D.b. Income Tax Appeal v. M/S. Jawahar Kala Kendra

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR*** D.B. Income Tax Appeal No.121/2012Commissioner of Income Tax, Jaipur-II, Jaipur Vs. M/s. Jawahar Kala Kendra DATE OF ORDER : 03/01/2014 PRESENTHON'BLE MR.JUSTICE AJAY RASTOGIHON'BLE MR.JUSTICE J.K. RANKA Mr. RB Mathur, for the appellant. BY THE COURT (Per Hon'ble Ranka, J.) 1.This appeal u/s 260-A of the Income Tax Act, 1961 (forshort, “IT Act”) has been preferred by the appellant-revenueagainst the order of the Income Tax Appellate Tribunal, JaipurBench 'B', Jaipur (for short, “ITAT”) dt.04/11/2011 passed inITA No.1191/JP-2010 by which the ITAT has dismissed theappeal filed by the appellant-revenue against the order of theCommissioner of Income Tax (Appeals)-II, Jaipur (for short, the“CIT(A)”. The relevant assessment year is the assessment year2007-08. 2.The brief facts, as emerging on the fact of record, are that the respondent-assessee is a renowned cultural societygenerating creative artistic activities through programs in thefield of performing arts, visual arts, literature, electronic media & film, folklore, indigenous craft etc.. The assessee-society wasconstituted as an autonomous body by the Government ofRajasthan vide order dt.11/08/2003 to preserve and promoteart and culture in Rajasthan and to contribute to the culturaland social development of the people of the State. Consequentto the order dt.11/08/2003, the assessee-society came to beformed and was registered under the Societies RegistrationAct, 1958 on 19/09/2003. During the course of hearing beforethe Assessing Officer (for short, the 'AO'), the registrationcertificate, memorandum of association were also placed onrecord. It has also been granted registration u/s 12A w.e.f.01/04/2005. Prior to the constitution of the assessee-society,Jawahar Kala Kendra was managed by the Government ofRajasthan. On its constitution as a society, all the assets andliabilities were transferred and incorporated in the books of theassessee-society. The Chairperson of the assessee-society isthe Chief Minister of the State of Rajasthan and all othermembers of the governing body are persons of eminence. Onthe transfer of assets in its books of accounts, the assessee-society recorded the value of the land of Jawahar Kala Kendraat Rs.42.62 croes and building at Rs.9.05 crores in its books ofaccounts as on 01/08/2004. about claim of depreciation which the assessee-society startedclaiming on and from the Assessment Year 2005-06 i.e. theyear ended on 31/03/2005 and it was the claim of theassessee-society that consequent to all the assets andliabilities having been transferred to the assessee-society andthe assessee-society having become owner of the assets, itwas certainly entitled to statutory claim of depreciation on theassets so transferred. It is submitted that on and from01/08/2004, from the order of the Hon'ble Governordt.11/08/2003 or 19/09/2003, when the assessee-society wasconstituted, it became an independent entity in its own rightand was entitled to claim depreciation from the assessmentyear 2004-05 but it started claiming depreciation on and fromthe Assessment Year 2005-06. It was the further claim of theassessee-society that the claim admittedly was made andallowed from the Assessment Year 2005-06 and stood allowedin the Assessment Year 2005-06 and the Assessment Year2006-07. It is only in the Assessment Year under appeal i.e. forthe Assessment Year 2007-08 that the claim has beendisallowed by the AO for the first time when the claim ofdepreciation became final from the Assessment Year 2005-06.It was further submitted that the the word “asset” remaining thesame, there was no question of disallowing depreciation in thethird year as facts & circumstances of the issue remain the same. same. 4.However, the AO observed in the assessment order thatthere is no evidence in order to prove the change of ownershipof the building from the Government of Rajasthan to theassessee-society and on records, the title still continues to bewith the State of Rajasthan and accordingly observed thatsince the assessee-society was not the owner, therefore, thedepreciation cannot be allowed. 5.Dissatisfied with disallowance of the depreciation, anappeal came to be preferred before the CIT(A) who agreed withthe submission of the respondent-assessee and directed toallow the claim of depreciation. 6.The revenue preferred appeal before the ITAT who alsoapproved the findings of the CIT(A) and dismissed the appealof the revenue which is now assailed by the revenue before thisCourt by way of filing instant appeal. 7.Shri RB Mathur, ld. counsel for the appellant-revenuesubmitted that when the respondent-assessee was not ownerof the asset, therefore, question of allowing depreciation doesnot arise. He contended that may be the Hon'ble Governor ofRajasthan or the State Government transferred all the assets to the assessee-society and thereafter the assessee-societycame to be constituted but no evidence was led that the titleover the assets stood transferred to the society. He contendedthat under the IT Act, ownership is proved with Title only andwhen there was no Title with the assessee-society, it could notbe said to be an owner who could claim depreciation. Hefurther contended that despite repeated directives theassessee-society was unable to lead any evidence except theorder of the Government of Rajasthan and creation of asociety. He further contended that if a claim was wronglyallowed in the earlier Assessment Year, it ipso-facto does notmake a claim otherwise disallowable as allowable. He furthercontended that, may be on a wrong notion, the depreciationwas allowed in the earlier assessment years but the factremains that when the assessee-society was not an owner inits own right, depreciation could not be allowed. He accordinglysubmitted that substantial question of law arises out of theorder of the ITAT which needs consideration of this Court. 8.We have considered the arguments advanced by ld.counsel for the appellant-revenue and perused the impugnedorder as well as the orders passed by the lower authorities. We have considered the arguments advanced by ld. question of law arises out of the order of the ITAT. 10.At this juncture, it would be fruitful to quote Sec.32 as also Sec.43(1) and Explanation (2)(b) of the IT Act to appreciate thecontention raised by the revenue which is reproduced hereunder:- “Section 32-(1) 1[In respect of depreciation of – (i) buildings, machinery, plant or furniture beingtangible assets; (ii) know-how, patents, copyrights, trade marks,licences, franchises or any other business orcommercial rights of similar nature, being intangibleassets acquired on or after the 1st day of April,1998, owned wholly or partly, by the assessee andused for the purposes of the business or profession,the following deductions shall be allowed –]” Section 43 - Definitions of certain terms relevant toincome from profits and gains of business orprofession In sections 28 to 41 and in this section,unless the context otherwise requires – (1) “actual cost” means the actual cost of the assetsto the assessee, reduced by that portion of the costthereof, if any, as has been met directly or indirectlyby any other person or authority: Provided that where the actual cost of an asset,being a motor car which is acquired by theassessee after the 31st day of March, 1967, butbefore the 1st day of March, 1975, and is used otherwise than in a business of running it on hire fortourists, exceeds twenty-five thousand rupees, theexcess of the actual cost over such amount shall beignored, and the actual cost thereof shall be takento be twenty-five thousand rupees. (1) “actual cost” means the actual cost of the assetsto the assessee, reduced by that portion of the costthereof, if any, as has been met directly or indirectlyby any other person or authority: Provided that where the actual cost of an asset,being a motor car which is acquired by theassessee after the 31st day of March, 1967, butbefore the 1st day of March, 1975, and is used otherwise than in a business of running it on hire fortourists, exceeds twenty-five thousand rupees, theexcess of the actual cost over such amount shall beignored, and the actual cost thereof shall be takento be twenty-five thousand rupees. Explanation 1: Where an asset is used in thebusiness after it ceases to be used for scientificresearch related to that business and a deductionhas to be made under clause (ii) of sub-section (1)of section 32 in respect of that asset, the actual costof the asset to the assessee shall be the actual costto the assessee as reduced by the amount of anydeduction allowed under clause (iv) of sub-section(1) of section 35 or under any correspondingprovision of the Indian Income-tax Act, 1922 (11 of1922). Explanation 2: Where an asset is acquired by theassessee by way of gift or inheritance, the actualcost of the asset to the assessee shall be the actualcost to the previous owner, as reduced by – (a) the amount of depreciation actually allowedunder this Act and the corresponding provisions ofthe Indian Income-tax Act, 1922 (11 of 1922), inrespect of any previous year relevant to theassessment year commencing before the 1st day ofApril, 1988: and (b) the amount of depreciation that would havebeen allowable to the assessee for any assessmentyear commencing on or after the 1st day of April,1988, as if the asset was the only asset in therelevant block of assets. 11.It is an admitted fact that the assessee-society isconstituted as an autonomous body and by an orderdt.11/08/2003 issued by the Governor of Rajasthan to preserveand promote art and culture of Rajasthan and to contribute tothe social and cultural development of the people of the State.It is also an admitted fact that subsequent to the said order ofthe Governor of Rajasthan, the assessee-society came to beformed and was registered under the Societies Registration Actand the Commissioner of Income Tax had granted registrationu/s 12A to the assessee-society. It is also an admitted fact thatdepreciation stood charged by the assessee-society from theassessment year 2005-06 and also was charged in theassessment year 2006-07 and in both the years, the claim wasallowed by the AO and during the previous year relevant to theyear under appeal, it is an admitted fact that the assetsremained the same on which depreciation was already allowedby the AO in the assessment year 2005-06 and later. In thisbackdrop, we have to consider as to whether merely becausetitle or registration under the Indian Registration Act has notpassed, would it be fatal to disallow depreciation. It is also notdisputed by the revenue that possession over the property isbeing enjoyed by the assessee-respondent and no claim ofreclaiming the assets have been made by the State Govt. subsequent to transfer. In our view, merely because title is nottransferred or registration under the Indian Registration Act isnot obtained, depreciation cannot be disallowed. 12.The Hon'ble Apex Court considered the same relatedissue in the case of Mysore Mineral Ltd. Vs. CIT: (1999) 239ITR 775 and considered the concept of term “own”, “ownership”and “owned” and after referring to several authorities, observedas under:- subsequent to transfer. In our view, merely because title is nottransferred or registration under the Indian Registration Act isnot obtained, depreciation cannot be disallowed. 12.The Hon'ble Apex Court considered the same relatedissue in the case of Mysore Mineral Ltd. Vs. CIT: (1999) 239ITR 775 and considered the concept of term “own”, “ownership”and “owned” and after referring to several authorities, observedas under:- “It is well-settled that there cannot be two ownersof the property simultaneously and in the samesense of the term. The intention of the Legislaturein enacting Section 32 of the Act would be bestfulfilled by allowing deduction in respect ofdepreciation to the person in whom for the time-being vests the dominion over the building andwho is entitled to use it in his own right and isusing the same for the purposes of his businessor profession. Assigning any different meaningwould not subserve the legislative intent. To takethe case at hand it is the appellant-assessee whohaving paid part of the price, has been placed inpossession of the houses as an owner and isusing the buildings for the purpose of its businessin its own right. Still the assessee has beendenied the benefit of Section 32. On the otherhand, the Housing Board would be denied thebenefit of Section 32 because inspite of its beingthe legal owner it was not using the building for its business or profession. We do not think such abenefit-to-none situation could have beenintended by the Legislature. The finding of factarrived at in the case at hand is that though adocument of title was not executed by HousingBoard in favour of the assessee, but the houseswere allotted to the assessee by the HousingBoard, part payment received and possessiondelivered so as to confer dominion over theproperty on the assessee whereafter theassessee had in its own right allotted the quartersto the staff and they were being actually used bythe staff of the assessee. It is commonknowledge, under the various scheme floated bybodies like housing boards, houses areconstructed on large scale and allotted on partpayment to those who have booked. Possessionis also delivered to the allottee so as to enableenjoyment of the property. Execution of documenttransferring title necessarily follows if theschedule of payment is observed by allottee. Ifonly the allottee may default the property mayrevert back to the Board. That is a matter onlybetween the Housing Board and the allottee. Nothird person intervenes. The part payment madeby allottee are with the intention of acquiring title.The delivery of possession by Housing Board toallottee is also a step towards conferringownership. Documentation is delayed only withthe idea of compelling the allottee to observe theschedule of payment.” 13.Delhi High Court in the case of CIT Vs. Oswal Agro MillsLtd.: (2011) 238 CTR 113 considered that even the passiveuser qualifies for depreciation and held that passive user of theasset is also recognized as “user for the purpose of business”and further held that the passive user is interpreted to meanthat the asset is kept ready for use and if this condition issatisfied,even when it is is not used for certain reason in theconcerned assessment year, the assessee cannot be denieddepreciation. In the instant case, not only the assessee is anactive user but has all the assets recorded in its books ofaccounts. 14.Punjab & Haryana High Court, in the case of CIT Vs.Metalman Auto P. Ltd.: (2011) 336 ITR 434 (P&H), has heldthat even if the air conditioners, though purchased in the nameof Managing Director and his wife, were for the assessee andwere to be used for the business of the assessee and not forthe personal use of the Managing Director or his wife,depreciation was allowable. 14.Punjab & Haryana High Court, in the case of CIT Vs.Metalman Auto P. Ltd.: (2011) 336 ITR 434 (P&H), has heldthat even if the air conditioners, though purchased in the nameof Managing Director and his wife, were for the assessee andwere to be used for the business of the assessee and not forthe personal use of the Managing Director or his wife,depreciation was allowable. 15.If we look to Sec.32(1) as reproduced herein above, itsimply observes about owning of the properties. Therefore,owned would not mean by by way of a registration by way oftitle deed as held by the Hon'ble Apex Court in the case of Mysore Minerals Ltd. (supra). If we look to Sec.43(1)Explanation 2, then, value of assets has to be recognizedwhere transfer is by way of gift or inheritance and here in thecase, assets have been transferred by the Government ofRajasthan to the assessee-society and for that purpose valuehas been adopted as the value to the previous owner and thisexplanation also supports the claim of the respondent-assessee 16.In so far as the fact of claim having been allowed in thepast two years, we are not going into that aspect since we havedecided the question on merits against the revenue-appellant. 17. In our view, on the face of record, we are of the clearopinion that the assessee-society had rightly been alloweddepreciation by the CIT(A) and the ITAT as the assessee-society became owner of the said assets and was actuallyusing the property in its own right as an owner on and from thedate of order of the Governor and formation of society. 18.Accordingly, we do not find any infirmity or perversity inthe order of the ITAT so as to call for any interference of thisCourt. In our view, no substantial question of law arise or isrequired to be considered. 19.Consequently, the appeal, being devoid of merit, ishereby dismissed in limine. No order as to costs. [J.K. RANKA],J. ,J. Raghu/p.13/ Certificate:All corrections made in the judgment/order have beenincorporated in the judgment/order being e-mailed./Raghu, PA.