Interpretation of "building" in Income-tax Act broadened to include land cost.

The High Court held that the term "building" in the Explanation to section 80J of the Income-tax Act includes both the superstructure and the land it stands on. The court rejected the interpretation that "building" refers only to the superstructure. The cost of the building was deemed to include the cost of the land as well. The court ruled in favor of the revenue, directing the assessee to pay the costs of the reference.

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Issues Involved:
1. Interpretation of the term "building" in the Explanation to section 80J of the Income-tax Act, 1961.
2. Whether the cost of the building includes only the superstructure or also the land on which the superstructure stands.

Detailed Analysis:

Issue 1: Interpretation of the term "building" in the Explanation to section 80J of the Income-tax Act, 1961
The core issue revolves around whether the term "building" in the Explanation to section 80J should be interpreted as including only the superstructure or also the land beneath it. The Tribunal had previously interpreted "building" to mean only the superstructure, relying on the Supreme Court's decision in Commissioner of Income-tax v. Alps Theatre [1967] 65 ITR 377, which construed "building" for the purpose of depreciation to mean only the superstructure and not the land.

The High Court, however, emphasized that the interpretation of statutory terms should be context-dependent. The court referred to the Privy Council decision in Corporation of the City of Victoria v. Bishop of Vancouver Island [1921] 2 AC 384, which held that the term "building" in its ordinary grammatical sense includes both the superstructure and the land it stands on. The court noted that statutory words must be interpreted in their ordinary grammatical sense unless the context requires otherwise.

The court also reviewed the decision in Commissioner of Income-tax v. Colour-Chem Ltd. [1977] 106 ITR 323 (Bom), which clarified that the term "building" should be interpreted based on the context of the specific statutory provision. The High Court concluded that there was no compelling reason to deviate from the ordinary meaning of "building" in the context of section 80J.

Issue 2: Whether the cost of the building includes only the superstructure or also the land on which the superstructure stands
The court examined whether the cost of the building in the Explanation to section 80J should be limited to the superstructure or include the land beneath it. The Tribunal had previously ruled that "building" referred only to the superstructure, based on a dictionary definition and the Supreme Court's decision in Alps Theatre.

However, the High Court found that the ordinary and popular meaning of "building" includes both the superstructure and the land. The court reasoned that when a building is used, the land beneath it is also inherently used. This interpretation aligns with the Privy Council's decision in Corporation of the City of Victoria, which stated that the term "building" includes the fabric of the building and the ground it stands on.

The court rejected the argument that the phrase "any part thereof" in the Explanation to section 80J implied that "building" referred only to the superstructure. The court explained that the valuation of a part of a building could include both the superstructure and the land it occupies.

Additionally, the court dismissed the argument that the use of the terms "land" and "building" in other sections of the Income-tax Act indicated a legislative intent to restrict "building" to the superstructure. The court noted that these provisions used "land" and "building" separately to include vacant land and buildings within the scope of the legislation, not to narrow the definition of "building."

The court also addressed the principle of favourable construction, which suggests that ambiguous tax provisions should be interpreted in favour of the taxpayer. The court found this principle inapplicable, as the interpretation of "building" in section 80J was not ambiguous.

Finally, the court dismissed the argument that land cannot be previously used, emphasizing that the use of a building inherently involves the use of the land beneath it.

Conclusion:
The High Court concluded that the term "building" in the Explanation to section 80J includes both the superstructure and the land it stands on. Consequently, the Tribunal's interpretation of "building" as only the superstructure was erroneous. The court answered question No. 2 in favor of the revenue, stating that the cost of the building includes the cost of the land married to the superstructure. As this was the only question arising from the Tribunal's order, question No. 1 was not separately answered. The assessee was ordered to pay the costs of the reference to the revenue.

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