Important Points
1. The expression building owned by the assessee as occurring in Section 32(1) of the Income-tax Act means the person who having ac­quired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as Transfer of Property Act and Registration Act etc. but never­theless is entitled to hold the property to the exclusion of all others.
2. A vesting of title short of full-fledged or legal ownership can also entitle an assessee to claim depreciation under Section 32.

Judgment

R.C. Lahoti, J.-The appellant-assessee is a private limited company. During the assessment year 1981-82 (accounting year ending on 31.3.1981) the assessee had purchased for the use of its staff seven low income group houses from the Housing Board. The assessee had made part payments and was in turn made allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of con­veyance was not yet executed by the Housing Board in favour of the assessee. The assessee made a claim under Section 32 of the Income-tax Act in respect of depreciation of buildings used for the purpose of the business of the assessee. The claim was rejected by the assessing officer forming an opinion that the assessee had not become owner for want of deed of conveyance in its favour. The Commissioner of Income-tax allowed the appeal preferred by the assessee and directed the assessing officer to allow the assessee’s claim for depreciation inasmuch as the company was acting as the owner and could exercise the rights of the owner qua the houses. The Tribunal in an appeal pre­ferred by the Revenue set aside the decision of the CIT. On an appli­cation under Section 256(1) of the Act filed by the appellant, the following question was referred by the Tribunal for the opinion of the High Court :-

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assesee for deprecia­tion in respect of the seven houses in respect of which the assessee has not obtained a deed for conveyance from the vendor although it had taken possession and made part payment of the consideration?”

2. The High Court relying on its own decision in Ramkumar Mills (P.) Ltd. v. Commissioner of Income-tax1 , answered the question in the affirmative, that is, against the assessee. The aggrieved assessee has preferred this appeal pursuant to a certificate under Section 261 of the Act granted by the High Court.

3. Section 32 of the Act allows certain deductions, one of them being depreciation of buildings etc. owned by the assessee and used for the purposes of the business or profession. It is the word ‘owned’ as occurring in sub-section (1) of Section 32 which is the core of con­troversy. Is it only an absolute owner or an owner of the asset as understood in its legal sense who can claim depreciation? Or, a vesting of title short of full-fledged or legal ownership can also entitle an assessee to claim depreciation under Section 32? The learned senior counsel for the Revenue has submitted that the term ‘owned’ should be assigned its legal meaning and so long as an asses­see has not become an owner of the property in the sense that the title has not come to vest in him in the manner contemplated by law, he cannot claim benefit of deduction under Section 32 of the Act. Under Section 54 of the Transfer of Property Act, title in immovable property is transferred to a person by execution and registration of a sale deed. Admittedly that having not taken place, the assessee is not entitled to the benefit. The learned counsel for the assessee has on the other hand placing reliance on the decisions of this Court in R.B. Jodha Mal Kuthiala v. CIT2 and CIT, Bombay & Ors. v. Podar Cement Pvt. Ltd. & Ors.3, submitted that the term ‘owned’ in Section 32(1) should be assigned a contextual meaning and keeping in view the under­lying object of the provision vesting of a title in the assessee though short of absolute ownership should also entitle the assessee to the benefit of Section 32(1).

4. 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 to the assessee. It is also well-settled that where there are two possible interpreta­tions of a taxing provision the one which is favourable to the asses­see should be preferred.

5.