In a recent case, honorable high Court of Delhi (reported in 2008 -TMI - 30813 - DELHI HIGH COURT) has decided the issue of nature of certain expenditure incurred relating to land.

In this judgment, HC held that the expenditure incurred for removal of the villagers and resettling them at another site was a capital expenditure.

The contention of the assessee that expenditure should be treated as revenue expenditure was rejected by making reference to various decisions of High Courts and Supreme Court in which it was held that;

-       where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be a capital payment and not a revenue payment.

-       where expenditure was incurred by the assessee for shifting the factory from one place to another to improve the business, the same was capital expenditure in nature.

-       to perfect the interest of the assessee in the land or get rid of the threat of litigation which might have delayed the handing over of vacant possession of the plot to the assessee and the establishment of the proposed factory by the assessee thereon - such expenditure cannot be treated as revenue expenditure

(For full text of judgment - visit 2008 -TMI - 30813 - DELHI HIGH COURT)

Capital expenditure: payments to secure vacant possession or perfect title are capital, not revenue, for tax purposes. Expenditure to remove occupants and resettle them so as to secure vacant possession and enable use of land is capital expenditure; payments made to perfect title, eliminate defects or threats of litigation, or enable relocation to establish business premises are capital in nature and not deductible as revenue expenses.