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TMI Blog1987 (8) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, (d) on 15-3-1972, an agreement was entered into between Shri Narendra Tanna and the assessee to take over the running Concern of M/s Narendra Ceramics including all its assets and liabilities. In consideration thereof, Shri Narendra Tanna was to be paid Rs. 5,09,293, 50 per cent thereof was to be paid by way of shares of Rs. 100 each of the assessee-company and the balance 50 per cent was to be kept with the assessee as deposit from Shri Narendra Tanna, (e) by virtue of the aforesaid agreement, the assessee took over the running concern of M/s. Narendra Ceramics including all its assets and liabilities with effect form 1-4-1972, (f) on 20-8-1975, Shri Narendra Tanna executed an affidavit wherein, inter alia, he had stated that the assessee was the owner of all the assets mentioned in the agreement dated 15-3-1972 and was carrying on business from 1-4-1972. He further stated that he was acting as trustee for and on behalf of the assessee till the sale deed was executed, (g) on 16-8-1976, a sale deed was executed between Shri Narendra Tanna and the assessee which was lodged with the concerned authorities for registration and (h) on 1-9-1978, the sale deed was registered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the fitness of things to discuss herein the merits of assessee's claim for depreciation in respect of immovable properties. The immovable properties as found in the balance sheet of the Company is worth Rs. 2,41,949. As per provisions of section 54 of the Transfer of Property Act, if the value of immovable property exceeds Rs. 100 the transfer by way of sale can be only by a registered instrument. Until or unless the property is registered within the meaning of section 54 of the Transfer of Property Act, it cannot be said that title of the immovable property is transferred to the transferee. As such the title to the property remains with the transferor until or unless the deed is registered. As per clause 6 of the agreement referred to above, the transferor was to execute in favour of the Company a document in respect of the immovable property. Admittedly no such document is registered till today. Therefore, the transferor continues to be the owner of the immovable property and no such assets can be said to have been transferred to the company under the law. Since the depreciation can only be allowed to the assessee if the assessee owns that asset and in the instant case the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property and is not entitled for depreciation. As such, the claim of the assessee is rejected and disallowed. 9. It was contended on behalf of the assessee that the depreciation on other movable assets should be allowed as they do not require any registration. After study of the argument, I am of the opinion that the assessee is also not entitled for depreciation on movable assets also. Though the transfer of movable assets is not required to be made by registered agreement. But the agreement to transfer the property is governed by the clauses of the agreement. As per clause 2 of the agreement, the consideration for the transfer of the asset was to be completed by issue of 1/2 share in the share capital and other 1/2 to be kept with the Company as a deposit. Clause 5 of the agreement further lays down that the transfer shall be completed as soon as practicable by allotment of the shares to the transferor and issue of the deposit as aforesaid, against the transferor executing at the instance and costs of the Company and doing all assurances and things for vesting the said premises to the Company. As such the transfer can be said to have completed only when the 1/2 amount of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not fulfilled, I hold that no depreciation was allowable in respect of the assets in question." 8. For the assessment year 1974-75, a different AAC upheld the action of the ITO, in the following manner : "17. In the instant case, the document was executed on 16-8-1976 and it was sent for adjudication to the prescribed authority. The Registration Authority accepted the Deed on a stamp paper of Rs. 20 on 28-9-1976. In view of the ratio laid down in the above noted cases, the transfer of immovable properties can be said to be complete on 16-8-1976, the date of execution of the said agreement. The plant and machinery embedded to the buildings etc. an also be said to be transferred with effect from this date only and not prior to it. In this connection, section 47 of the Indian Registration Act can also be mentioned. According to that section, registered document operates form the date of its execution and not from the date of its registration. The appellant contended that since the said document has been given retrospective effect form 31-3-1972, the material date will be the said date. I am not inclined to agree with the said argument of the appellant. As mentioned in the Regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant-company had not become the owner of the said assets. This ground of appeal is, therefore, dismissed." 9. For the assessment years 1975-76 and 1976-77, the Commissioner (Appeals), in his consolidated order, disposed of this issue, in the following manner : "3. As regards the appeal for the assessment years 1975-76 and 1976-77 are concerned, the appellant's representative has pointed out that there is a common contention regarding disallowance of the depreciation claim of the appellant. The appellant's representative has explained that the concern belonging to Shri Narendra Davkarana Tanna was transferred to the appellant-Company. It has been claimed that the building, machinery, furniture, convenes etc. were all transferred to the Company. The appellant's representative has claimed that the Income-tax Officer has failed to take into account that the movable assets became the property of the appellant-Company by delivery. It has been admitted that the building has not been transferred till date. It has also been admitted that the transfer of the building cannot be treated to be complete till it is transferred to the Company by a registered deed. The appellant's representative h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be entitled to claim depreciation on movable assets like plant and machinery, motor cars and trucks. 11. The learned counsel for the assessee has developed his arguments on the following points : (i) The provisions of section 32 of the Act, (ii) The provisions of section 22 of the Act, (iii) The circular issued by the Board in connection with hire purchase agreement, (iv) The provisions of section 32(1A) of the Act, (v) Cases arising where leases are executed, (vi) De facto ownership, (vii) Trustee/nominee (viii) Doctrine of real income, (for which additional ground was taken which was admitted by the Tribunal), and (ix) Possibility of two views. 12. Relying on the decision in the cases of Addl. CIT v. U.P. State Agro Industrial Corpn. Ltd. [1981] 127 ITR 97 (All.), CIT v. Shahney Steel & Press Works (P.) Ltd. [1987] 165 ITR 399 (AP), Punjab National Bank v. CIT [1983] 141 ITR 886 (Delhi), CIT v. Steelcrete (P.) Ltd. [1983] 142 ITR 45 (Cal.) and CIT v. Salkia Ltd. Transport Associates [1983] 143 ITR 39 (Cal.) the learned counsel for the assessee strongly urged that since the assessee had full control over the assets acquired from M/s. Narendra Ceramics and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the decisions in the cases of Addl. CIT v. Lawlys Enterprises (P.) Ltd. [1975] 100 ITR 369 (Pat.), CIT v. Chandra Agro (P.) Ltd. [1979] 117 ITR 251 (All.) and CIT v. Alpana Talkies [1983] 139 ITR 1055 (Bom.), the learned counsel for the assessee submitted that even on the assets taken on lease or additions made thereto, an assessee would be entitled to claim depreciation as provided under section 32 of the Act. 16. Relying on the orders of the Tribunal in the cases of ITO v. Smt. Savita Rani [1983] 5 ITD 621 (Delhi) and Shakti Trading Co. [IT Appeal No. 1133 (Ahd.) of 1984 dated 27-6-1986], the learned counsel for the assessee submitted that since the assessee was de facto owner of the assets acquired from M/s. Narendra Ceramics, it was entitled to claim depreciation on these assets as contemplated under section 32 of the Act. 17. Relying on the order of the Tribunal in the case of W. H. Deeth (P.) Ltd. [IT Appeal Nos. 710 and 731 (Bom.) of 1974-75 dated 19-4-1975], the learned counsel for the assessee submitted that since Shri Narendra Tanna was nominee/trustee of the assessee-company the assessee would be entitled to claim depreciation on the assets acquired f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing was mentioned regarding the nominee or trusteeship of Shri Narendra Tanna, it cannot be held that Shri Narendra Tanna was looking after the business for and on behalf of the assessee. Finally, he submitted that the doctrine of real income could be applied in respect of commercial expenditure and not to an item like depreciation which is allowed to the assessee on a notional basis. He, therefore, urged that the assessee's submissions regarding doctrine of real income should be rejected outright. In this view of the matter, he strongly argued that the orders of the AAC for the first two years under appeal should be upheld and the order of the Commissioner (Appeals) regarding granting of depreciation on movable assets for the assessment years 1975-76 and 1976-77 should be reversed. He, however, submitted that the order of the Commissioner (Appeals) in respect of granting of depreciation on immovable assets should be confirmed. 21. We have carefully considered the rival submissions of the parties as well as the material already brought on record to which our attention was drawn and we find considerable force in the submissions made on behalf of the assessee. It is no doubt tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) was fully justified in accepting the assessee's contention in this regard. In view of our this decision, we have to hold that the Arcs were not justified in rejecting the assessee's contention in this regard in respect of the first two years under appeal. As we are holding that the assessee was the owner of both movable and immovable properties from M/s. Narendra Ceramics, it is not necessary for us to discuss various other arguments made by the parties on different aspects of the matter. We would, therefore, direct the ITO to accept the assessee's claim for depreciation on both movable and immovable properties acquired from M/s. Narendra Ceramics and modify the assessments accordingly. 22. It may be mentioned that there is one other ground each in respect of the assessment years 1973-74 and 1974-75 taken up by the assessee in its appeals. However, at the time of hearing, the learned counsel for the assessee did not press the same. We would, therefore, reject the same. 23. There is one more ground in the appeal preferred by the revenue in respect of the assessment year 1975-76.regarding the applicability of the provisions of section 37 (2B) of the Act. The ITO had disa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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