TMI Blog2007 (9) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... Minerals Ltd.[ 1999 (9) TMI 1 - SUPREME COURT] with reference to the word 'owned' in section 32 of the Act with which we are also concerned in the present case. The legal position emerging from discussion is that the word 'owned' in section 32 of the Act has to be understood in a wider sense and not in the legal sense in terms of the provisions of Transfer of Property Act. The true test would be whether the assessee can exercise the rights of the owner in his own right to the exclusion of others. If the answer is in affirmative, then assessee would be entitled to depreciation under section 32 of the Act. AO has observed that purchase of shares cannot be equated with the purchase of property. There cannot be any dispute that generally, mere purchase of shares in a company would not entitle the shareholder to enjoy the rights of an owner in respect of the properties owned by the company since both the entities are distinct and separate. However, Articles of Association of a company engaged in the business of real estate may provide that shareholder of particular shares would be entitled to exercise the rights of owner in respect of properties owned by the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of Income-tax Act, 1961 (the Act). This issue arises in the appeals relating to assessment years 1997-98, 2000-01 and 2001-02. Since facts are identical and the issue originates from the assessment year 1990-91, the facts as found by the Tribunal in the appeal relating to assessment year 1990-91 are being narrated hereafter. The assessee-company was engaged in the business of manufacturing of Liquid Ammonia since the year 1983. The basic raw material was industrial gas which was supplied by ONGC. The goods manufactured were sold to Rashtriya Chemicals and Fertilisers (RCF) and Zuari Agro Chemicals Ltd. (ZACL). The assessee-company was entirely dependent on the aforesaid two companies to sustain the production. In order to reduce this dependency and also with a view to optimize utilization of existing ammonia plant and further to diversify its operations, the assessee-company decided to set up an additional plant for the manufacture of Ammonium Nitro-Phosphate, Diluted Nitric Acid and certain other similar products. The basic raw material for all these products was the Liquid Ammonia which was already manufactured by the assessee-company in the existing plant. In order to finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, it was stated by the assessee as under: "The said shares entitle the company to have exclusive right to use and occupy for purpose of its business the said premises. Also, please note that such shares are freely transferable and the Board of Directors of the issuing company shall have no power to refuse, to register, transfer or transmission of the share on any ground except for non-compliance with administrative formalities and law relating to transfer of shares. The above situation is indeed in pari materia with a cooperative housing society wherein a society is the legal owner of the building while members, by virtue of their shareholding in the society, have exclusive right to use and occupy the premises. Form 37-I were also filed and no objection certificates under section 269UL(3) of the Income-tax Act, 1961 were obtained from the income-tax appropriate authority." Further vide letter dated 19-1-2000, it was reiterated that on the basis of purchase of shares, the assessee-company became entitled to have exclusive right to use and occupy certain premises which are freely transferable. Thus, the transaction is in pari materia with a Co-operative Housing Society, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 27(iii), section 2(47)(vi) and section 269UA of the Income-tax Act as well as the judgment of Supreme Court in the case of CIT v. Poddar Cements (P.) Ltd. [1997] 226 ITR 625, held that assessee was the owner of the premises allotted to it by virtue of purchase of shares and consequently was entitled to claim depreciation in view of the Supreme Court judgment in the case of Mysore Minerals Ltd. Aggrieved by the same, the revenue is in appeal before the Tribunal. 5. Both tile parties have been heard at length. The learned D.R. has strongly relied on the reasons given by the Assessing Officer while the learned counsel for the assessee has relied on the reasons given by the learned CIT(A). Since we have already dealt with such submissions in the earlier paragraphs, the same need not be repeated. After considering the submissions of both the sides as well as relevant provisions of the Income-tax Act, we are of the view that order of learned CIT(A) must be upheld on this issue. There is no dispute that in order to claim the depreciation in respect of any property it is the condition precedent that assessee must be the owner of that property and the same is used for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Act. In other words, if the title in the immovable property was not transferred by execution of registration of sale deed then, the transferee who got the possession of the property after payment of consideration could not be considered as owner of the property for the purpose of claiming depreciation under section 32 of the Act. On the other hand, the contention of the learned counsel for the assessee was that the word 'owner' should be understood in the sense in which the Hon'ble Supreme Court understood in the case of R.B. Jodha Mal Kuthiala and in the case of Poddar Cements (P.) Ltd. In other words, it was submitted that the term 'owned' in section 32(1) of the Act should be assigned a contextual sense. According to him, the benefit arising in section 32 should not be denied merely on the ground that conveyance deed was not executed. After considering the submissions from both the sides, Their Lordships observed as under: "Section 32 of the Income-tax Act confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, Articles of Association of a company engaged in the business of real estate may provide that shareholder of particular shares would be entitled to exercise the rights of owner in respect of properties owned by the company. Such mode of transfer is duly recognized by the Legislature in the provisions of section 2(47)(vi), section 27(iii) and section 269UA(d)(ii) of the Act. It is because of the provisions of section 269UA(d)(ii) that assessee was required to obtain no objection certificate from the competent authority prescribed under Chapter XX of the Act. All these provisions, if read together, lead to the only inference that Legislature has accepted the fact of transfer of property through the transfer of shares of a company. Therefore, the objection of the Assessing Officer that property cannot be transferred through the transfer of shares cannot be sustained. 10. Now the question arises whether in the present case, the assessee can exercise the rights of an owner in its own rights in respect of the property acquired by it through the purchase of shares of Yerrowda Investments Ltd. We have gone through the Articles of Association of the company - Yerrowda Investments L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnized by section 2(47)(vi), section 27(iii) as well as section 269UA(d) of the Act. In view of the above discussions, we are of the view that assessee had become the owner of the properties by virtue of holding of shares of Yerrowda Investments Ltd. and consequently it was entitled to claim depreciation in accordance with the law. The order of the learned CIT(A) is, therefore, upheld on this issue. 11. The next issue relates to the disallowance in respect of prior period expenses. This issue arises in the assessment years 1997-98, 1998-99 and 2000-01. The disallowance has been made without much discussion by the Assessing Officer in these years but the learned CIT(A) following his earlier order decided the issue in favour of the assessee. It had been contended before learned CIT(A) that certain expenses are not supported by the bills/vouchers and sometimes the claims are not processed and accepted by the accounts department. As and when such bills/vouchers are received or claims are settled, the expenses are booked though sometimes it may relate to the earlier years. It was also submitted that such procedure was being followed consistently. The learned CIT(A) accepted the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as revenue receipt when such amount is forfeited. Not satisfied with the explanation of the assessee, the Assessing Officer made the additions in computing the total income of the above assessment years. 13. The matter was carried in appeal before the learned CIT(A) who has deleted the additions made by Assessing Officer by holding that the judgment of Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd. was not applicable to the facts of the present case. On the other hand, the case was covered by the decision of the Bombay High Court in the case of Mahindra Mahindra Ltd. v. CIT [2003] 261 ITR 501. Aggrieved by the same, the revenue is in appeal before the Tribunal. 14. After hearing both the sides, we do not find merit in the appeals of the revenue. We have gone through the decision of the Hon'ble Supreme Court. In that case, the deposits were received in the course of trading activity and because of this fact the court held that it was converted into income when the amount was written off. On the other hand, the Bombay High Court in the case of Mahindra Mahindra Ltd. was concerned with a case where a loan was given by an American company to the assessee to fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons contained in sub-section (4) of section 115JA which provides that "same as otherwise provided in the section, all other provisions of this Act shall apply to every assessee, being a company mentioned in this section". This issue has also been resolved by the Tribunal in the case of IBM India Ltd. v. CIT [2007] 105 ITD 1 (Bang.) and in the case of Escapade Resorts (P.) Ltd. v. Asstt. CIT [2007] 107 ITD 323 (Cochin) wherein it has been held that the principal laid down by the Hon'ble Supreme Court in the case of Kwality Biscuits Ltd. would also apply to the computation of book profits under section 115JA and consequently no interest under section 234B would be chargeable. Following there decisions, the issue is decided in favour of the assessee. Consequently, the orders of the learned CIT(A) are upheld on this issue. Assessee's Appeals: 16. The first issue arising from the appeal for the assessment year 1997-98 relates to disallowance of guest house expenses. The learned counsel for the assessee concedes that this issue is covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546. Therefore, foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that such loss cannot be claimed in any year in which assessee likes. Such loss can be claimed only in the year in which such items are sold and disposed off. On appeal, the disallowance made by Assessing Officer was confirmed. Aggrieved by the same the assessee is in appeal before the Tribunal for all the years. 22. Contention raised on behalf of the assessee is that the decision of the Bombay High Court did not consider the Accounting Standard prescribed by the Institute of Chartered Accountants which were binding on the assessee. Therefore, the said decision should not be relied. It was also contended that the stocks can be valued at cost or market value as per the decision of Hon'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481. In our opinion both the contentions are without force. Normally, the Accounting Standards is accepted but it cannot override the provisions of the Income-tax Act as held by the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd v. CIT [1997] 227 ITR 172. The judgment of Bombay High Court would, therefore, apply to the present case wherein it has been clearly held that loss can be claimed only in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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