Law:

Section:

Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessment years 1969-70 to 1971-72 - Whether where assessee was carrying on business of taking house properties on lease and effecting improvements in them in a variety of ways and then letting them out to tenants for higher returns, he would be owner of such improvements for duration of lease, and, thus, entitled to depreciation on capital expenditure incurred on such improvements - Held, yes FACTS The main business of the assessee-company was taking house property on lease, repairing, altering and remodeling it and then letting it out to tenants. During the relevant assessment years, it claimed depreciation on the capital expenditure for improving the buildings, namely, for construction of partition walls, fitting tiles in some portions of the buildings and in converting some portions of the floor of the building into mosaic floors. The ITO took the view that the improvement effected continued to vest and belong to the lessor and since the assessee was not the owner, it was not entitled to claim depreciation on the capital expenditure so incurred by it. The Tribunal held that though the building was not owned by the assessee, yet the improvements which were of permanent nature effected by the assessee did belong to him for the duration of the lease, and, therefore, allowed assessee's claim. On reference : HELD The most material and relevant circumstance was that the assessee carried on the business of taking buildings on rent, effecting improvements in them in a variety of ways and then letting them out for higher returns. This being the business of the assessee, the expenditure incurred by it in effecting the improvements would obviously be a capital expenditure. The Tribunal was correct in holding that for the duration of the lease, which was for a fixed period of ten years, the assessee was in fact and in law the owner of the improvements of permanent nature effected by it. The purpose for effecting improvements was to earn a better return from the property. It was a business investment in the shape of making permanent improvements in the buildings. The assessee was, in the eye of…

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