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2014 DIGILAW 61 (RAJ)

Commissioner of Income v. Jawahar Kala Kendra

2014-01-03

AJAY RASTOGI, J.K.RANKA

body2014
JUDGMENT 1. - This appeal under section 260A of the Income-tax Act, 1961 (for short, "the IT Act"), has been preferred by the appellant-Revenue against the order of the Income-tax Appellate Tribunal, Jaipur Bench "B", Jaipur (for short, "the ITAT") dated November 4, 2011, passed in I.T.A. No. 1191/JP-2010 by which the Income-tax Appellate Tribunal has dismissed the appeal filed by the appellant-Revenue against the order of the Commissioner of Income-tax (Appeals)-II, Jaipur (for short, the "CIT(A)"). The relevant assessment year is 2007-08. 2. The brief facts, as emerging on the facts of record, are that the respondent-assessee is a renowned cultural society generating creative artistic activities through programs in the field of performing arts, visual arts, literature, electronic media and film, folklore, indigenous craft, etc. The assessee-society was constituted as an autonomous body by the Government of Rajasthan, vide order dated August 11, 2003, to preserve and promote art and culture in Rajasthan and to contribute to the cultural and social development of the people of the State. Consequent to the order dated August 11, 2003, the assessee-society came to be formed and was registered under the Societies Registration Act, 1958, on September 19, 2003. During the course of hearing before the Assessing Officer (for short, the "AO"), the registration certificate, memorandum of association were also placed on record. It has also been granted registration under section 12A, with effect from April 1, 2005. Prior to the constitution of the assessee-society, Jawahar Kala Kendra, was managed by the Government of Rajasthan. On its constitution as a society, all the assets and liabilities were transferred and incorporated in the books of the assessee-society. The chairperson of the assessee-society is the Chief Minister of the State of Rajasthan and all other members of the governing body are persons of eminence. On the transfer of assets in its books of account, the assessee-society recorded the value of the land of Jawahar Kala Kendra at Rs. 42.62 crores and building at Rs. 9.05 crores in its books of account as on August 1, 2004. 3. On the transfer of assets in its books of account, the assessee-society recorded the value of the land of Jawahar Kala Kendra at Rs. 42.62 crores and building at Rs. 9.05 crores in its books of account as on August 1, 2004. 3. The short controversy involved in the instant appeal is about the claim of depreciation which the assessee-society started claiming on and from the assessment year 2005-06, i.e., the year ended on March 31, 2005, and it was the claim of the assessee-society that consequent to all the assets and liabilities having been transferred to the assessee-society and the assessee-society having become owner of the assets, it was certainly entitled to the statutory claim of depreciation on the assets so transferred. It is submitted that on and from August 1, 2004, from the order of the Hon'ble Governor dated August 11, 2003, or September 19, 2003, when the assessee-society was constituted, it became an independent entity in its own right and was entitled to claim depreciation from the assessment year 2004-05 but it started claiming depreciation on and from the assessment year 2005-06. It was the further claim of the assessee-society that the claim admittedly was made and allowed from the assessment year 2005-06 and stood allowed in the assessment year 2005-06 and the assessment year 2006-07. It is only in the assessment year under appeal, i.e., for the assessment year 2007-08 that the claim has been disallowed by the Assessing Officer for the first time when the claim of depreciation became final from the assessment year 2005-06. It was further submitted that the word "asset" remaining the same, there was no question of disallowing depreciation in the third year as the facts and circumstances of the issue remain the same. 4. However, the Assessing Officer observed in the assessment order that there is no evidence in order to prove the change of ownership of the building from the Government of Rajasthan to the assessee-society and on records, the title still continues to be with the State of Rajasthan and, accordingly observed that since the assessee-society was not the owner, therefore, the depreciation cannot be allowed. 5. Dissatisfied with the disallowance of the depreciation, an appeal came to be preferred before the Commissioner of Income-tax (Appeals) who agreed with the submission of the respondent-assessee and directed to allow the claim of depreciation. 6. 5. Dissatisfied with the disallowance of the depreciation, an appeal came to be preferred before the Commissioner of Income-tax (Appeals) who agreed with the submission of the respondent-assessee and directed to allow the claim of depreciation. 6. The Revenue preferred an appeal before the Income-tax Appellate Tribunal who also approved the findings of the Commissioner of Income-tax (Appeals) and dismissed the appeal of the Revenue which is now assailed by the Revenue before this court by way of filing the instant appeal. 7. Shri R.B. Mathur, learned counsel for the appellant-Revenue, submitted that when the respondent-assessee was not the owner of the asset, therefore, the question of allowing the depreciation does not arise. He contended that may be the Hon'ble Governor of Rajasthan or the State Government transferred all the assets to the assessee-society and, thereafter, the assessee-society came to be constituted but no evidence was led that the title over the assets stood transferred to the society. He contended that under the Income-tax Act, ownership is proved with title only and when there was no title with the assessee-society, it could not be said to be an owner who could claim depreciation. He further contended that despite repeated directives the assessee-society was unable to lead any evidence except the order of the Government of Rajasthan and creation of a society. He further contended that if a claim was wrongly allowed in the earlier assessment year, it ipso facto does not make a claim otherwise disallowable as allowable. He further contended that, may be on a wrong notion, the depreciation was allowed in the earlier assessment years but the fact remains that when the assessee-society was not an owner in its own right, depreciation could not be allowed. He accordingly submitted that substantial question of law arises out of the order of the Income-tax Appellate Tribunal which needs consideration of this court. 8. We have considered the arguments advanced by learned counsel for the appellant-Revenue and perused the impugned order as well as the orders passed by the lower authorities. 9. In our view, for the subsequent reasons, no substantial question of law arises out of the order of the Income-tax Appellate Tribunal. 10. 8. We have considered the arguments advanced by learned counsel for the appellant-Revenue and perused the impugned order as well as the orders passed by the lower authorities. 9. In our view, for the subsequent reasons, no substantial question of law arises out of the order of the Income-tax Appellate Tribunal. 10. At this juncture, it would be fruitful to quote section 32 as also section 43(1) and Explanation 2(b) of the Income-tax Act to appreciate the contentions raised by the Revenue which is reproduced here under : "32. (1) In respect of depreciation of - (i) buildings, machinery, plant or furniture being tangible assets ; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed - " "43. Definitions of certain terms relevant to income from profits and gains of business or profession. - In sections 28 to 41 and in this section, unless the context otherwise requires, - (1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority : Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thou sand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees. Explanation 1. Explanation 1. - Where an asset is used in the business after it ceases to be used for scientific research related to that business and a deduction has to be made under clause (ii) of sub-section (1) of section 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub-section (1) of section 35 or under any corresponding provision of the Indian Income-tax Act, 1922 (11 of 1922). Explanation 2. - Where an asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the actual cost to the previous owner, as reduced by - (a) the amount of depreciation actually allowed under this Act and the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988 ; and (b) the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988, as if the asset was the only asset in the relevant block of assets." 11. It is an admitted fact that the assessee-society is constituted as an autonomous body and by an order dated August 11, 2003, issued by the Governor of Rajasthan to preserve and promote art and culture of Rajasthan and to contribute to the social and cultural development of the people of the State. It is also an admitted fact that subsequent to the said order of the Governor of Rajasthan, the assessee-society came to be formed and was registered under the Societies Registration Act and the Commissioner of Income-tax had granted registration under section 12A to the assessee-society. It is also an admitted fact that depreciation stood charged by the assessee-society from the assessment year 2005-06 and also was charged in the assessment year 2006-07 and in both the years, the claim was allowed by the Assessing Officer and during the previous year relevant to the year under appeal, it is an admitted fact that the assets remained the same on which depreciation was already allowed by the Assessing Officer in the assessment year 2005-06 and later. In this backdrop, we have to consider as to whether merely because title or registration under the Indian Registration Act has not passed, would it be fatal to disallow depreciation. It is also not disputed by the Revenue that possession over the property is being enjoyed by the assessee-respondent and no claim of reclaiming the assets have been made by the State Government subsequent to transfer. In our view, merely because title is not transferred or registration under the Indian Registration Act is not obtained, depreciation cannot be disallowed. 12. The Hon'ble apex court considered the same related issue in the case of Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) and considered the concept of the term "own", "ownership" and "owned" and after referring to several authorities, observed as under (page 781) : "It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled 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. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has 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. We do not think such a benefit-to-none situation could have been intended by the Legislature. 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. We do not think such a benefit-to-none situation could have been intended by the Legislature. The finding of fact arrived at in the case at hand is that though a document of title was not executed by Housing Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee where-after the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common know ledge, under the various scheme floated by bodies like housing boards, houses are constructed on large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of document transferring title necessarily follows if the schedule of payment is observed by 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 allottee are with the intention of acquiring title. The delivery of possession by Housing Board to allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment." 13. The Delhi High Court in the case of CIT v. Oswal Agro Mills Ltd. (2012) 341 ITR 467 (Delhi) : (2011) 238 CTR (Delhi) 113 considered that even the passive user qualifies for depreciation and held that passive user of the asset is also recognised as "user for the purpose of business" and further held that the passive user is interpreted to mean that the asset is kept ready for use and if this condition is satisfied, even when it is not used for certain reason in the concerned assessment year, the assessee cannot be denied depreciation. In the instant case, not only the assessee is an active user but has all the assets recorded in its books of account. 14. In the instant case, not only the assessee is an active user but has all the assets recorded in its books of account. 14. The Punjab and Haryana High Court, in the case of CIT v. Metalman Auto P. Ltd. (2011) 336 ITR 434 (P&H) , has held that even if the air-conditioners, though purchased in the name of the managing director and his wife, were for the assessee and were to be used for the business of the assessee and not for the personal use of the managing director or his wife, depreciation was allowable. 15. If we look to section 32(1), as reproduced hereinabove, it simply observes about owning of the properties. Therefore, owned would not mean by way of a registration by way of title deed as held by the Hon'ble apex court in the case of Mysore Minerals Ltd. (supra). If we look to section 43(1) Explanation 2, then, value of assets has to be recognised where transfer is by way of gift or inheritance and here in the case, assets have been transferred by the Government of Rajasthan to the assessee-society and for that purpose value has been adopted as the value to the previous owner and this explanation also supports the claim of the respondent-assessee. 16. In so far as the fact of claim having been allowed in the past two years, we are not going into that aspect since we have decided the question on merits against the Revenue-appellant. 17. In our view, on the face of record, we are of the clear opinion that the assessee-society had rightly been allowed depreciation by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal as the assessee-society became the owner of the said assets and was actually using the property in its own right as an owner on and from the date of order of the Governor and formation of the society. 18. Accordingly, we do not find any infirmity or perversity in the order of the Income-tax Appellate Tribunal so as to call for any interference of this court. In our view, no substantial question of law arise or is required to be considered. 19. Consequently, the appeal, being devoid of merit, is hereby dismissed in limine. No order as to costs. *******