1964 (10) TMI 95 - HC - Income Tax

Court allows depreciation on land along with building cost under Income-tax Act

Commissioner of Income-Tax, Punjab Versus Alps Theatre

The court held that the cost of land is entitled to depreciation under the Income-tax Act along with the cost of the building standing on it. The term ... - Issues Involved:1. Whether the cost of land is entitled to depreciation under the schedule to the Income-tax Act along with the cost of the building standing thereon.Detailed Analysis:Issue 1: Depreciation on Cost of Land Along with BuildingThe primary issue addressed in this judgment is whether the cost of land is entitled to depreciation under the schedule to the Income-tax Act along with the cost of the building standing thereon.Background and Arguments:- Initial Assessment and Reassessment:The Income-tax Officer initially allowed a deduction of Rs. 29,925 for admissible depreciation in the original assessment made on May 27, 1957. However, upon reassessment, the deduction was reduced to Rs. 25,049 on the grounds that the cost of the land underneath the building could not be treated as part of the building for purposes of depreciation.- Assessee's Appeal:The assessee, Messrs. Alps Theatre, Rajpura, appealed against this reassessment. The Appellate Assistant Commissioner rejected the appeal, affirming that depreciation is admissible on a building used for business purposes, but not inclusive of the land on which it stands.- Tribunal's Decision:The Income-tax Appellate Tribunal, Delhi Bench, set aside the reassessment order and restored the original order, reasoning that the term 'building' necessarily includes the land upon which it stands.Legal Provisions and Interpretations:- Section 9 and Section 10 of the Act:The Act does not define 'building,' but Section 9 treats the building as a unit apart from the land. Section 10 allows certain exemptions from tax paid on business, including depreciation on buildings. The term 'building' is treated as a unit for depreciation purposes, akin to machinery or furniture.- Department's Argument:The department contended that land is a capital investment and not subject to depreciation. Depreciation is allowed on the building as a unit, not on the land, which may increase or decrease in value independent of the building.- Assessee's Argument:The assessee argued that land is an integral part of a building and cannot be separated from it for depreciation purposes. The term 'building' should include the land on which it stands, as selling a building inherently includes selling the land beneath it.Judicial Precedents and References:- House of Lords Decision:The decision in Corporation of the City of Victoria v. Bishop of Vancouver Island was cited, where it was held that the term 'building' includes the land on which it stands, as the land is essential for the building's use and purpose.- Corpus Juris Secundum:It was noted that the term 'building' sometimes includes the land on which it stands, depending on the context of the statute.Court's Analysis and Conclusion:- Comprehensive Interpretation:The court held that the term 'building' in Section 10(2)(vi) of the Act should be interpreted to include the land underneath it. Depreciation is allowed on the building as a unit, which includes the land.- Rule of Favoring the Assessee:The court emphasized that in cases where two interpretations of a taxing statute are possible, the interpretation favoring the assessee should be adopted, citing Commissioner of Income-tax v. C.S. Sastri.- Final Decision:The court concluded that the Tribunal's decision was correct, and the cost of the land is entitled to depreciation along with the building. The question referred was answered in the affirmative, and the parties were left to bear their own costs due to the complexity of the issue.Separate Judgment:- DUA J.'s Concurrence:DUA J. concurred with the judgment, acknowledging the difficulty of the question and the cogency of the revenue's arguments. However, he agreed that the Tribunal's view, which favored the assessee, should be upheld.Conclusion:The court affirmed that the cost of land is entitled to depreciation under the schedule to the Income-tax Act along with the cost of the building standing thereon, providing a comprehensive interpretation that includes the land as part of the building for depreciation purposes.