Law: Income Tax Act, 1961

Section: 256(1),32

Section 32 of the Income-tax Act, 1961 - Depreciation - Additional depreciation - Assessment year 1966-67 - Assessee running hotel business in a leased building constructed third floor - According to lease deed lessee had right to make additions and alterations and on expiry of lease, building should be delivered back in the original condition - Whether it could be said that assessee was owner of the third floor and, therefore, entitled to depreciation on third floor - Held, yes FACTS The assessee was running hotel business in a leased building. It constructed the third floor in the building and claimed depreciation on account of additions and alterations made by it in the building under section 32 claiming that it was the owner of that portion of the building which was constructed by it by additions and alterations. The ITO disallowed the claim. The AAC allowed claim in respect of third floor but did not accept the claim with regard to any other alteration or addition. The Tribunal giving a finding that according to the terms of the lease, the lessee, namely, the assessee, had a right to make additions and alterations and, on the expiry of the lease, it was under an obligation to restore, the building to its original condition and deliver back possession of the same to the lessor holding that the assessee was owner of the third floor allowed the claim. On reference : HELD The finding given by the Tribunal was very well within the concept of law. It is not foreign to it. A lessee of a land may construct a building, use it for business purposes and, if he is the owner of it, as were the facts of the case before the Mysore High Court in Y.V. Srinivasamurthy v. CIT [1967] 64 ITR 292 (Mys.), then he remains the owner during the subsistence of the lease. Full ownership for a period does not militate against the concept of ownership in jurisprudence. It is not unknown that a lessee of a land may construct a building at his own expense but at the same time the ownership in it, according to the indenture of lease, may vest in the lessor. Since the time of construction the lessee merely may pay rent for it adjusting it towards the amount spent on the construction. In…

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