TMI Blog2014 (8) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of business and not with an intention to own it - If the intention of the respondent was to own the property, the transaction would have been different altogether - Though the lease is one of the forms of transfer of property, it does not lead to conferment of rights of ownership - That would be possible only when a sale as defined under Section 54 of the Transfer of Property Act takes place – income to be treated as business income - Decided against Revenue. - R.C.No. 5 of 1997 - - - Dated:- 10-6-2014 - L. Narasimha Reddy And Challa Kodanda Ram,JJ. For the Petitioner : Sri. S. R. Ashok For the Respondent : Sri Y. Ratnakar ORDER (Per the Honble Sri Justice L. Narasimha Reddy) This reference is at the instance of the Revenue. The respondent is an assessee and she undertakes the activity of construction of buildings, giving them on lease and other allied activities. Certain extent of land owned by the Young Mens Christian Association at Secunderabad was taken on lease by the respondent. In terms of the agreement between the parties, construction was made and buildings were given on lease. The expenditure incurred for construction as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf incurred the expenditure for construction of the building and acquired the rights, akin to ownership vis-a-vis the premises and the expenditure incurred therefor deserves to be treated as capital expenditure. He contends that the view taken by the Tribunal in its order of adjudication referable to Question No.1 is correct and the reference to it is not necessary. As regards Question No.2, learned Senior Standing Counsel submits that there is an inherent contradiction, inasmuch as the very basis for claiming the benefit under Section 32 (1A) of the Act is on the premise that what is incurred as capital expenditure and the same does not go with Question No.1. According to the learned Senior Counsel, the respondent is not entitled for the benefit under Section 32 (1A) of the Act. Coming to Question No.3, learned Senior Standing Counsel submits that though the respondent may have taken the land on lease, she constructed the building with her own funds and leased the constructed premises, to the exclusion of the lessor and in that view of the matter, she deserves to be treated as the owner of the property at least, in the limited context of the relevant provisions of the Act. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture. It hardly needs any mention that the capital expenditure is the one which results in an enduring benefit. In other words, the expenditure so incurred must lead to the coming into existence, of a property, which would last for quite a long time. It is axiomatic that the expenditure incurred in relation to an enduring property must be, by the one, who has rights of ownership vis-a-vis the property. It hardly needs any mention that the construction of a building needs investment of funds. What makes the difference is that if the expenditure is incurred by the owner, it needs to be treated as capital expenditure, whereas if the expenditure incurred by a person, who is not vested with the rights of ownership, it tends to become revenue expenditure. In the instant case, the expenditure incurred by the respondent falls into the second category. The question is squarely covered by the judgment of the Honble Supreme Court in CIT Vs. MADRAS AUTO SERVICE PVT. LTD (supra) and following the same, we answer this question against the Revenue and in favour of the respondent. Question No.2 is nothing but an offshoot of Question No.1. In a way, both of them do not coexist. Unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arnataka High Court in D.R.PUTTANNA SONSs case (supra) is on facts, which are to those of this case. The question in that case, as in the present one, was as to whether a lessee of a land for a particular period can be treated as the owner of the building constructed thereon, during the subsistence of the lease. The answer is in affirmative. Their Lordships have also sought to lay support on the judgment of the Honble Supreme Court in S.G.MERCANTILE CORPORATION P. LTD. Vs. CIT (1972) 83 ITR 700. The discussion by the Karnataka High Court proceeded on the following premise: It is not in dispute that the assessee remained the owner of the building for the period of 30 years and upon expiry of that period, the land leased to the assessee with the building constructed thereon would revert to the lessor. The income by way of rent recovered from the tenant inducted by the assessee cannot, therefore, be considered as business income so long as the assessee remained the owner thereof. The portion of the judgment of the Supreme Court in S.G.MERCANTILE CORPORATION P. LTDs case (supra) that was relied upon by the Karnataka High Court reads: The liability to tax under Section 9 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he construction of the building on the land taken on lease was obviously for the purpose of business and not with an intention to own it. If the intention of the respondent was to own the property, the transaction would have been different altogether. Though the lease is one of the forms of transfer of property, it does not lead to conferment of rights of ownership. That would be possible only when a sale as defined under Section 54 of the Transfer of Property Act takes place. Therefore, we answer Question No.3 against the Revenue and in favour of the respondent. From a reading of Question No.4, we find that there is serious defect in framing of it. A close perusal of Question No.4 i.e. Question No.2 in R.A Nos.550 to 554 of 1994 reveals that there is some non-application of mind in the process. In case the Tribunal has taken the view that the assessee i.e. the respondent has never raised the superstructure on the leasehold land, it is just un-understandable as to how the income derived by her can be treated as the one from the house property. It is the specific case of the respondent that the income is from business. At any rate, the view expressed by the Tribunal is not german ..... X X X X Extracts X X X X X X X X Extracts X X X X
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