TMI Blog1975 (11) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay Town Planning Act, 1954, which is hereinafter referred to as " the Act " as contribution towards the costs of town planning scheme. The facts of the case show that under the Bombay Town Planning Act, 1915, the Government declared its intention on 1st October, 1949, to make a scheme within the limits of Ahmedabad Municipal Corporation. The scheme deals with the area covered by the village Khokhra Mehmedabad, a part of which is located within the limits of Ahmedabad Municipal Corporation. The draft scheme under the Act was sanctioned by the Government on 26th October, 1949. Before the scheme could be finalised, the present Act, which is the Bombay Town Planning Act of 1954, replaced the Act of 1915. According to section 66 of the Act, the cost of the scheme is required to be met wholly or in part by a contribution to be levied by the local authority on each plot included in the final scheme calculated in proportion to the " increment " which is estimated to accrue in respect of such plot by the Town Planning Officer. Pursuant to the provisions of this section 66, the contribution which the assessee was required to pay came to Rs. 82,788. This amount was to be paid in 10 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in every draft scheme and reference to section 18 shows for what matters a Town Planning Scheme may make provisions. The wide sweep of development which these sections contemplate bears out the great potential advantages which the land covered by the scheme is likely to acquire on its finalisation. In State of Gujarat v. Shantilal Mangaldas , the Supreme Court had an occasion to consider the scheme of various provisions of the Act, which are relevant for our purpose in these references. Shah J., speaking for the court, has summarised the developmental impact of the Scheme in the following words in paragraph 12 of the reported judgment : " In making a Town Planning Scheme the lands of all persons covered by the scheme are treated as if they are put in a pool. The Town Planning Officer then proceeds to reconstitute the plots for residential buildings and to reserve lands for public purposes. Reconstituted plots are allotted to the landholders. The reconstituted plots having regard to the exigencies of the scheme need not be of the same dimensions as the original land. Their shape and size may be altered and even the site of the reconstituted plot allotted to an owner may be shifte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 66, which provides for the contribution towards the costs of a scheme under which the disputed " betterment charges " are charged, is in the following terms : " 66. (1) The cost of the scheme shall be met wholly or in part by a contribution to be levied by the local authority on each plot included in the final scheme calculated in proportion to the increment which is estimated to accrue in respect of such plot by the Town Planning Officer : Provided that: (i) (a) where the cost of the scheme does not exceed half the increment, the cost shall be met wholly by a contribution ; and (b) where it exceeds half the increment, to the extent of half the increment it shall be met by a contribution and the excess shall be borne by the local authority ; (ii) where a plot is subject to a mortgage with possession or to a lease the Town Planning Officer shall determine in what proportion the mortgages or lessee on the one hand and the mortgagor or lessor on the other hand shall pay such contribution ; (iii) no such contribution shall be levied on a plot used, allotted or reserved for a public purpose or purpose of the local authority which is solely for the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , special mention should here be made of the provisions contained in section 76 as both the parties have put reliance on this section in support of their contentions. This section provides as to how the recovery of the arrears under the Act can be made. It reads as under : " 76. (1) Any sum due to the local authority under this Act or any regulation made thereunder shall be a first charge on the plot on which it is due subject to the prior payment of land revenue, if any, due to the Government thereon. (2) Any sum due to the local authority under this Act or any regulation made thereunder which is not paid on demand on the day on which it becomes due or on the day fixed by the local authority shall be recoverable by the local authority by distress and sale of the goods and chattel of the defaulter, as if the amount thereof were a property tax due by the said defaulter. (3) In lieu of the recovery of the dues of the local authority in the manner provided in sub-section (2) or after recovering parts of the dues of the local authority in the manner provided in sub-section (2) any sum due or the balance of any sum due, as the case may be, by such defaulter may be recovered fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that, generally, several years are taken before a final scheme is put into execution and hence till the scheme is executed, there is no rise in the value of lands covered by the scheme. At any rate, contended the learned Advocate-General, even if it is believed that there is a likelihood of rise in the potential value of these lands, the said rise is merely incidental and the payment of betterment charges is not made with the object of acquiring any such rise in the potential value of the land. Since, according to him, the payment is made under compulsion only with the object of saving the running business from being destroyed or damaged by distress sale, the real character of the payment is that of revenue. We are not impressed by any of these contentions or the postulates on which they are based. We shall first deal with certain postulates on which these contentions are based and shall try to show how they are totally misconceived. These postulates are : (1) That on finalisation of a town planning scheme, there is no increase in potential or real value of the land covered by the scheme ; (2) That increase in the value of the land, if any, is merely incidental and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market value of a plot included in the final scheme, estimated on the assumption that the scheme has been completed, would, exceed at that date, the market value of the same plot estimated without reference to improvements contemplated by the scheme. By section 66 the cost of the scheme is required to be met wholly or in part by contributions to be levied by the local authority on each plot included in the final scheme calculated in proportion to the increment which is estimated to accrue in respect of such plot by the Town Planning Officer. It was contended that the incremental estimate contemplated by section 65 is purely fictional and has no basis in reality. In support of this contention reliance was placed on the deeming clause of section 65. It is no doubt true that for estimating increment in the value of a plot section 65 incorporates a deeming clause but this deeming clause becomes inevitable if an estimate about increment is to be made on correct principles. The section seeks to make an estimate of the increment in value as a result of the scheme and, therefore, it takes care to eliminate the increment in the value which has resulted due to the factors other than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing words : " In short, the obligation to make these payments was undertaken by the appellants in consideration of their acquisition of the right and opportunity to earn profits, that is, of the right to conduct the business, and not for the purpose of producing profits in the conduct of the business." A similar distinction is made by the High Court of Australia in Sun Newspapers Ltd. v. Federal Commissioner of Taxation. Dixon J. has in that case pointed out this distinction in the following words at pages 359 and 360 of the report : " The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure or organisation set up or established for the earning of profit and the process by which such an organisation operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing, profit or loss." Proceeding further, it is observed in this judgment by the same judge as under : " As general conceptions it may not be difficult to distinguish between the profit yielding subject and the process of operating it. In the same way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's business, but that cannot be regarded as a ground for holding that the expenditure fell within section 10(2)(xv). Even in respect of a liability wholly unrelated to the business, it would be open to a creditor to sequester the assets of the assessee's business and such sequestration may result in stoppage of the operation of the business. Expenditure for satisfying liability unrelated to the business, even if incurred for avoiding danger apprehended or real to the conduct of the business, cannot be said to be revenue expenditure. Nor can it be said that because a liability has some relation to the business which is carried on, expenditure incurred for satisfaction of such liability is always to be regarded as falling within section 10(2)(xv)." Thus, all the three postulates on which the edifice of the arguments advanced on behalf of the assessees is based, are found to be unsustainable. A catena of decisions, both English and Indian, can be cited for discussing the question whether a particular expenditure partakes of the character of capital or revenue. Instead, we would only point out the decision of the Supreme Court in Assam Bengal Cement Co. Ltd., wherein most of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racter of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence." Many decisions were cited at the Bar on behalf of the assessees. We have found that they are not relevant to the facts of these references. We need not, therefore, discuss them in detail. The decisions of the Supreme Court in Malayalam Plantations Ltd. and Coelho's case were relied upon but they are of no use in these references as what is held in these cases is that " interest paid on the amounts debited to the capital account is revenue expenditure as, by payment of interest, no new asset was acquired." The decision of the Supreme Court in India Cements Ltd. v. Commissiner of Income-tax was also relied upon. There it was held that the expenditure of Rs. 84,633 towards stamp duty, registration fees, lawyer's fees, etc., incurred for obtaining loan of Rs. 40,00,000 was revenue expenditure and the act of borrowing the said amount was incidental to the carrying on of business. This decision has obviously no application to the facts of these references. The assessees had also placed reliance upon the decision given by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reliance upon this decision, because it was on the facts of the case that the Supreme Court came to the conclusion that the expenditure was incurred for the purpose of facilitating the running of motor vehicles and other means employed for transportation of sugarcane to the assessee's factories and was incurred for running the business and working it with a view to producing profits without the assessee gaining any advantage of an enduring benefit to itself. The facts of the case were that the assessee was a private company carrying on business of manufacturing and selling sugar. It paid to the cane development council certain amounts by way of contribution for the construction and development of roads between the various sugarcane-producing centres and the sugar factories of the assessee. This expenditure was incurred under a statutory obligation for the development of roads which were originally the property of the Government and remained so even after the improvement had been done. There was no finding that the roads were to be altogether newly made and that the assessee would get an enduring benefit from those roads. On these facts, the Supreme Court observed as under : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be worked out in detail the drainage board concerned put forward a general drainage improvement scheme for the district, the effect of which was, inter alia, to eliminate the necessity for the remedial works contemplated by the company, and proposed that the company should bear a proportion of the cost approximately equivalent to the cost of the works it would have carried out independently. After the negotiations the company agreed, by an agreement dated 28th September, 1939, to pay the drainage board a certain sum towards the cost of the general scheme by sixty half yearly instalments. On these facts the company contended that the payments made under the 1939 agreement were made in respect of its statutory obligations, that no capital asset had been acquired and that the payments were admissible deductions in computing its profits for income-tax purposes. The Crown contended that the payments were not made in respect of remedial expenditure or in discharge of the company's statutory obligations but were contributions towards a general scheme of drainage improvement and resulted in the acquisition of a capital asset. It was ultimately held that the payments to the drainage board ..... X X X X Extracts X X X X X X X X Extracts X X X X
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