CIT vs. Bharat Hotels (Delhi High Court)

(i) Explanation (1) to Section 32 of the Act also acknowledges that depreciation would be claimed by assessee who carries on business “in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work or in relation to……. the building.” In such event, Section 32 (1) would apply “as if the said structure or work is a building owned by the assessee.

(ii) In any event even for the period earlier than 1st April 1988, in view of the decision in Supreme Court in Commissioner of Income Tax v. Podar Cement Private Limited (1997) 226 ITR 625 and Mysore Minerals v CIT 106 Taxman 166 the legal position is no longer res integra. In Podar Cement Private Limited the Supreme Court was called upon to consider whether the income derived by the assessee on the flat or the building were income from other sources and not income from the house property. The Court in that context considered the words “owner” and accepted that this would include “that person who can exercise the rights of the owner, and not on behalf of the owner but in his own right.” In Mysore Minerals (supra), the Supreme Court explained that “the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.” On the facts of the case, although the appellant-assessee had only paid part of the price of the buildings in question to the Housing Board, and although the document of title had not yet been executed in its favour, the Court was of the view that the assessee would be entitled to depreciation.

(iii) The Court is satisfied that the during the AYs in question Assessee was indeed in full control of the three buildings, viz., the hotel building, the WTT and WTC and that in any event, notwithstanding the clarificatory amendment inserted as Explanation No. 1 in Section 32 with effect from 1st April 1988, the Assessee would be entitled to claim depreciation in respect thereof, including depreciation on the plumbing and sanitary ware installed therein.