ITAT's unusual distinction between 'possession' and 'occupation' to interpret Sec. 50

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Customer Care No. 91-11-45562222
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
  of State of Orissa v. Sudhansu Sekhar Misra AIR
  1968 SC 647 as under (vide para 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 Bench of ITAT in
  the case of Indogem v. ITO 2016 72 taxmann.com
  315 through its order dated 24th August, 2016
  held that the distinction between possession and
  occupation has to be kept in mind,

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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 of Indogem (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 before the Assessing Officer that
  there was no gain computable in terms of section
  50 of the Act as the investment made in new
  buildings was more than the difference between
  the sale price and the written down value of the
  block of assets.

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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 not ipso 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
  Revenue.
• (a)Did the assessee acquire the office building
  for the stated consideration in the relevant
  previous year thus fulfilling the requirements of
  section 50(1)(iii) of the Act?
• (b)Was the assessee justified in claiming
  depreciation in respect of newly acquired
  building and machinery?

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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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