minerals Ltd. ( supra ), the Supreme Court observed as under : " Podar Cement s case (1997) 226 ITR 625 (SC), is under the Income-tax Act and has to be taken as a trendsetter 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 Act". (p. 780) In the light of the above observation, it is not possible to countenance the argument of the ld. representative for the assessee that the principle laid down while interpreting section 27( iii ) of the Act for the purpose of sections 22 to 26 cannot be extended to the interpretation of the word "owned" appearing in section 32(1). 14. It was then argued that the arrangement between the assessee-company and the shareholders was akin to a lease and the assessee-company continue to be the owner who has merely leased the units to the various shareholders or members. In support of this contention, reliance was placed on the judgment of the Supreme Court in CIT v. Shaan Finance (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rights of the owner, not on behalf of the owner, but in his own right. In the present case, such rights can be exercised only by the unitholders, who are the shareholders or members of the company and not by the company. Therefore, the company cannot be treated as the owner under section 32(1) of the Act. The income-tax authorities were right in law in rejecting the assessee s claim for depreciation. 16. The assessee has raised an alternative claim in ground No. 6 to the effect that the income-tax authorities ought to have granted depreciation on the common areas of the building and other capital expenditure debited to and forming part of the cost of buildings after excluding the value of the flats, offices and units in the commercial complex allotted to the shareholders for their exclusive enjoyment. In the course of the arguments before us, the claim was that depreciation should be given in respect of the common areas. The CIT (Appeals) has denied the claim on the ground that the common areas were incidental to the allotted areas and cannot be separately viewed. The ld. representative for the assessee fairly admitted before us that the assessee has taken monies from the al ..... 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