TMI Blog2015 (8) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986 (3) TMI 21 - BOMBAY High Court) is not of any assistance to it. The Appellant therein` held land which it used for sugarcane cultivation so as to carry on its business of manufacturing sugar. This land was being acquired under the Land Ceiling Act. The Appellant therein incurred expenses to protect the land which was used for its sugarcane cultivation from acquisition. Therefore, it was an expenses incurred to protect/maintain its running business and/or business asset. It was in the above background, that the Court held that the expenditure incurred for litigation, was revenue in nature. In the present facts, the excess land was not a business asset i.e. not being used in running a business but was to be exploited in future. Therefore, no occasion to apply the decision of this Court can arise. Thus no reason to disturb the finding of the Tribunal upholding the order of the lower authority that amount of ₹ 23.35 lakhs is an expenditure on revenue account. We have found that the expenditure of ₹ 23.35 lakhs has been incurred so as to complete the title/ ownership of the land. Therefore, the above expenditure cannot be attributed to the construction of the buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 41 of the Maharashtra Housing Area Development Act, 1976 (MHADA) on 3rd December, 1987, seeking to acquire the said land. Consequent to the above, on 30th May, 1988, the Appellant made a representation to the State Government and prayed that the proposed acquisition of the said land and the issue of notification under Section 41 of the MHADA be withdrawn. It appears that the State Government treated the Appellant's representation as an application for exemption under Section 20 of the ULCA and consequently by an order dated 29th November, 1989, granted exemption to a portion of the said land i.e. the area of 10,462 sq. mtrs, in the aggregate (exempted land). This was with an obligation to construct hostel, training centre and guest house on an area of 6,767 sq. mtrs and also to construct tenements of 50 to 80 sq. mtrs. each for housing to be given to the State Government. The aforesaid exemption to the exempted land was on further payment of consideration of ₹ 23.35 lakhs. The Appellant paid the aforesaid amount and also carried out its obligation under the order dated 29th November, 1989, for availing the exemption granted under Section 20 of ULCA. (d) It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the ULCA with nominal compensation. (B) So far the alternative contention that ₹ 23.35 lakh be considered a part of the costs of the building and be allowed as depreciation. The Tribunal held as under:The expenditure of ₹ 23.35 lakhs as incurred was to perfect and/or cure the defect in the title of the land, therefore could not be added to the costs of the building. In the above view, the appeal of the Appellant was dismissed. 5. We shall now deal with each of the two questions independently. Regarding Question - 1 6. Mr. Mistri, learned Senior Counsel appearing for the Revenue in support of the appeal, submits as under: (a) It is an admitted position between the parties that the Appellant was entitled to the exempted property at all times. In spite of the above, the impugned order holds that the amount of ₹ 23.35 lakhs has been paid to cure a defect in title, therefore holding that the above expenditure is on capital account; (b) The mere enactment of ULCA does not in any manner affect the title of the Appellant to the said land and in particular, 10,462 sq. mtr, of exempted land by virtue of Section 20 of the ULCA. The title of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the subject land including 10,462 sq. mtr. of and which was exempted under Section 20 of the ULCA was vacant land in excess of ceiling limit and the Appellant could not have held the same. It is by virtue of an exemption granted to the Appellant on conditions of constructing building on the land and payment of ₹ 23.35 lakhs that an area of 10,462 sq. mtr. of land exempted. Therefore, the payment made was in the nature of capital expenditure for excluding the operation of ULCA in respect of 10.462 sq. mtrs. of land. In view of the above, it is submitted that no interference with the order of the Tribunal is called for to the extent it holds that the payment of ₹ 23.35 lakhs was in the nature of capital expenditure. 8. We have considered the rival submissions. The issue whether an expenditure is capital or revenue in nature, cannot be decided on the basis of any preexisting Rules under the Act, as there is none. Section 37 of the Act allows expenditure expended for the purposes of business or profession as a deduction to compute the income chargeable under the head 'profit and gain of business or profession.' However, Section 37 of the Act, itself mandates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity under Section 20 of ULCA by putting conditions viz: constructing building on the land, prohibiting sale/ transfer of the land on which the construction is carried out till such time the construction is complete and making a payment of ₹ 23.35 lakhs to the State Government; and (e) The Appellant accepted and complied with the conditions stipulated in the notification for exemption issued under Section 20 of ULCA including making the payment of ₹ 23.35 lakhs to the State Government. 11. On the aforesaid factual background, what is to be examined is whether the payment of ₹ 23.35 lakhs is to be considered as revenue expenditure as contended by the Appellant or as capital expenditure as contended by the Revenue. 12. The Appellant's primary submission is that it is the owner of the said land including 10,462 sq. mtrs of exempted land at all times. It is submitted that the title of the exempted land is and has always been with the Appellant. The payment of ₹ 23.35 lakhs made by the Appellant was only to protect its title to 10.462 sq. mtrs. by claiming exemption under Section 20 of the ULCA. The Appellant's contends that it was not a payment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same in the present facts is obtained inter alia on making a payment of ₹ 23.34 lakhs. Similarly, the unreported decision of Delhi High Court in Ghanshyamdas Sheth (supra) would not apply to the present facts as it inter alia concludes that there can be no dealing with the excess land by way of transfer, sale etc. only between the notification issued under Section 10(1) and Section 10(3) of the ULCA. It does not even remotely suggest that prior to notification under Section 10 of the ULCA there is an unfettered right to dispose of and/or sell the property. It dealt with the issue of carrying out construction of the vacant land in terms of the grant of the land. In fact, it applies and follows the aforementioned decisions of the Andhra Pradesh High Court to conclude that mere enactment of ULCA will not prevent the owner of the land for putting any construction thereon till a notification under Section 10 of ULCA, is issued. 14. In any case, the distinguishing feature in the present facts to those cited by the Appellant, is that in the cited cases, the issue whether the land is in excess or not is a matter of dispute i.e. not settled. Although in the Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the entire process of exemption to ensure that the land is available to the Appellant for indeterminate period albiet with the constructed hostel, training centre and guest house on the same. The exemption itself only prohibits the Appellant from disposing of land in favour of any third party till such time as the construction on the land is complete in terms of the conditions of the exemption. Thereafter, there is no prohibition to transfer the structure along with the land. Thus a right to transfer, unfettered in any manner became available to the Appellant after construction of the building on the land. This right was not available to the Appellant prior to the grant of the exemption as the disposition was fettered because of the certain acquisition of land as even according to the Appellant, vacant land was in excess of the ceiling limit under ULCA. This payment made by the Appellant in its nature is different from a payment made to protect the property. In fact, Supreme Court in the case of Assam Bengal Cement Co. Ltd. v/s. CIT 27 ITR 34 while laying down the criteria to decide/ determine whether the payment is of capital or revenue nature has observed that the aim and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efect in title or a threat to litigation. Moreover, in this case, the threat to a certain acquisition would be on a higher footing then a threat to litigation. Therefore, it has been correctly held to be capital in nature on both counts i.e. getting rid of a defect and avoiding a certain acquisition. 17. We are of the view that the impugned orders of the authorities have reached a correct finding of fact that the land was not being used for the purposes of the Appellant's business. It was a vacant land to be exploited in the future. The business of the Appellant i.e. of manufacturing of cutting tools continued and the factory land nor its manufacturing activities was affected by the ULCA even remotely. Thus, exemption obtained on payment made was not to protect a running business or business asset of the Appellant. Therefore, the decision of the Apex Court in Empire Jute Co. Ltd. v/s. CIT 124 ITR 1, Bikaner Gypsum v/s. CIT 187 ITR 39 and Shree Meenakshi Mills Ltd. v/s. CIT 10 62 ITR 207 would have no application to the present facts. In Empire Jute Co. Ltd. (supra), the advantage of enduring benefit was not obtained in the capital field i.e. the payment made merely facilitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure be added to the cost of constructing the buildings and depreciation be allowed thereon; 21. Mr. Suresh Kumar, learned Counsel appearing for the Revenue submits that the payment of ₹ 23.35 lakhs was made in respect of land. Therefore, no occasion to add the same as the cost of constructing the building, can arise; 22. We have found that the expenditure of ₹ 23.35 lakhs has been incurred so as to complete the title/ ownership of the land. Therefore, the above expenditure cannot be attributed to the construction of the building. The construction of the building mandated by the exemption order under Section 20 of ULCA is only on consequence of the title/ ownership becoming complete. Therefore, we see no reason to interfere on this account as also with the impugned order of the Tribunal negating the plea of the Appellant that the amount of ₹ 23.35 lakhs be added to the cost of constructing the buildings so as to avail of depreciation on the same. 23. We shall now answer the substantial questions of law as under: Q.1 In the affirmative i.e. against the Appellant Assessee and in favour the Revenue; and Q.2 In the affirmative i.e. against the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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