Right of user in land for pipelines treated as capital expenditure, with no depreciation and section 35D claim reconsidered.

Compensation paid to acquire a restricted right of user in land for laying pipelines is treated as capital expenditure, because the right has an enduring character and relates to land rather than to installation of plant. It is therefore not allowable as revenue expenditure, and depreciation is not admissible on that amount as part of the block of plant and machinery. The claim for deduction of share issue and preliminary expenses under section 35D was remitted for fresh consideration in line with the earlier year's view, so only limited relief was granted.

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Issues: (i) Whether compensation paid for acquiring the right of user in land for laying pipelines was capital or revenue expenditure, and whether depreciation was allowable on such expenditure as part of the block of plant and machinery; (ii) Whether the assessee was entitled to deduction under section 35D in respect of share issue and preliminary expenses.

Issue (i): Whether compensation paid for acquiring the right of user in land for laying pipelines was capital or revenue expenditure, and whether depreciation was allowable on such expenditure as part of the block of plant and machinery?

Analysis: The expenditure was incurred to acquire a restricted but valuable right in land enabling the assessee to create space for laying pipelines. The arrangement was in the nature of a licence or limited right of user, protected by statutory restrictions on the landowner under the Petroleum and Minerals Pipelines (Acquisition of Right of User in the Land) Act, 1962. The right acquired had enduring character and was treated as a capital asset. It was not part of the cost of plant and machinery, because the right related to land and not to installation of the plant. The expenditure was therefore not allowable as revenue expenditure, and depreciation was also not admissible on it under section 32.

Conclusion: The claim for treating the expenditure as revenue expenditure or for allowing depreciation was rejected.

Issue (ii): Whether the assessee was entitled to deduction under section 35D in respect of share issue and preliminary expenses?

Analysis: The appellate authority's disallowance rested on an apparent inconsistency with its own earlier finding for the preceding year, where similar share issue expenses had been considered eligible for section 35D relief. The matter required reconsideration in line with that earlier view, and no final adverse determination was recorded on the merits of the claim in this appeal.

Conclusion: The issue was restored for fresh consideration and relief was allowed for statistical purposes.

Final Conclusion: The appeal relating to the pipeline right-of-user expenditure failed, while the section 35D claim was sent back for reconsideration, resulting in only limited relief to the assessee.

Ratio Decidendi: Expenditure incurred to acquire a restricted and enduring right of user in land for laying pipelines is capital in nature, is not revenue expenditure, and does not qualify for depreciation as part of plant and machinery; a separate claim requiring consistency with an earlier year may be remitted for reconsideration.

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