Section 32 — Amount paid for purchase of shares as well as for construction contribution which entitled the assessee to obtain, use and occupy the premises eligible for depreciation.
Facts:
The assessee made payment to M/s. Westwind Realtors (P) Ltd. (WRPL) towards purchase of shares amounting to Rs.2,76,92,000 and construction contribution amounting to Rs.1,67,55,000 totalling to Rs.4,44,47,000. Depreciation was claimed on such amount. On being called upon to justify the claim of depreciation, the assessee stated that such shares were purchased with a view to become owner of floor area, basement parking and terrace of building called Oberoi Chambers from WRPL.
The AO noted that as per copies of agreement the assessee had purchased only shares in the possession of some shareholders. Since the building was stockin- trade in the hands of WRPL, the AO held that the same could not form part of block of the assessee’s assets. He, therefore, disallowed depreciation on the same.
The assessee argued before the learned CIT(A) that in the regular assessment of WRPL, the acquisition of shares by the assessee had been treated as sale of the premises by WRPL and in its support the balance sheet of WRPL as on 31st March, 2000 was also filed. The CIT(A) held that the payment of Rs.2.76 crore could not be considered as part payment for acquisition of premises. He, therefore, granted depreciation on Rs.1.67 crore representing contribution towards construction. Both the sides were in appeal against their respective stands.
Held:
There is a definite scheme floated by the company under which premises have been divided into various classes such as Class A, Class B, Class C or Class D or Class E. In order to be eligible for obtaining, occupying and using the property in a specific class, it is incumbent upon the member to purchase requisite number of shares and also deposit nonrefundable construction contribution again of the requisite amount.
On going through various clauses of articles of association it becomes apparent that on becoming member by purchasing requisite number of shares and making non-refundable construction contribution, the member becomes entitled to hold, use and occupy the definite premises. Further such shares are transferable and when there is transfer of shares, the rights and benefits of the transferor stand transferred in favour of the transferee.
By holding the requisite number of shares and giving construction contribution, the assessee got the right to obtain, use and occupy the premises. The situation is somewhat akin to that of a co-operative housing society which is legal owner of building and the members get right to use and occupy the premises by virtue of their shareholding in the society. Even though the assessee is not a registered owner of the premises but it has got all such rights which enable others to be excluded from the ownership of the property. WRPL treated the acquisition of shares by the assessee and other members as sale consideration of its premises.
Both the payments are directed towards acquiring one composite right. As such it is not possible to view these two payments separately and consider the construction contribution as part of block of assets leaving aside the consideration for shares. By making total payment of Rs.4.44 crore, the assessee became entitled to obtain, use and occupy the requisite premises and hence became owner of the premises for the purpose of section 32(1).
