Revenue expenditure on construction over another's land upheld where the arrangement was limited, revocable, and created no capital asset.

Construction expenditure on milk parlours erected on another party's land under a limited, revocable and time-bound arrangement was treated as revenue expenditure because the assessee acquired no ownership or proprietary interest and the works created only a business advantage, not a capital asset. The structures were to be used for a restricted purpose and period, and were later demolished when the permission was not renewed. Once the expenditure was held to be revenue in nature, separate scrutiny of whether the parlours qualified as temporary erections for 100% depreciation became unnecessary. The assessee's claim was sustained and the Revenue's challenge failed.

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Issues: Whether the assessee was entitled to treat the expenditure on construction of milk parlours on AUDA land as revenue expenditure and whether the structures qualified for 100% depreciation as temporary erections under the Income-tax Rules, 1962.

Analysis: The assessee's right over the land was limited by agreement, it had no ownership or proprietary interest in the land, the permission was for a fixed period, and the arrangement could be revoked without compensation. The parlours were to be used only for a restricted purpose and period, and the structure was demolished in the subsequent year upon non-renewal. In these circumstances, the expenditure did not bring into existence any capital asset for the assessee but only conferred a business advantage. Once the expenditure was held to be revenue in nature, closer scrutiny of whether the structures were purely temporary erections for the purpose of 100% depreciation became unnecessary.

Conclusion: The expenditure was revenue in nature and the Revenue's challenge to the allowance of depreciation failed.

Final Conclusion: The appeal was dismissed as the assessee's claim was sustained on the footing that the construction gave rise only to a business advantage and not a capital asset.

Ratio Decidendi: Where construction on another's land is undertaken under a limited and revocable arrangement and does not create a capital asset in the assessee's hands, the expenditure is revenue expenditure notwithstanding the form of the structure.

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