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Commissioner Of Income-Tax v. Tamil Nadu Small Industries Development Corporation Ltd.
Structured Summary of the Opinion (Somasundaram, J.)
Factual and Procedural Background
By G.O. Ms. No. 1899 dated 24 August 1970, the Government of Tamil Nadu transferred three raw material depots (Guindy, Madurai and Coimbatore) to the assessee for a total consideration of Rs. 59,74,000. The consideration was adjusted by subscription of share capital by the Government (Rs. 50,00,000) and a loan (Rs. 9,74,000). The assessee was in possession of the depots.
The Income-tax Officer disallowed the assessee's claim for depreciation on the ground that ownership had not been transferred by registered documents. The Appellate Assistant Commissioner upheld the disallowance for the same reason. The assessee appealed to the Tribunal (I.T.A. No. 1692.MDS/76-77). The Tribunal held (23 March 1978) that the Government had transferred the depots, that the Government Grants Act, 1895, applied so the Transfer of Property Act did not, and that no registered conveyance was required; it allowed the depreciation claimed.
Aggrieved, the Commissioner of Income-tax obtained a reference under section 256(1) of the Income-tax Act, 1961, asking this Court to answer whether the Tribunal was justified in holding that registration was not required and that depreciation should be granted.
Legal Issues Presented
- “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that registration of a conveyance deed transferring certain buildings by the Government to the assessee is not required and depreciation claimed should be granted?”
Arguments of the Parties
Revenue's Arguments
- The ownership of the three raw material depots was not conveyed to the assessee by registered documents and therefore the assessee cannot be treated as the owner of the properties.
- The Government Grants Act, 1895, applies only to grants made by the Government and not to an outright sale for consideration; since the present transaction was a sale for consideration, the Government Grants Act is not applicable.
- The phrase “other transfer of land or of any other interest therein” in section 2 of the Government Grants Act should be read to cover transfers akin to grants and not sales for consideration.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Tamil Nadu Agro Industries Corporation Ltd., [1987] 163 ITR 61 | Enumerated the conditions for claiming depreciation under section 32 of the Income-tax Act (including the requirement that the assessee be the owner of the asset). | The Court relied on these conditions—particularly the ownership requirement—to frame the central question whether the assessee could be regarded as owner entitled to depreciation. |
| Kallingal Moosa Kutti v. Secretary of State for India in Council, [1919] ILR 43 Mad 65 | Interpreted the expression “grant or other transfer of land or of any interest therein” in section 2 of the Government Grants Act to include all transfers of land of every description and rejected a confined reading limited to prerogative rights. | The Court cited this Division Bench decision to support a broad construction of “other transfer,” confirming that the statutory language covers transfers beyond narrow Crown prerogative transactions. |
| Champa Lal v. Rameshwar, AIR 1967 Raj 233 | Held that section 2 of the Government Grants Act is not confined to non-commercial grants and is applicable to sale deeds and commercial transactions by the Government. | The Court relied on this authority to reject Revenue's submission that commercial sales by the Government fall outside section 2. |
| Express Newspapers Pvt. Ltd. v. Union of India, (1986) 1 SCC 133 : AIR 1986 SC 872 | Confirmed that section 2 of the Government Grants Act expressly excludes the operation of the Transfer of Property Act in respect of government grants/transfers. | The Court invoked this Supreme Court decision to reinforce that the Transfer of Property Act does not apply to transfers covered by section 2. |
Court's Reasoning and Analysis
The Court began by recalling the statutory allowance for depreciation under section 32 of the Income-tax Act and the conditions identified in CIT v. Tamil Nadu Agro Industries Corporation Ltd., notably the ownership requirement for claiming depreciation.
The decisive legal question was whether the assessee could be considered the owner of the three depots despite the absence of registered conveyance documents. The Revenue's position was that (a) no registered conveyance had been executed, and (b) section 2 of the Government Grants Act, 1895, did not apply because the transaction was a sale for consideration rather than a grant.
The Court analysed the language of section 2 of the Government Grants Act, which provides that nothing in the Transfer of Property Act shall apply to “any grant or other transfer of land or of any interest therein ... made by or on behalf of the Government.” The Court held that the term “other transfer” is wide and not restricted to transfers akin to gratuitous grants. There is nothing in the text to confine “other transfer” to non-commercial transactions.
To support this textual construction the Court relied on precedents: Kallingal Moosa Kutti (which held that all transfers of land of every description fall within section 2), Champa Lal v. Rameshwar (which rejected a distinction between commercial and non-commercial transactions for the purpose of section 2), and Express Newspapers (which confirmed that section 2 excludes the Transfer of Property Act from applying to government grants/transfers).
Applying this interpretation to the facts — the Government's transfer by G.O. Ms. No. 1899, payment/adjustment of consideration, and the assessee's possession — the Court concluded that the Transfer of Property Act did not apply to this government transfer and that registration of a conveyance was not necessary to effect transfer of ownership in favour of the assessee. Consequently, the ownership requirement under section 32 was satisfied and the assessee was entitled to the depreciation allowance claimed.
Holding and Implications
Holding: The question referred is answered in the affirmative and against the Revenue: the Tribunal was justified in holding that registration of a conveyance deed was not required for the Government's transfer and that the assessee is entitled to the depreciation claimed.
Implications: The direct effect is that the assessee is recognized as the owner of the three raw material depots for the purpose of claiming depreciation under section 32, notwithstanding the absence of a registered conveyance. The Court awarded costs of the reference to the assessee and fixed counsel's fee at Rs. 500. The opinion rests on statutory interpretation of section 2 of the Government Grants Act and cited precedents; the Court did not purport to lay down any broader new precedent beyond its statutory interpretation and application to these facts.
Somasundaram, J.:— At the instance of the Revenue, under section 256(1) of the Income-tax Act, 1961 (hereinafter called “the Act”), the following question of law has been referred to this court for its opinion:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that registration of a conveyance deed transferring certain buildings by the Government to the assessee is not required and depreciation claimed should be granted?”
2. By G. 0. Ms. No. 1899, dated August 24, 1970, three raw material depots at Guindy, Madurai and Coimbatore were transferred by the Government of Tamil Nadu to the control of the assessee for Rs. 59,74,000. The sale consideration was adjusted as under:
Rs. Subcription of share capital by the Government to the appellant 50,00,000 Grant of loan by the Government to the appellant 9,74,000 59,74,000
3. The Income-tax Officer disallowed the claim for depreciation on the ground that the ownership of the properties referred to above was not transferred in favour of the assessee by registered documents. On appeal, the Appellate Assistant Commissioner held that the ownership of the properties has not been conveyed to the assessee by the Government of Tamil Nadu by registered deeds and hence the assessee cannot be treated as the owner of the properties and consequently upheld the disallowance of depreciation made by the Income-tax Officer. As against the order of the Appellate Assistant Commissioner, the assessee filed an appeal before the Tribunal in I.T.A No. 1692.MDS/76-77. The Tribunal, by its order dated March 23, 1978, held that by G.O.Ms No. 1899, dated August 24, 1970, the Government of Tamil Nadu has transferred in favour of the assessee the three raw material depots at Guindy, Madurai and Coimbatore and the sale consideration for the transfer has also been paid and the assessee is in possession of the raw material depots. The Tribunal further found that the provisions of the Transfer of Property Act will not apply to the transfer made by the Government of Tamil Nadu in favour of the assessee in view of section 2 of the Government Grants Act, 1895, and no registered conveyance is required for effecting the transfer in favour of the assessee and the assessee being the owner of the three raw material depots is entitled to the depreciation claimed.
4. Aggrieved by the order of the Tribunal, the Commissioner of Income-tax obtained a reference under section 256(1) of the Act to this court for its opinion on the question of law referred to above.
5. Section 32 of the Act grants an allowance in respect of depreciation on the value of certain capital assets with a view to mitigating the rigour of the general scheme of the Act subjecting income to charge, regardless of the exhaustion of or diminution in the value of the capital asset. As pointed out by this court in the decision, CIT v. Tamil Nadu Agro Industries Corporation Ltd. [1987] 163 ITR 61, to which one of us is a party (Ratnam J.), in order to enable the assessee to claim the benefit of depreciation, the following conditions should be fulfilled: (i) the assets in respect of which the depreciation is claimed should be buildings, machinery, plant or furniture, (ii) the assets must have been used for purposes of the asses-see's business the profits of which are being charged; (iii) the assessee must be the owner of the buildings, machinery, plant or furniture, as the case may be; (iv) the prescribed particulars relating to the buildings, machinery, plant or furniture must be duly made available by the assessee; and (v) the aggregate of such allowances, made year after year, should not in any case be in excess of the actual cost of the buildings, machinery, plant or furniture to the assessee, as if such allowance is equal to the actual cost of the asset, the benefit of such allowance cannot be given to the assessee with reference to that asset. The question we have to examine in this tax case, is whether the assessee can be considered as the owner of the three raw material depots entitled to the depreciation allowed under section 32 of the Act. Learned counsel for the Revenue would contend that the ownership of the three raw material depots has not been conveyed to the assessee by the Government of Tamil Nadu by registered documents and hence the assessee cannot be treated as the owner of the properties in question. Learned counsel further submitted that the Government Grants Act, 1895, applies only in the case of grants made by the Government and since in the present case there is an outright sale for consideration, the Government Grants Act, 1895, is not applicable. It is the further submission of learned counsel for the Revenue that the expression “other transfer of land or of any other interest therein”, used in section 2 of the Government Grants Act, 1895, will take in only transfers akin to grants and it will not cover a sale for consideration. We are unable to accept the above contention of learned counsel for the Revenue. section 2 of the Government Grants Act, 1895, reads as follows:
“Transfer of Property Act, 1882, not to apply to Government grants. — Nothing contained in the Transfer of Property Act, 1882, shall apply or be deemed ever to have applied to any grant or other transfer of land or of any interest therein heretofore made or hereafter to be made by or on behalf of the Government to, or in favour of, any person whomsoever; but every such grant and transfer shall be construed and take effect as if the said Act had not been passed.”
6. A plain reading of section 2 of the Government Grants Act, 1895, reproduced above shows that the term “other transfer” used in the said section will take in all forms of transfer of land or interest therein made by the Government for consideration: There is nothing in the language of section 2 of the Government Grants Act, 1895, to restrict the meaning of the term “other transfers” only to grants and other transfers akin to grants made by the Government and for holding that the expression “other transfers” will not cover other forms of transfer made by the Government for consideration. The term “other transfers” occurring in section 2 of the Government Grants Act, 1895, is wide enough to cover the present transfer of three raw material depots made by the Government of Tamil Nadu to the assessee for consideration. Therefore, the Government Grants Act, 1895, is applicable to such transfer made by the Government of Tamil Nadu in favour of the assessee in G. 0. Ms. No. 1899, dated August 24, 1970.
7. In Kallingal Moosa Kutti v. Secretary of State for India in Council [1919] ILR 43 Mad 65, a Division Bench of this court, dealing with the meaning of the expression “grant or other transfer of land or of any interest therein” used in section 2 of the Government Grants Act, 1895, has held as follows (at page 68):
“This language shows in the first place that the word ‘grant’ can be employed to denote a transfer of land. In the second place it is clear that all transfers of land of every description are within the operation of the section. Mr. Menon's suggestion that the Act is confined to the transfer of prerogative rights possessed by the Crown and not to ordinary incidence of a mercantile transaction in which the Crown may be engaged is opposed to the plain language of the statute.”
8. In Champa Lal v. Rameshwar, AIR 1967 Raj 233, the Rajasthan High Court, while rejecting the contention raised in that case that section 2 of the Government Grants Act, 1895, is not applicable to the sale deed as it is a commercial transaction and not a Government grant, held that the Government Grants Act, 1895, does not make any distinction between a commercial transaction and a non-commercial transaction and that section 2 of the said Act is applicable not only to grants but is also applicable to every transfer of land or of any interest therein.
9. In Express Newspapers Pvt. Ltd. v. Union of India, (1986) 1 SCC 133 : AIR 1986 SC 872, the Supreme Court has held that it is plain upon its terms that section 2 of the Government Grants Act, 1895, excludes the operation of the Transfer of Property Act, 1882, to Government grants.
10. In view of the above position of law, we have to hold that section 2 of the Government Grants Act, 1895, is applicable to the transfer of the three raw material depots made by the Government of Tamil Nadu in favour of the assessee in G. 0. Ms. No. 1899, dated August 24, 1970, and, therefore, the registration of the conveyance deed transferring the three raw material depots to the assessee is not necessary for effecting the transfer of owner-ship in favour of the assessee. The Tribunal rightly held that the assessee is the owner of the three raw material depots and is entitled to the depre-ciation allowance claimed. We, therefore, answer the question referred to us in the affirmative and against the Revenue. The assessee will be entitled to costs of this reference. Counsel's fee is Rs. 500.
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