Depreciation
Generally, in respect of buildings, pending registration of documents of title, a note is given mentioning this fact. The Supreme Court has held in the case of Mysore Minerals Ltd., (1999) 106 Taxman 166, that “anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act 1882, Registration Act, etc.” The judgement clarifies that an assessee will be entitled to depreciation under section 32 of the Income tax Act, 1961 even where documents of title are pending registration.
The Courts have held in the case of Syndicate Bank Vs. Commissioner of Income tax (1988) 172 ITR 561 and in the case of Commissioner of Income-tax Vs. Central Bank of India Ltd. (1976) 103 ITR 196 that lockers (including, air – conditioners in locker rooms) are plant and machinery.
Where banks enter into sale and lease back transactions, according to Explanation 4A to Section 43(1), the written down value (as per the provisions of the Income Tax Act, 1961) of the original seller will be the cost to the bank for the purpose of depreciation.
Carry forward of unabsorbed business loss and depreciation on amalgamation of a banking company with a banking institution
With a view to provide for carry forward and set-off of accumulated loss and unabsorbed depreciation allowance of a banking company against the profits of a banking institution under a scheme of amalgamation sanctioned by the Central Government, section 72AA has been inserted in the Income-tax Act, 1961. This section provides that where a banking company has been amalgamated with a banking institution under a scheme sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949, the accumulated loss and unabsorbed depreciation of the amalgamating banking company shall be deemed to be the loss or the allowance for depreciation of the banking institution for the previous year in which the scheme of amalgamation is brought into force. It is to be noted that all the provisions contained in the Income-tax Act, 1961, relating to set-off and carry forward of loss and unabsorbed depreciation will apply accordingly in such a case.
The Explanation to this section defines the expressions “accumulated loss”, “banking company, “banking institution” and “unabsorbed depreciation”, for the purposes of this section as follows–
(i) “accumulated loss” means so much of the loss of the amalgamating banking company under the head “Profits and gains of business or profession” (not being a loss sustained in a speculation business) which such amalgamating banking company, would have been entitled to carry forward and set-off under the provisions of section 72 if the amalgamation had not taken place;
(ii) “banking company” shall have the same meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949;
(iii) “banking institution” shall have the same meaning assigned to it in subsection (15) of section 45 of the Banking Regulation Act, 1949; Guidance Note on Audit of Banks (Revised 2017)
(iv) “unabsorbed depreciation” means so much of the allowance for depreciation of the amalgamating banking company which remains to be allowed and which would have been allowed to such banking company if amalgamation had not taken place.
Any transfer of a capital asset by a banking company to a banking institution in a scheme of amalgamation of such banking company with such banking institution sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949 shall not be regarded as a transfer for the purposes of capital gains.
The cost of acquisition of the capital asset transferred to the banking institution, under the scheme of amalgamation of a banking company with the banking institution, shall be deemed to be the cost for which the banking company acquired it.