COMMISSIONER OF INCOME TAX Vs. JAMMU AND KASHMIR TOURISM DEVELOPMENT CORPORATION

JUDGEMENT

(1.) BY this reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), the Income-tax Appellate Tribunal, Amritsar (the "Tribunal"), has referred the following question of law to this court for opinion at the instance of the Revenue :

(2.) THE material facts giving rise to this reference are as follows : In the year 1967, the Government of Jammu and Kashmir found that it was not possible on their part to look after the management of the tourist homes, etc. With a view to encouraging tourism in the State, the State Government decided that a corporation be put in charge and made responsible for the management of the tourist homes. Accordingly, a corporation was floated under the name and style of "Jammu and Kashmir Tourism Development Corporation, Srinagar" (the "Corporation"). Following Cabinet Decision No. 58, dated March 11, 1969, a committee was set up for evaluating the assets of the various establishments which were to be taken over by the corporation. On March 31, 1971, it was decided to estimate the value of the establishments, which the corporation had taken over from the Government on April 16, 1970, at Rs. 75 lakhs. As brought out in the committee report for the year ending March 31, 1971, except the cafeteria of Cheshmashahi, which was taken over in March, 1971, all the establishments had actually been taken over by the corporation on April 16, 1970. A Government order dated February 2, 1976, was passed which reiterated that all the assets, including buildings and establishments, had been transferred and would be deemed to have been transferred to the corporation with effect from the date of taking over in lieu of share capital. THE asses-see-corporation had issued shares in favour of the Government to the extent of the value of the assets as back as in the year 1970. On these facts, the assessee-corporation claimed depreciation in respect of assets worth Rs. 75 lakhs which had been taken over by it from the State Government on April 16, 1970, on payment of consideration in the form of its shares of equivalent value. THE Income-tax Officer disallowed the claim of depreciation on the ground that the assessee had not become the owner of the assets in the eye of law. According to him, since the transfer had not been affected by a duly registered instrument of conveyance, the legal ownership continued to vest in the Tourism Department of the State Government and the corporation could not claim that the legal ownership vested in it. THE Income-tax Officer, therefore, rejected the claim of the assessee-corporation for depreciation in respect of the assets taken over by it from the State Government on the ground that it was not the "owner" of the same. THE assessee appealed to the Commissioner of Income-tax (Appeals). THE Commissioner (Appeals) upheld the order of the Income-tax Officer and dismissed the appeal. THE assessee went in further appeal to the Income-tax Appellate Tribunal (the "Tribunal"). THE Tribunal accepted the contention of the assessee that though the title to the properties in question was not transferred to the assessee-corporation by a duly registered instrument of conveyance, the Government had parted with all its rights over the same and the dominion over the property vested in the assessee-corporation which, for all practical purposes, was the owner thereof and hence entitled to depreciation. THE Tribunal, therefore, held that the asses-see was the owner of the properties in question for the purpose of claiming depreciation under Section 32 of the Act. Accordingly, the Tribunal allowed the appeal of the assessee and directed the Income-tax Officer to allow the assessee's claim of depreciation. Aggrieved by the above finding of the Tribunal, the Revenue is before us by way of this reference for opinion on the question of law set out above.

(3.) THE case of the Revenue is that the expression "owned by the assessee" should be assigned its legal meaning and so long as the assessee does not become an "owner" of the property in the manner contemplated by law, it cannot claim the benefit of deduction under Section 32 of the Act. In the present case, the properties in question being immovable properties, the case of the Revenue is that in view of the mandatory requirements of Section 54 of the Transfer of Property Act and the Registration Act, in the absence of execution and registration of a sale deed, the title in those properties continues to vest in the State Government and the assessee-corporation cannot claim to be the owner of those properties. THE contention of the Revenue, in other words, is that the assessee-corporation not being the legal owner of the properties, is not entitled to the benefit of depreciation in respect thereof.