Urban land ceiling exemption payment held capital in nature and excluded from building cost for depreciation.

Payment made to obtain exemption from an urban land ceiling restriction was treated as capital expenditure because it removed a statutory fetter on ownership, secured an enduring advantage, and related to completion of title rather than day-to-day business operations. The same amount could not be added to the building's construction cost for depreciation, as it was attributable to the land and not directly incurred for construction. The Tribunal's view was sustained on both questions, with the expenditure characterised as capital in nature and depreciation on the building basis denied.

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Issues: (i) Whether the amount paid to obtain exemption from the urban land ceiling regime was revenue expenditure or capital expenditure; (ii) Whether, if capital in nature, the amount could be added to the cost of construction of the building for depreciation.

Issue (i): Whether the amount paid to obtain exemption from the urban land ceiling regime was revenue expenditure or capital expenditure.

Analysis: The payment was made in the context of vacant excess land that was subject to acquisition under the ceiling law. The exemption removed the statutory fetter on ownership and use of the land, secured the land for an indeterminate period, and conferred an enduring advantage. The expenditure did not facilitate the day-to-day running of the assessee's manufacturing business, nor was it incurred to protect a business asset in use. The payment was therefore directed to completing and freeing the title from the statutory impediment and not merely to preserve business operations.

Conclusion: The amount was capital expenditure and not revenue expenditure.

Issue (ii): Whether, if capital in nature, the amount could be added to the cost of construction of the building for depreciation.

Analysis: The expenditure was incurred to remove the encumbrance on the land and complete ownership in the land. It was not laid out for construction of the building, and the building obligation arose only as a condition of exemption from the ceiling law. The expenditure was thus attributable to the land and not to the cost of the building.

Conclusion: The amount could not be added to the cost of the building for claiming depreciation.

Final Conclusion: The appeal failed on both questions of law, and the Tribunal's view treating the payment as capital expenditure and denying depreciation was sustained.

Ratio Decidendi: Where a payment secures exemption from a statutory land-acquisition or ceiling restriction by removing a fetter on ownership and conferring an enduring benefit in the capital field, the expenditure is capital in nature and cannot be shifted to building cost unless it is directly incurred for construction.

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