1. This reference under section 256(1) of the Income-tax Act, 1961, raises a question at the instance of the Revenue. It reads thus :
'Whether, on the facts and in the circumstances of the case, the assessee was entitled to depreciation on the shed ?'
2. The relevant assessment year is 1968-69. The assessee carried on business as sole proprietor of M/s. Radio Electrical Corporation, Bombay. On May 26, 1967, he entered into a lease deed with the Maharashtra Industrial Development Corporation (M.I.D.C.). We shall be concerned with interpreting the clauses of the said deed and shall advert to it in more detail later.
3. The assessee did not claim depreciation on the shed standing on the plot of land demised by the said deed for the previous year in question. He appealed against the assessment order made by the Income-tax Officer to the Appellate Assistant Commissioner. He claimed in the appeal depreciation on the said shed for the first time and was permitted to do so. He contended that the M.I.D.C. had sold to him the said shed under the said deed. The Appellate Assistant Commissioner found that the assessee was not the owner of the said shed and disallowed the assesees's claim for depreciation thereon.
4. The assessee preferred an appeal to the Income-tax Appellate Tribunal. It was contended before the Tribunal on behalf of the assessee that the said deed was not a lease but a hire purchase agreement and that the assessee had thereunder become the equitable or beneficial owner of the said shed. The Tribunal referred to the provisions of section 32 of the Income-tax Act, 1961, and noted that the question for consideration was whether the assessee could be said to own the said shed within the meaning of that provision. It considered it proper to examine the question from a businessman's point of view instead of a strictly legal and technical one. Referring to the composition of the premium amount, which had been furnished by the M.I.D.C. to the assessee in a letter dated September 29, 1971, it expressed the opinion that the M.I.D.C. had charged the assessee, under the nomenclature of premium, the price of the said plot of land plus the cost of the said shed along with interest, since the amount was to be paid in installments. It referred to the fact that though the said deed initially fixed the period of the lease at ten years, it contained a clause enabling the assessee to secure a new lease for a period of fifty years and that by letters dated August 4, and 11, 1971, the M.I.D.C. had decided to renew the lease for a period of 85 years. As the lease for an additional period of 85 years was also to be granted on the same terms, conditions and covenants, the Tribunal said that each successive lease would contain a fresh lease of 85 years so that the lease could be continued for an unlimited period. The Tribunal referred to letters wherein it had been stated by thejM.I.D.C. that a suitable clause conferring the right of removal of the said shed would be inserted in the final lease and that it would have no objection to allowing the assessee to raise loans from a bank on equitable mortgage no sooner he had paid the full cost of the said plot of land and the said shed. The Tribunal considered that the rent of Re. 1 was nominally charges to keep up the ostensible position that the transaction was that of a lease and not an outright sale. Taking all these facts into account, the Tribunal could not but conclude that the assessee was the owner of 'the property' for the purpose of section 32 of the Income-tax Act, 1961, and was, therefore, entitled to depreciation thereon. The said deed read with the subsequent letters, it said, could well be treated as a sale with the facility of paying the price in installments. It noted that the assessee had not exercised the option to secure a new lease for 85 years because he had not paid all the installments which enabled him to exercise that option, but it said that this did not mean that the assessee had lost the option to claim the renewal of the lease. The Tribunal directed the Income-tax Officer to allow the depreciation to the assessee.
5. The said deed recited that the M.I.D.C. had set up an industrial estate at Bhosari and had constructed sheds and other structures on several plots of land comprised therein and that the M.I.D.C. had agreed to grant to grant to the assessee the lease of plot No. C-4 (RS) 22 in the industrial estate together with all sheds and structures standing thereon. The said deed provided for the following : In consideration of the sum of Rs. 15,000 paid by the assessee to the M.I.D.C. and the further sum of Rs. 57,213 agreed to be paid by the assessee to the M.I.D.C. in the manner set out in the schedule to the said deed as and by way of premium and of the rent thereby reserved and the covenants and agreements on the part of the assessee, the assessee was granted the said plot of land together with all rights, easements and appurtenances thereto for the term of ten years, paying therefore the yearly rent of Re.1. The assessee covenanted, inter alia, that no alterations or additions would, at any time, be made to the facade or elevations of any building erected and standing on the said plot of land without the previous approval of the M.I.D.C.; to keep in good and substantial repair and condition those buildings and premises throughout the term of the lease; to permit the M.I.D.C. to enter into and upon the 'demised premises' to inspect the state of repair thereof; to keep the buildings already erected or which might thereafter be erected on the said plot of land insured in the joint names of the M.I.D.C. and the assessee; and, at the expiration or sooner determination of the term of the lease, to deliver unto the M.I.D.C. the 'demised premises' and or erection and building then standing or being thereon. The M.I.D.C. was permitted to re-enter upon the 'demised premises' if the rent or any installment of premium was in areas, in which case no compensation would be payable to the assessee on account of 'the building or improvement built to made'. The M.I.D.C. covenanted with the assessee that upon assessee paying the rent thereby reserved and observing and performing the convenants on the assessee's part, the assessee would peacefully enjoy the 'demised premises' for the term of the lease. If the assessee, having duly paid the entire amount of premium and the rent and having observed all covenants and conditions, was desirous of receiving a new lease of the 'demised premises' and gave notice to the M.I.D.C. of such desire six months before the expiration of the term, the M.I.D.C. would grant to the assessee a new lease of the 'demised premises' for a further term of fifty years at the same rent and upon the same covenants and conditions.
6. Mr. Dhanuka, learned counsel for the Revenue, submitted that the title of the assessee must be judged on the basis of the said deed. In hisjsubmission, the assessee was not thereunder made the owner of the said shed.
7. In our view, having regard to the recitals and the terms of the said deed, the assessee is clearly not the owner of the said shed. He is the lessee of the 'demised premises', namely, the said plot of land and the said shed thereon. Most important to note in this connection is the covenant by the assessee to deliver to the M.I.D.C., the said plot of land and all erections and buildings standing thereon at the expiration or sooner determination of the term of the lease. Equally important is the clause for re-entry which permits the M.I.D.C. to re-enter upon the said plot of land in the event of the rent or instalments of premium being in arrears, in which event no compensation would be payable to the assessee 'on account of the building or improvements built or made'.
8. Mr. Kumeria, learned counsel for the assessee, submitted, first, that the Tribunal having found that the assessee had paid to the M.I.D.C. the price of the said shed and there being no question posed disputing the correctness of this finding, the court must proceed upon the assumption that the assessee had paid to the M.I.D.C. the price of the said shed.
9. The question, it will be recalled, is whether the assessee was entitled to depreciation in respect of the said shed. The interpretation of documents is a matter of law. The Tribunal held that the assessee had paid to the M.I.D.C. the price of the said shed upon its construction of the said deed and the letters written by the M.I.D.C. to the assessee. The court is entitled to construe the said deed and letters for itself to answer the question posed to it.
10. Mr. Kumeria next relied upon the letters dated January 15, 1968, May 14, 1970, August 11, 1971, and September 28, 1971, written by the M.I.D.C. to the assessee. They form part of a compilation which has been tendered.
11. By the letter dated January 15, 1968, the M.I.D.C. wrote to the assessee that the amount of the premium included 'the cost of the land, building and an element of interest'. No break-up of this amount could be had and 'the total value of the property was the aggregate sum of the instalments'. By the letter dated May 14, 1970, written to the assessee, the M.I.D.C. recorded that a balance of Rs. 60,840 was still to be paid to it by the assessee. In case he was prepared to pay 'a lump sum towards the full and final payment of the cost of the shed and the plot', a rebate would be given to him. The letter added 'On receipt of this amount, final lease for additional 85 years would be given to you in respect of both the shed and the plot. The ownership of the shed would be vested in you and you will have the right of removal of the shed. The plot will remain on premium lease and you will be required to pay nominal rent of Re. 1 (Rupee one only) per year to the Corporation for the period of lease'. By the letter dated August 11, 1971, the M.I.D.C. stated that the premium lease which the assessee had executed would be renewed for a further period of 85 years after the expiry of the then current term of ten years if the instalments of premium were paid on the due dates and the terms and conditions of the lease were satisfied. The letter added 'The above shed has been allotted to you on payment of the premium in instalments and, therefore, the ownership of the same will be vested in you and you will have the right of removal of the structures. A clause to this effect will be inserted in the final lease in respect of the plot which will be executed after the expiry of the present lease.' By the letter dated September 28, 1971, the M.I.D.C. gave the break-up of the premium of Rs. 1,12,213 thus : cost of the said shed Rs. 66,300; price of the said plot of land Rs. 15,936; and interest Rs. 29,977.
12. The letters dated May 14, 1970, and August 11, 1971 support the case of the Revenue. They do not assist the assessee's case at all. If there was any doubt as to the correct position upon a construction of the said deed, these letters removed it. They make it crystal clear that if the assessee paid the entire premium amount and the rent and observed all the terms and conditions of the said deed, he would be entitled to a final lease and the ownership of the said shed would then be vested in him and he would acquire a right to remove it. The assessee, we are informed, paid the entire premium amount only in June, 1972, long after the previous year with which we are concerned. During the previous year with which we are concerned, the assessee was not the owner of the said shed.
13. Mr. Kumeria drew out attention to the decision of this court in CIT v. Alpana Talkies : 139ITR1055(Bom) . The facts of that case are so different from those before us that we do not think it essential to dwell thereon in any detail. In that case, the assessee carried on the business of exhibiting of films leased to him. He was obliged under the lease agreement to surrender the theatre on the expiry of the lease. The assessee demolished the existing theatre and constructed a new one. He claimed depreciation in respect of the new theatre. it was held that in view of the positive stipulation in the lease agreement that the theatre would become the property of the lesson only on the expiry of the lease, it was clear that the ownership of the new theatre was vest in the assessee. The new theatre constructed by the assessee belonged to him and he was entitled to an allowance for depreciation thereon.
14. The decision of the Calcutta High Court in Sri Ganesh Properties Ltd. v. CIT  44 ITR 606, also cited by Mr. Kumeria, is again a case where the facts are wholly different. The Calcutta High Court observed that in the case of a building lease, the presumption was that the lessor remained toe owner of the subject-matter of the lease, including the building. But, if the terms of the lease deed showed, as they did in the case before the court, that the ownership of the superstructure was vested in the lessee while the ownership of the land remained in the lessor, the lessee could be assessed in respect of the income from the superstructure on the basis of income from property.
15. Our attention was also drawn by Mr. Kumeria to the judgment of the Allahabad High Court in Addl. CIT v. U. P. Stage Agro Industrial Corporation Ltd. : 127ITR97(All) and these observation (at page 102) :
'It, therefore, follows that the expression 'building owned by the assessee' in section 32 of the Income-tax Act, 1961, has not been used in the sense of the property, complete title in which vests in the assessee. The assessee will be considered to be an owner of the building under section 32 if he is in a position to exercise the rights of the owner nit on behalf of the person in whom the title vests but in his own rights.'
16. This court has, in CIT v. Zoroastrian Building Society Ltd. : 102ITR499(Bom) , taken a different view. But, even if we were to proceed upon the basis adopted by the Allahabad High Court, the assessee would not succeed, for, he was not at the relevant time in a position to exercise rights of the owner of the said shed in his right. jIn the Zoroastrian Building Society's case : 102ITR499(Bom) , this court affirmed the view it had already taken that in the case of the sale of an immovable property, a registered document was necessary to give effect to the sale and the sale took effect only from the date of the execution of the document; that in Indian law beneficial ownership was unknown; there was but one owner, namely, the legal owner; that the expression 'income from property' used in the Income-tax Act, 1961, referred to the income of the legal owner of the property; and that he was the only person assessable to tax on that basis. This court reiterated that this position remained unchanged by the decision of the Supreme Court in R. B. Jodha Mal Kuthiala v. CIT : 82ITR570(SC) , upon which the allahabad High Court relied in the aforementioned case.
17. In the result, we are unable to accept the interpretation placed by the Tribunal upon the said deed and the letter of the M.I.D.C.
18. We answer the question in the negative and in favour of the Revenue.
19. The assessee shall pay to the Revenue the costs of the reference.