There was a raging controversy as to whether it was necessary to be a legal title-holder in order to get the benefit of the depreciation under Section 32 of the Act.

The view that the mere possessor under the terms of agreement for purchase shall not be entitled to depreciation allowance, even though he uses the assets for his business was held by the Allahabad, Delhi, Madras and Kerala high courts. The contrary view was taken by the Andhra Pradesh, Punjab and Haryana, and Gauhati high courts.

In CIT vs Narendra Ceramics, 195 ITR (St.) 138 (SC), their Lordships of the Supreme Court dismissed the special leave petition of the department to appeal against the order of the high court rejecting the reference application on the question whether when the assets of a concern were taken over under an agreement dated March 15, 1962, and the sale deed was executed on August 16, 1976 and registered on September 1, 1976, the assessee (vendee) could claim the depreciation on all the assets sold for the assessment year 1975-76.

In other words, though the actual sale deed was executed on August 16, 1976, relevant to assessment year 1976-77, the purchaser was entitled to claim depreciation on all the assets purchased by them for an earlier assessment year 1975-76. However, mere rejection of a special leave petition without a detailed judgment is not necessarily considered to be a decision of the Supreme Court on the concerned proposition of law.

In CIT vs Podar Cement Pvt Ltd, 226 ITR 625 (SC), the Supreme Court has, inter-alia, held that the word "owner", in the context of Section 22 of the Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, viz, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted. But Podar Cements was dealing with the taxability under the head "Income from house property" and not with Section 32 of the Act. Now, the Supreme Court in Mysore Minerals Ltd vs CIT, 106 Taxman 166 (SC), has put its seal of approval on the issue that it is not necessary to be a title-holder in order to be considered as an owner for the purpose of being entitled to claim depreciation under Section 32 of the Act.

In this case, a private limited company had purchased seven low-income group houses from the housing board for the use of its staff. The assessee had made part payment and was, in turn, made allotment of the houses followed by delivery of possession by the housing board. The actual deed of conveyance, however, had not been executed in the relevant year in favour of the assessee.

The Supreme Court, after referring to the decision in Podar Cement's case, supra, opined that the term "owned" as occurring in Section 32(1) must be assigned a wider meaning. It stated that any one in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having 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, Registration Act, etc.

It went on to hold that there could not be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting Section 32 would be best fulfiled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent.

In the case on hand, it was the appellant assessee who, having paid a part of the price, had been placed in possession of the houses as an owner and was using the buildings for the purpose of its business in its own right. Still, the assessee had been denied the benefit of Section 32. On the other hand, the housing board would be denied the benefit of Section 32 because, in spite of its being the legal owner, it was not using the building for its business or profession. The court opined that they did not think that such a benefit-to-none situation could have been intended by the legislation. They went on to hold that it is common knowledge that bodies like the housing board allotted houses on part payments to those who booked it. Possession was also delivered to the allottees so as to enable enjoyment of the property. Execution of document transferring title necessarily followed if the schedule of payment is observed by the allottee.

If only the allottee may default, the property may revert back to the board. That is a matter only between the housing board and the allottee. No third person intervenes. The part payment made by the allottees are with the intention of acquiring property. The delivery of possession by the housing board to the allottee is also a step towards conferring ownership.

Documentation is delayed with the idea of compelling the allottee to observe the schedule of payment. In these circumstances, the court held that the assessee company was the owner and not the housing board for the purposes of Section 32(1) of the Act.

This decision sets the seal on the issue of ownership by holding that it is not necessary that the person concerned should be a legal title-holder in order to be an owner for the purpose of claim of depreciation under Section 32 of the Act. This is a trend setting judgment.

The author is a Mumbai based chartered accountant