IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3360 OF 2006 M/S.MOTHER HOSPITAL PVT. LTD. ... Appellant VERSUS COMMISSIONER OF INCOME-TAX, TRICHUR ... Respondent ORDER brief facts involved in instant appeal are that appellant-M/s. Mother Hospital Private Ltd. is private limited company, shares in which are held by seven persons closely related to each other, viz., (1) Dr. M. Ali; (2) Dr. Ayesha Beevi (wife of Dr. M. Ali); (3) Nisha, (4) Shabna and (5) Sharmini (all children of Dr. M. Ali and Dr. Ayesha Beevi); (6) Khadeeja Beevi (mother of Dr. M. Ali); (7) and Akbar Ali (father of Ayesha Devi). Out of total capital of Rs.1,33,63,520/- of company, value of shares held by Khadeeja Beevi and Akbar Ali were Rs.5,000/- each. company was running super speciality hospital in Thrissur Town in Central Kerala. Earlier partnership firm Mother Hospital had been constituted by Dr. M. Ali, Dr. Ayesha Beevi and their three Signature Not Verified children. 4.3 acres of land belonged to firm. Digitally signed by NIDHI AHUJA Date: 2017.03.11 purpose of partnership firm was to run super speciality 11:06:47 IST Reason: 1 C.A. No. 3360 OF 2006 hospital and, accordingly, firm started construction of hospital building. Since it was felt expedient to form private limited company to run and manage hospital (then under construction), company was formed for said purpose and was incorporated on 30.12.1988. Thereafter, agreement was entered into between firm and company by which it was agreed that firm will complete construction of building and hand over possession of same on completion, on condition that entire cost of construction of building should be borne by company. relevant clause in agreement reads: hospital building shall belong to company on company taking possession thereof; but however that firm has and will have lien on hospital building and on any improvements or additions thereto until money owing by company to firm by virtue of this agreement is fully paid off . company took possession of building on its completion on 18.12.1991 and is running hospital therein with effect from 19.12.1991. accounts of company have been debited with cost of construction of building, i.e., Rs.1,37,83,149.83. accounts of firm have also been credited with payments of Rs.1,06,78,456/- made by company to firm for completion of construction. balance amount payable by company to firm has been carried as company's liability in its 2 C.A. No. 3360 OF 2006 Balance Sheet, for which firm had lien on building. This amount has also since been paid to firm. one time building tax payable by owner of building under Kerala Building Tax Act was also paid by company. Since ownership of land had to remain with firm, it was also agreed that land would be given on lease by firm to company and agreement dated 01.02.1989 provided for said contingency as well in clause 4(g) which reads as under: (g) In consideration of FIRM agreeing with COMPANY to permit situation of hospital building or any additions thereto belonging to FIRM as aforesaid, COMPANY shall pay to FIRM ground rent of Rs.100/- per month, but however that liability to pay such ground rent shall be on and from 1st day of April 93 only. first assessment year of company was 1992-1993. appellant-company filed its return for said year in which it claimed depreciation on building part of said property under Section 32 of Income Tax Act, on ground that it had become owner of company . assessment officer, after construing provisions of aforesaid agreement came to conclusion that appellant-assessee had not become owner of property in question in relevant assessment year and, therefore, rejected claim of depreciation. Appeal preferred by assessee-company before Commissioner of Income Tax 3 C.A. No. 3360 OF 2006 (Appeals) met with same fate. However, in further appeal before Income Tax Appellate Tribunal (ITAT), appellant succeeded. This success, however, was proved to be only of temporary nature inasmuch as appeal of Revenue against order of ITAT filed under Section 260A of Income Tax Act before High Court was allowed setting aside aforesaid order of ITAT. High Court has held that assessee had not become owner of property in question in relevant assessment year and clause 4(g) could not confer any ownership rights on assessee. We are in agreement with view taken by High Court. Building which was constructed by firm belonged to firm. Admittedly it is immovable property. title in said immovable property cannot pass when its value is more than Rs.100/- unless it is executed on proper stamp paper and is also duly registered with sub-Registrar. Nothing of sort took place. In absence thereof, it could not be said that assessee had become owner of property. Before us another argument is raised by learned counsel appearing for appellant. It is submitted that having regard to clause 4(g), appellant had become lessee of property in question and since construction was made by appellant from its funds, by virtue of 4 C.A. No. 3360 OF 2006 explanation (1) to Section 32 of Income Tax Act, assessee was, in any case, entitled to claim depreciation. This explanation reads as under: 32(1) ........................ Explanation 1. Where business or profession of assessee is carried on in building not owned by him but in respect of which assessee holds lease or other right of occupancy and any capital expenditure is incurred by assessee for purposes of business or profession on construction of any structure or doing of any work in or in relation to and by way of renovation or extension of or improvement to building, provisions of this clause shall apply as if said structure or work is building owned by assessee. As is clear from plain language of aforesaid explanation, it is only when assessee holds lease right or other right of occupancy and any capital expenditure is incurred by assesee on construction of any structure or doing of any work in or in relation to and by way of renovation or extension of or improvement to building and expenditure on construction is incurred by assessee, that assessee would be entitled to depreciation to extent of any such expenditure incurred. In instant case, records show that construction was made by firm. It is different thing that assessee had reimbursed amount. construction was not carried out by assessee himself. Therefore, 5 C.A. No. 3360 OF 2006 explanation also would not come to aid of assessee. We, thus, do not find any merit in this appeal which is, accordingly, dismissed. ....., J. [ A.K. SIKRI ] ....., J. [ ASHOK BHUSHAN ] New Delhi; March 08, 2017. 6 C.A. No. 3360 OF 2006 ITEM NO.106 COURT NO.7 SECTION IIIA SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No. 3360/2006 M/S.MOTHER HOSPITAL PVT. LTD. Appellant(s) VERSUS COMMISSIONER OF INCOME-TAX, TRICHUR Respondent(s) (With appln. (s) for directions, c/delay in filing spare copies, interim relief and office report) Date : 08/03/2017 This appeal was called on for hearing today. CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ASHOK BHUSHAN For Appellant(s) Mr. Utkarsh Shrivastava, Adv. Mr. R. Gopalakrishnan, Adv. For Respondent(s) Mr. Rana Mukherji, Sr. Adv. Mr. S. A. Haseeb, Adv. Ms. Rashmi Malhotra, Adv. Mrs. Anil Katiyar, Adv. UPON hearing counsel Court made following O R D E R appeal is dismissed in terms of signed order. In view thereof, pending applications stand disposed of. (Nidhi Ahuja) (Mala Kumari Sharma) Court Master Court Master [Signed order is placed on file.] 7 M/s. Mother Hospital Pvt. Ltd. v. Commissioner of Income-tax, Trichur