High Court Of Madras
Universal Radiators Ltd. vs. CIT
Section 32
Asst. Year 1986-87
K. Raviraja Pandian & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 471 of 1999
12th December, 2005
Counsel Appeared :
Dr. R. Meenakshisundaram, for the Appellant : N. Murali Kumar, for the Respondent
JUDGMENT
K. Raviraja Pandian, J. :
The assessee, Universal Radiators Ltd., Coimbatore, filed the above appeal against the order of the Tribunal dt. 19th Nov., 1998 raising the following substantial questions of law :
“1. Whether the Tribunal was right in law in upholding the order of the CIT, Coimbatore, passed under s. 263 of the IT Act, directing the AO to withdraw the depreciation granted to the appellant on properties allotted to it on the dissolution of the partnership firm, Universal Real Estate Agency on 30th March, 1976 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that allotment of properties to the partners on the dissolution of the firm resulted in transfer requiring registration under s. 17 of the Registration Act, 1908, totally ignoring the principles to the contrary laid down by the Hon’ble Supreme Court in the case reported in S.V. Chandra Pandian vs. S.V. Sivalinga Nadar (1995) 212 ITR 592 (SC) ?
3. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the CIT, Coimbatore, was right in holding that the appellant was not the owner of the property allotted to it in the dissolution of the partnership firm Universal Real Estate Agency ?”
The assessment year is 1986-87. The appellant is a company carrying on the business of manufacturing automobile radiators. The appellant entered into a partnership agreement with Madras Radiators & Pressing (P) Ltd., another company, and two other individuals, namely, A.P. Madhavan and P. Sharada, w.e.f. 1st April, 1975. Under the said agreement, the individuals Madhavan and Sharada brought into the firm the property situated at Sanganur village consisting of factory buildings and agricultural land owned by them, whereas the two companies made their contribution in cash. The firm was so formed in the name of Universal Real Estate Agency w.e.f. 1st April, 1975, and the same was subsequently dissolved w.e.f. 30th March, 1976. On the said dissolution, the properties in Mettupalayam Road, Sanganur village, Coimbatore, belonging to the firm, consisting of factory building and agricultural land, were allotted to the appellant-Universal Radiators Ltd., who were running their factory in the building allotted to them, consequent to the aforesaid dissolution and claiming depreciation right from the asst. yr. 1977-78 and the same was allowed by the respondent. For the asst. yr. 1986-87, the appellant claimed depreciation in respect of the factory buildings and the same was allowed by the Dy. CIT, Special Range I, Coimbatore under s. 143(3) of the IT Act, by an order dt. 23rd March, 1989. Subsequently, the CIT, by notice dt. 10th Jan., 1991, issued under s. 263 of the IT Act, called upon the assessee to show cause as to why the assessment made by the AO by order dt. 23rd March, 1989 should not be revised and the AO should not be directed to withdraw the depreciation granted to the assessee in respect of the property situated at Mettupalayam Road. Though necessary objections have been filed, ultimately, the CIT rejected the same and directed the AO to withdraw the depreciation granted to the appellant in respect of his property. That order has been carried on in an appeal by the assessee to the Tribunal. The Tribunal has also concurred with the findings of the CIT and passed the order impugned in the present appeal.
Learned counsel for the appellant contended that on dissolution of the partnership firm under s. 48 of the Partnership Act, 1932, the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital shall be first applied in paying the debts of the firm to third parties and then paying to each partner rateably what is due to them from the firm for advances as distinguished from the capital and then paying to each partner rateably what is due to him on account of capital and then the residue, if any, shall be divided among the partners in the proportion in which they were entitled to share profits. As such, there is no necessity for any formal document of registration of the properties and further, there is no requirement under the law to register the same under the Registration Act. The reliance made by the Tribunal to the other provisions is totally extraneous to the provisions under s. 32(1) of the IT Act. On the other hand, learned counsel for the Department, contended that even the first transfer made by the individuals to the partnership firm is not in accordance with law as it is not legally transferred by means of registered document. In such circumstances, the retransfer to the assessee not supported by the documents under s. 17 of the Registration Act cannot be regarded as correct. We heard learned counsel appearing for the appellant and the respondent and perused the material on record. As seen from the language employed under s. 32 of the IT Act, the only requirement is the person claiming depreciation is the owner of the property. The terms “own”, “ownership” and “owned” were considered by the Supreme Court as generic and relative in the decision reported in Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC). The terms have a wide and a narrow connotation. The meaning would depend on the context in which the terms are used.
In the case of CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC), which has to be taken as a trend-setter in the concept of ownership, the Supreme Court has held that the term owned as occurring in s. 32(1) of the IT Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property, as would enable others, being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. It is worthwhile to mention here the other decision reported in S.V. Chandra Pandian vs. S.V. Sivalinga Nadar (1995) 212 ITR 592 (SC), in which for dissolution, the matter was referred to arbitration and on the basis of the award, the parties have received their respective properties. The question arose in that case was whether the non-registration of the award would disentitle the assessee therein to claim depreciation. The Supreme Court has held that the ownership of the property does not presuppose the registration of either the arbitration award or a formal document of title deed. In view of the law laid down by the Supreme Court, we are of the considered view that the reasoning given by the Tribunal for non-suiting the appellant for claiming depreciation on the ground that on dissolution of partnership, the property allotted to the share of the assessee has not been registered, is not in accordance with law, as explained by the Supreme Court and thus, the Tribunal committed an error of law. In the light of the reasoning stated by us, all the three questions are answered in favour of the assessee. It is contended by learned counsel for the appellant that in this appeal, the appellant has paid a sum of Rs. 10,000 as Court fee, but the amount payable by the assessee is only Rs. 200. Hence, the Registry is directed to refund the balance amount in accordance with law, if the statement made by learned counsel for the petitioner is correct.
[Citation : 281 ITR 261]
