Customer Care No.

91-1145562222

ITAT's unusual distinction

between 'possession' and
'occupation' to interpret
Sec. 50
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Introduction
1. When judicial authorities in certain decisions state the
law too broadly it is likely to send wrong signals in the
sense that other assessees, in trying to take advantage of
such decision, may be misled by such decisions though it
has been observed by the Supreme Court in the case
ofState of Orissav.Sudhansu Sekhar MisraAIR 1968 SC
647 as under (videpara 13):
"A decision is only an authority for what it actually
decides. What is of the essence in a decision is its ratio
and not every observation found therein nor what
logically follows from the various observations made in
it."
These observations become more pronounced even when
the decision rendered by the judicial authority is case
specific and decided without properly analyzing the
relevant provisions of the Income-tax Act (the Act).One
such occasion arose quite recently when the Mumbai
Customer Care No. 91-11Bench
of
ITAT
in
the
case
ofIndogemv.ITO

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which is relevant only for the purpose of determining the question of "use" with regard to
claiming depreciation under section 32 of the Act, but not for the purpose of acquisition
contemplated in section 50(1)(iii)of the Act dealing with the actual cost of any asset falling
within the block of assets acquired during the previous year. This order passed by the Mumbai
Bench of ITAT in the case ofIndogem (supra)has been analyzed in the ensuing paragraphs and
it is submitted, with respect, that the observation of the Mumbai Bench of ITAT in the case
ofIndogem (supra)with regard to the distinction between possession and occupation in respect
of sections 32 and 50 of the Act appears to be wrong requiring reconsideration by a Special
Bench.
Facts of the case and decision of authorities including the Tribunal
2. The assesseefirm filed the return of income for the assessment year 2012-13 disclosing a
certain amount of loss. The assessee-firm had sold its office premises forming part of block of
assets for a sum which was more than the written down value of the block of assets and also
claimed to have acquired another building for a specified sum. The building was allotted to the
assessee vide allotment letter dated 21-12-2011 and the building was handed over to the
assessee on 27-2-2012 for effecting the purpose of fit-outs. The building was handed over to the
assessee in parts as evidenced by part occupancy certificates dated 27-7-2012 and 14-12-2012.
It was canvassed
in terms of
Customer
Care No. before
91-11- the Assessing Officer that there was no gain computable
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This stand of the assessee did not find favour with the Assessing Officer as there was no
agreement for acquiring the property, and according to the Assessing Officer mere payment of
full consideration would notipso factoamount to acquisition of property for the purposes of
section 50(1)(iii)of the Act in the absence of possession or usage of the same. The assessee
also contended before the Assessing Officer that insofar as section 50 of the Act is concerned,
possession or usage of the property was not mandatory, which is in contrast to section 32(1) of
the Act. However, the Assessing Officer was not satisfied with the submissions of the assessee
and instead computed the capital gains on sale of depreciable asset in terms of section 50 of
the Act by reducing from the full value of sale consideration in respect of the property sold the
opening WDV of the block of assets. The Assessing Officer also denied depreciation on office
premises and equipment, stated to have been installed, as the same were not put to use.
The Commissioner of Income-tax (Appeals) before whom first appeal was preferred, dismissed
the appeal of the assessee by holding that possession and usage of the property are sine qua
nonfor holding that the assessee acquired the asset and in the absence of possession and
usage in this case it was not possible to hold that the assessee was said to have acquired the
same.
The assessee filed second appeal before the Tribunal.
The Tribunal clearly identified the following points of difference between the assessee and the
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Care No. 91-11www.taxmann.com
Revenue.

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With regard to the first point of dispute, the Tribunal referred to the letter of allotment dated
21-12-2011 wherein all the terms agreed upon by the parties had been reduced into writing
in detail and observed that it was nothing but proper agreement as the law does not
mandate any specific form of agreement. The Tribunal went on to observe that the allotment
letter referred to above coupled with the uncontroverted statement of the builder that the
building was handed over for fit-outs on 27-2-2012 would prove that the structure was in
existence on that date. The Tribunal, based on these facts, observed that the transaction
would relate back to the date of original agreement itself and as such, formal execution of
the covenant would only evidence and reinforce the rights accrued under the allotment letter
dated 21-12-2011. The Tribunal also observed that "the distinction between possession and
occupation has to be kept in mind, which is relevant only for the purpose of determining the
question of "use", but not for the purpose of acquisition contemplated in section 50(1)(iii)of
the Act. Occupation could be equated to the term "use" as contemplated under section 32 of
the Act whereas it cannot be equated to the concept of possession to understand the
completion of the process of acquisition in terms of section 53A of the Transfer of Property
Act."

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