DCIT, New Delhi V. M/s Biltech Building Elements Ltd., New Delhi

ITA 1537/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3916 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Keywords: Capital asset; Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 1537(DEL)2011 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF I. TAX, M/S. BILTEC H BUILDING ELEMENTS LTD., CIRCLE 3(1), NEW DELHI. V. THAPAR HOUSE, 124, JANPATH, N.DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: MRS. ANUSHA KHURANA, SR. DR RESPONDENT BY: NONE ORDER PER A.D. JAIN, J.M . THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2006-07, CONTENDING THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN DELETING ADDITION OF ` 34,63,965/-, MADE ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON FACTORY BUILDING. 2. NONE HAS APPEARED ON BEHALF OF THE ASSESSEE DESP ITE ISSUANCE OF NOTICE OF HEARING, IT HAS NOT RETURNED UNSERVED. HOWEVER, THE MATTER CAN BE PROCEEDED WITH IN THE ABSENCE OF THE ASSESSEE, WE A RE DOING SO. ITA 1537(DEL)2011 2 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MECHANIZED MANUFACTURE OF FLY ASH BASED CONSTRUCTION MATERIAL KNOWN AS AUTOCLAVE AERATED CONCRETE. DURING THE YEAR, IT CLAIMED 10% DEPRECIATION, AMOUNTING TO ` 34,63,965/-, ON FACTORY BUILDING. THE AO OBSERVED THAT AS PER CLAUSE (I) OF THE NOTES TO ACCOUNTS ATTACHED WITH THE ASSESSE ES AUDITED ACCOUNTS, THE IMMOVABLE PROPERTIES INCLUDING FREEHOLD LAND AND BU ILDINGS VESTED IN THE COMPANY ON PURCHASE OF UNIT AAC PALWAL FROM PETL AR E PENDING FORMAL REGISTRATION OF TITLE DEED/OWNERSHIP RIGHTS IN THE THEN NAME OF THE COMPANY AND THAT THE EXPENDITURE FOR COST OF STAMP DUTY TOW ARDS REGISTRATION OF THESE ITEMS OF FIXED ASSETS IN THE NAME OF THE COMPANY WO ULD BE DETERMINABLE ON THE REGISTRATION FORMALITIES BEING COMPLIED WITH. SINCE THE ASSESSEE DID NOT FURNISH ANY REPLY TO THE AOS QUERY IN THIS REGARD, THE CLAIM OF DEPRECIATION WAS DISALLOWED. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE. 5. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 6. CHALLENGING THE IMPUGNED ORDER, THE LEARNED DR H AS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F ` 34,63,965/- MADE ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON FA CTORY BUILDING; AND THAT WHILE DOING SO, THE LD. CIT(A) HAS IGNORED THE FACT THAT THE ASSESSEE FAILED TO ITA 1537(DEL)2011 3 PROVE THE OWNERSHIP OF THE ASSET AND THAT THIS IS T HE PRE-REQUISITE FOR CLAIMING DEPRECIATION. 7. WE HAVE HEARD THE LEARNED DR AND HAVE PERUSED TH E MATERIAL ON RECORD. THE ISSUE IS AS TO WHETHER THE LEARNED CI T(A) COMMITTED ANY ERROR IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCO UNT OF CLAIM OF EXTRA DEPRECIATION ON FACTORY BUILDING. 8. THE STAND OF THE DEPARTMENT IS THAT THE PRE-REQU ISITE FOR GRANT OF CLAIM OF EXTRA DEPRECIATION ON FACTORY BUILDING IS PROOF OF OWNERSHIP THEREOF, WHICH PROOF IS ABSENT IN THE PRESENT CASE. 9. THE AO MADE THE DISALLOWANCE ON THE BASIS OF THE NOTES TO ACCOUNTS, ATTACHED WITH THE ASSESSEES AUDITED ACCOUNTS. AS PER NOTE (I), THE REGISTRATION OF TITLE OF FACTORY BUILDING WAS PENDI NG AND HAD NOT BEEN SHOWN IN THE NAME OF THE ASSESSEE COMPANY. THE FACTORY HAD BEEN ACQUIRED BY THE ASSESSEE FROM M/S. PREMIUM ENERGY TRANSMISSION LIMI TED. THE BUSINESS THERE AT WAS OF MANUFACTURE OF AUTOCLAVE AERATED CO NCRETE PRODUCTS. AS PER THE AGREEMENT ITSELF, THE ASSESSEE COMPANY CARR IED ON THE BUSINESS OF MANUFACTURE AND SALE OF AUTOCLAVE AERATED CONCRETE PRODUCTS DURING THE FINANCIAL YEAR 2004-05. FOR ASSESSMENT YEAR 2005- 06, DEPRECIATION ON THE ASSETS ACQUIRED, FROM M/S. PREMIUM ENERGY TRANSMISS ION LIMITED, WAS GRANTED U/S 143(1) OF THE I.T. ACT. ITA 1537(DEL)2011 4 10. THE ABOVE FACTS HAVE REMAINED UNDISPUTED. TH E AO MADE THE DISALLOWANCE ONLY FOR THE REASON THAT THE REGISTRAT ION OF THE FACTORY IN THE NAME OF THE ASSESSEE COMPANY WAS PENDING AND HAD NO T BEEN FINALIZED. IT ALSO REMAINS UNREBUTTED THAT THE BUILDING WAS USED EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS OF MECHANIZED MA NUFACTURE OF FLY ASH CONSTRUCTION MATERIAL , I.E., AUTOCLAVE AERATED CON CRETE PRODUCTS. THE EFFECTIVE OWNERSHIP AND USER OF THE BUILDING WAS, A S SUCH, NEVER DISPUTED BY THE AO. 11. THE ISSUE AT HAND HAS BEEN DEALT WITH BY THE HO NBLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD. V. CIT, 239 I TR 775(SC). THEREIN, THE ISSUE UNDER CONSIDERATION WAS AS TO WHETHER IT IS ONLY AN ABSOLUTE OWNER OR AN OWNER OF THE ASSET AS UNDERSTOOD IN ITS LEGAL SENSE, WHO CAN CLAIM DEPRECIATION, OR VESTING OF TITLE THEREOF FULL-FLED GED OR LEGAL OWNERSHIP CAN ALSO ENTITLE AN ASSESSEE TO CLAIM DEPRECIATION U/S 32. THE HONBLE SUPREME COURT OBSERVED THAT THE TERMS OWN, OWNERSHIP, OWNED ARE GENERIC AND RELATIVE TERMS, HAVING A WIDE AND ALSO A NARROW CONNOTATION; THAT THE MEANING THEREOF WOULD DEPEND ON THE CONTEXT IN WHIC H THE TERMS ARE USED; THAT THE WORD OWNED AS OCCURRING IN SECTION 32(1) OF THE I.T. ACT MUST BE ASSIGNED A WIDER MEANING; THAT ANYONE IN POSSESSION OF PROPERTY IN HIS OWN ITA 1537(DEL)2011 5 TITLE, EXERCISING SUCH DOMINION OVER THE PROPERTY A S WOULD ENABLE OTHERS BEING EXCLUDED THEREFROM AND HAVING A RIGHT TO USE AND OCCUPY THE PROPERTY AND/OR TO ENJOY ITS USUFRUCT IN HIS OWN RIGHT, WOUL D BE THE OWNER OF BUILDINGS, THOUGH A FORMAL DEED OF TITLE MAY NOT HA VE BEEN EXECUTED AND REGISTERED, AS CONTEMPLATED BY THE TRANSFER OF PROP ERTY ACT, 1882, THE REGISTRATION ACT, ETC.; THAT THE EXPRESSION BUILDI NG OWNED BY THE ASSESSEE, AS OCCURRED IN SECTION 32(1) OF THE ACT MEANS THE P ERSON WHO, HAVING ACQUIRED POSSESSION OVER THE BUILDING IN HIS OWN RI GHT, USES THE SAME FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THOUGH A LE GAL TITLE HAS NOT BEEN CONVEYED TO HIM STRICTLY WITH THE REQUIREMENTS OF T HE LAW, SUCH AS THE TRANSFER OF PROPERTY ACT AND THE REGISTRATION ACT, ETC., BUT NEVERTHELESS, IS ENTITLED TO HOLD THE PROPERTY TO THE EXCLUSION OF A LL OTHERS; THAT GENERALLY SPEAKING, DEPRECIATION IS AN ALLOWANCE FOR THE DIMI NUTION IN THE VALUE DUE TO WEAR AND TEAR OF CAPITAL ASSET EMPLOYED BY AN ASSES SEE IN HIS BUSINESS; THAT THE VERY CONCEPT OF DEPRECIATION SUGGESTS THAT THE TAX BENEFIT ON ACCOUNT OF DEPRECIATION LEGITIMATELY BELONGS TO ONE WHO HAS IN VESTED IN THE CAPITAL ASSET, IS UTILIZING THE CAPITAL ASSET, THEREBY LOSI NG THE INVESTMENT GRADUALLY, CAUSED BY WEAR AND TEAR AND WOULD NEED TO REPLACE T HE SAME, IT HAVING LOST ITS VALUE FULLY OVER A PERIOD OF TIME; THAT IT IS WELL SETTLED THAT THERE CANNOT BE TWO OWNERS OF THE PROPERTY SIMULT ANEOUSLY AND IN THE ITA 1537(DEL)2011 6 SAME SENSE OF THE TERM; THAT THE INTENTION OF THE LEGISLATURE IN ENACTING SECTION 32 OF THE ACT WOULD BE BEST FULFILLED BY AL LOWING DEDUCTION IN RESPECT OF DEPRECIATION TO THE PERSON IN WHOM FOR T HE TIME BEING VESTS THE DOMINION OVER THE BUILDING AND WHO IS ENTITLED TO U SE IT IN HIS OWN RIGHT AND IS USING THE SAME FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION; AND THAT ASSIGNING ANY DIFFERENT MEANING WOULD NOT SUBSERVE THE LEGISLATIVE INTENT. 12. IN NATIONAL INDUSTRIAL CORPORATION LTD., 258 ITR 575(DEL), IT HAS BEEN HELD, INTER ALIA, THAT WHERE THE POSSESSION OF A PROPERTY IS ACQUIRED WITH A RIGHT TO EXERCISE SUCH NECESSARY CONTROL OV ER THE PROPERTY ACQUIRED WHICH IT IS CAPABLE OF , IT IS THE INTENTION TO EXC LUDE OTHERS WHICH EVINCES AN ELEMENT OF OWNERSHIP. 13. IN THE PRESENT CASE, AS SEEN, IT HAS REMAINED U NCONTROVERTED THAT THE FACTORY PREMISES ACQUIRED BY THE ASSESSEE COMPANY W AS IN THE POSSESSION OF THE ASSESSEE COMPANY AND WAS BEING USED FOR ITS BUS INESS PURPOSE OF MECHANIZED MANUFACTURE OF FLY ASH CONSTRUCTION MATE RIAL, KNOWN AS AUTOCLAVE AERATED CONCRETE PRODUCTS. IT WAS ONLY T HAT THE REGISTRATION OF THE TITLE IN THE NAME OF THE ASSESSEE COMPANY WAS H ITHERTO PENDING. THE ASSESSEE COMPANY WAS, THUS, EXERCISING SUCH DOMINIO N OVER THE FACTORY PREMISES AS EXCLUDED OTHER THAN FROM THE POSSESSION AND USE OF THE SAID BUILDING. SINCE THE ASSESSEE HAD UNDISPUTEDLY PUR CHASED THE BUILDING FROM ITA 1537(DEL)2011 7 M/S. PREMIUM ENERGY TRANSMISSION LIMITED VIDE AGREE MENT DATED 20.5.2004, AS A GOING CONCERN, FOR A GROSS CONSIDER ATION OF ` 13.75 CRORES, THE ASSESSEE WAS, OBVIOUSLY, HAVING THE RIGHT TO US E AND OCCUPY THE BUILDING AND IT HAD DONE SO AND WAS CONTINUING TO DO SO, AS THE OWNER THEREOF. THE ASSESSEE WAS, THUS, ENTITLED TO HOLD THE PROPERTY T O THE EXCLUSION OF ALL OTHERS. THE ASSESSEE HAD INVESTED IN THE CAPITAL ASSET, WHI CH CAPITAL ASSET WAS BEING UTILIZED BY THE ASSESSEE. DUE TO SUCH UTILIZATION , THE ASSESSEE WAS GRADUALLY LOSING THE INVESTMENT, DUE TO WEAR AND TEAR. 14. IN THESE CIRCUMSTANCES, THE CASE OF THE ASSESSE E SQUARELY FALLS WITHIN THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN MYSORE MINERALS LTD. V. CIT(SUPRA) AND THE LD. CIT(A) HAS RIGHTLY ALLOW ED THE ASSESSEES CLAIM OF DEPRECIATION, IN KEEPING WITH MYSORE MINERALS LTD. V. CIT(SUPRA). 15. ALSO, IN ACCORDANCE WITH NATIONAL INDUSTRIAL C ORPORATION LTD.(SUPRA), THE ASSESSEE COMPANY ACQUIRED THE POS SESSION OF THE ENTIRE BUILDING WITH A RIGHT TO EXERCISE THE NECESSARY CON TROL OF THE PROPERTY WHICH THE ASSESSEE WAS CAPABLE OF AND THAT BEING SO, EVID ENTLY, IT WAS THE OBVIOUS INTENTION OF THE ASSESSEE TO EXCLUDE OTHERS FROM EX ERCISING SUCH CONTROL AND IT WAS THIS, WHICH SHOWED THE ELEMENT OF OWNERSHIP OF THE ASSESSEE COMPANY OVER THE FACTORY PREMISES ACQUIRED. ITA 1537(DEL)2011 8 16. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THE GRIEVAN CE SOUGHT TO BE RAISED BY THE DEPARTMENT IS FOUND TO HAVE NO FORCE AND IS REJECTED AS SUCH. 17. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.06.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 03.06.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR