TMI Blog1986 (3) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,984.67 on the basis of a flat rate of Rs. 1,120 per ground. This amount was accordingly paid to the Corporation of Madras on July 23, 1975. In the assessment proceedings for the assessment year 1975-76, the assessee claimed an amount of Rs. 7,985 as deductible being payment of betterment tax in respect of the land on which its factory was situated on the basis that the liability had accrued during the relevant previous year. The Income-tax Officer disallowed the deduction holding that the expenditure was of capital nature. The Appellate Assistant Commissioner, while rejecting the appeal filed by the assessee, held that by reason of the development of the locality in which the assessee's land was situated, the value thereof had increased and since the tax in question had been paid in respect of such increase, the expenditure was only capital expenditure. The assessee took the matter in appeal to the Income-tax Appellate Tribunal. Before the Tribunal, the assessee pointed out that it had been carrying on business long before the Corporation started improving the locality, that the roads and drainages had already existed even prior to the purchase of the land by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was immaterial. The Gujarat High Court further held that even if it were taken that the payment was made to prevent distress sale and to protect the business set up, the expenditure was on capital account and not an expenditure for producing profits in the conduct of business and was not, therefore, deductible under section 37 of the Income-tax Act, 1961. Aggrieved by this view of the Tribunal, the following question has been referred at the instance of the assessee for the opinion of this court under section 256(1) of the Income-tax Act, 1961 : " Whether, on the facts and in the circumstances of the case, the liability incurred by the assessee to pay Rs. 7,985 as betterment tax in respect of the land on which its factory is situate during the relevant previous year is of capital nature and hence not allowable in computing its business income for the assessment year 1975-76 ? " The learned counsel for the assessee has contended that the Tribunal was not right when it took the view that payment of betterment contribution was in the nature of capital expenditure. According to the learned counsel for the assessee, undoubtedly roads have been laid around the factory as part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of the Corporation to levy betterment contribution is dependent upon either the increase in value of any property or if the value of the property is likely to increase, by the making of any Town Planning Scheme. Section 24 prescribes the manner in which betterment contribution is to be calculated. Section 25 provides that the betterment contribution shall be a first charge on the property on which it is due, subject to the prior payment of land revenue, if any, due to the Government thereon, and shall be paid in half-yearly instalments of one-half of the amount fixed for the year. The provisions of sections 23, 24 and 25, therefore, show that betterment contribution is a compulsory levy made by the Corporation, but the pre-condition for such levy is that consequent upon the making of any Town Planning Scheme, the value of any property increases or is likely to increase. Therefore, the payment of betterment contribution does not result in the increase in value of the property but it is because of the increase in the value of the property as a result of the making of the Town Planning Scheme that the owner of the property is required to make a contribution which is called " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the properties are then required to compensate the Corporation by making a contribution in the form of betterment charges. The statutory provision is really a provision to facilitate the computation of the liability of the owner of the property on the basis of the increase in value. Though the statute relates the levy of contribution to the increase in value as a result of development, what really happens as a result of development is that additional facilities like roads and drainages for the enjoyment of the property also become available. Commercially considered, if the expenditure would have been incurred for such facilities, that would have been laid out wholly and exclusively for the purpose of the business. The true nature or character of the betterment contribution is in essence in the nature of payment for such facilities and only its computation is on the basis of the appreciation in value. If that be the true nature of the contribution, it is difficult for us to see how this betterment contribution can be called an expenditure in the capital field or of a capital nature. Undoubtedly, the Gujarat High Court has taken the view in Addl. CIT v. Rohit Mills Ltd. [1976] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Tribunal was justified in concluding that it was not wholly and exclusively laid out for the business and the deduction, therefore, did not come within the scope of section 10(2)(xv) of the Indian Income-tax Act. 1922. The Supreme Court found that the sum of Rs. 50,000 contributed by the assessee was for the construction of roads in the area around the factory and that it could not be disputed that if the roads are constructed around the factory area, they would facilitate the transport of sugarcane to the factory and the flow of manufactured sugar out of the factory. On that circumstance, the Supreme Court took the view that the construction of the roads was, therefore, clearly and indubitably connected with the business activity of the assessee and it was difficult to resist the conclusion that the amount of Rs. 50,000 contributed by the assessee towards meeting the cost of construction of the roads under the Sugarcane Development Scheme was laid out wholly and exclusively for the purpose of the business of the assessee. The Supreme Court then went on to consider the contention of the Revenue that the expenditure of the amount of Rs. 50,000 was in the nature of capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue account, even though the advantage may endure for an indefinite future'. " After thus pointing out that the test laid down by Lord Cave L.C. must yield where there are special circumstances leading to a contrary conclusion, the Supreme Court took the view that the roads which are constructed around the factory with the help of the amount of Rs. 50,000 contributed by the assessee belonged to the Government of Uttar Pradesh and not to the assessee and that the amount contributed was only a part of the cost of construction because one-third of the cost of construction was to be borne by the Central Government, one-third by the State Government and only the remaining one-third was to be divided between the sugarcane factories and sugarcane growers. Noticing the fact that these roads were undoubtedly advantageous to the business of the assessee as they facilitated the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the market centres and that there was no doubt that the advantage secured for the business of the assessee was of a long duration inasmuch as it would last long as the roads continued to be in motorable condition, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, it has been contended by the learned counsel for the Revenue that the betterment contribution is related to the capital asset, namely, the land on which the factory of the assessee is situated and, therefore, according to the learned counsel, in view of the decisions laid down by the Supreme Court, the payment being related to a fixed asset or capital must be treated as a capital expenditure. Undoubtedly, the Supreme Court has held that an item Of disbursement may be regarded as of a capital nature when it is relatable to a fixed asset or capital. These observations cannot be read as meaning that every disbursement, however distantly relatable to a capital asset, will necessarily be classified as capital expenditure though the assessee does not acquire any advantage of an enduring character or advantage and though that disbursement itself does not directly go to appreciate the value of the capital asset, so that the disbursement can be capitalised. Having regard to the decision of the Supreme Court in L. H. Sugar Factory Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293, we must, therefore, take the view that the betterment contribution paid by the assessee was not of a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X
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