TMI Blog1966 (9) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st August, 1939. At that time, it was a vacant site. The aforementioned theatre was constructed on that site. The lease in question was a building lease. The lease is for a period of 20 years. Under the lease, the lessee was required to raise a construction on the site, a building costing not less than ₹ 15,000. He was entitled to be in enjoyment and possession of the site leased and the building put up thereon for a period of 20 years commencing from 31st August, 1939. Rent had to be paid in accordance with the terms of the deed. Clauses in the deed which are relevant for our present purpose are 2, 3, 4, 7 and 71. They read as follows : 2. That after the stipulated period of twenty years, the party of the second part shall leave the scheduled premises with the constructions so raised by him to the second member of the first party or his legal representative or assigns absolutely and for ever and after the said period the party of the second part shall have no manner of right, title or interest in or upon the premises or the construction so raised thereon. 3. That the annual taxes payable to the municipality or any loca authority or department of Government shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claimed a sum of ₹ 10,000 as lease amount paid to Kelkar. The Income-tax Officer rejected the claim observing : In the past the asset represented by the building was not considered to be that of the assessee under a mistaken impression that the assessee is only a lessee of the building. In fact the balance sheet of the assessee does not disclose this asset. However, when the matter was fully enquired into it was seen that the assessee is the full owner of the theatre building and the machinery therein. On the basis of that finding, the Income-tax Officer allowed depreciation on the building at 2 1/2%. For working out the depreciation, he took the original cost at ₹ 1,00,000 as on March 31, 1951, and the deemed depreciation at 2 1/2% to have been allowed since 1951-52. The assessment year 1956-57 was also dealt with in the same manner, rejecting the assessee's claim for deduction of ₹ 10,000 as rent paid. The assessee appealed against the assessment orders to the Appellate Assistant Commissioner. Therein, he gave up the claim for the deduction of ₹ 10,000 and confined his claim for depreciation on the value of the building. The Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer. In appeal, the Income-tax Appellate Tribunal affirmed the order of the Appellate Assistant Commissioner. It agreed with the Appellate Commissioner that the assessee was not the owner of the building in question. Therefore, he is not entitled to the benefit of section 10(2)(vii). It further came to the conclusion that in the instant case it cannot be said that the assessee had sold or discarded or demolished or destroyed the building in question ; hence, his case does not fall within the ambit of section 10(2)(vii). It also rejected the claim of the assessee for depreciation allowance under section 10(2)(vi), on the ground that the assessee is not the owner of the building. The claim under section 10(2)(xv) was not urged before us. It is obviously an unsustainable claim. The loss in question cannot be considered as expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee. Unless the assessee is able to establish that his case falls within section 10(2)(vii), he is clearly not entitled to the allowance claimed by him. Therefore, in dealing with that part of the assessee's case, all that we have to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee either before this court or before the authorities below that the building in question was demolished or destroyed . Therefore, we need not go into the true connotation of those words. Both before the Appellate Assistant Commissioner and the Tribunal, it appears the contention of the assessee was that the said building was discarded . Both those authorities rejected that contention. From the records of the case it is clear, and that fact is admitted, that the assessee is still in possession of the theatre in question. He continues to exhibit pictures in that theatre. He has refused to surrender possession of the same to the lessor. The lessor had instituted Original Suit No. 53 of 1959 on the file of the District Judge, Bangalore, claiming the possession of that building on the strength of the lease deed executed on August 31, 1959. The assessee is resisting that suit on the ground that, in view of the huge investment made by him in putting up a costly theatre, he is entitled to continue in possession of the building. In these circumstances, the contention that the assessee, in law, must be deemed to have discarded that building appears to have no b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no longer available to him for the production of assessable income shall be deductible in the assessment of his taxable income and that to that end, subject to the other provisions of the Act , it shall be the subject of a deduction under section 10(2)(vii). In support of this argument reliance was placed on the decision of the Australian High Court in Henty House Proprietary Ltd. vs Federal Commissioner of Taxation 88 C. L. R. 141 On the authority of that decision Mr. Swaminathan wanted us to give an extended meaning to the word sold found in section 10(2)(vii) so as to include transactions like the one before us. We think that Mr. Swaminathan is right in his contention that the assessee should be considered as having been the owner of the superstructure till the period of the lease came to an end. It was observed by Tendolkar J. in Laxmipat Singhania vs Larsen and Toubro Ltd. AIR 1951 Bom. 205 that the effect of the provision in section 108(h) is that the lessee is the owner of the building put up by him, although it is put up on the land belonging to the lessor. This view was accepted as correct by the Supreme Court in Dr. K. A. Dhairyawan vs J. R. Thakur AIR 1958 S. C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Henty House Proprietary Ltd. vs Federal Commissioner of Taxation 88 C. L. R. 141 to the facts of this case. The language of the corresponding Australian Act is not in pari materia with the language of section 10(2)(vii). The expression disposed of found in section 59 of the Australian Income Tax Assessment Act is wider in scope than the word sold found in section 10(2)(vii). That apart, what is of importance in this case is that the assessee continues to be in possession of the theatre. Under these circumstances, we are unable to uphold the contention of the assessee that he must be deemed to have sold the theatre to the lessor. We have earlier opined that he cannot be considered as having discarded the theatre in question. We have also come to the conclusion that the assessee was the owner of the building in question during the accounting year 1958-59. Hence, the assessee is entitled to the allowance for depreciation provided under section 10(2)(vi). Our answer to the questions referred to us is that, on the facts and in the circumstances of this case, the assessee is not entitled to the deduction of ₹ 85,907 claimed by him either under section 10(2)(vii) or u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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