Betterment charges for town planning benefits were capital expenditure and not deductible as business expense.

Betterment charges paid under section 66 of the Bombay Town Planning Act, 1954 were held to be capital expenditure because the levy was linked to the enhanced market value and enduring benefit arising from the final town planning scheme, not to the conduct of business or earning of profits. The recovery machinery under section 76 did not alter the true character of the payment. The charges were therefore not deductible under section 37 of the Income-tax Act, 1961.

---

---

Issues: Whether the betterment charges paid under section 66 of the Bombay Town Planning Act, 1954 were allowable as a deduction under section 37 of the Income-tax Act, 1961, or were capital expenditure.

Analysis: The contribution levied under section 66 was linked to the increment in the market value of the plot as defined by section 65 and was imposed because the final town planning scheme enhanced the value and utility of the land. The statutory scheme showed that the charge was imposed with reference to land and the enduring advantage obtained from the finalisation of the scheme, not with reference to the conduct of the business or the production of profits. The recovery machinery under section 76 did not change the true character of the payment. The Court distinguished authorities dealing with liabilities incurred for running a business or for borrowing, and held that the present payment secured an enduring benefit in the nature of improved land value.

Conclusion: The betterment charges were capital expenditure and were not deductible under section 37 of the Income-tax Act, 1961.

---