TaxTMI 
TaxTMI 
2014 (8) TMI 70
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.... others the Assessing Authority treated it as the one from house property. Similarly, the claim of the respondent that the expenditure incurred for construction of the building must be treated as the revenue expenditure, was not accepted and it was treated as capital expenditure. The orders passed by the Assessing Authority were appealed against, and ultimately, the matter landed before the Income Tax Appellate Tribunal, Hyderabad Bench B (for short the Tribunal) as I.T.A.Nos.602 and 606 of 1993. The Tribunal agreed with the contention of the respondent herein and allowed the appeals. The Department filed applications under Section 256 of the Income Tax Act, 1961 (for short the Act) before the Tribunal with a request to refer certain questions covering the subject matter; to this Court. After hearing both the parties, the Tribunal passed an order, dated 17.07.1995, referring the following questions to this Court. R.A.Nos.545 to 549/Hyd/1994: Whether, on the facts and circumstances of the case, the I.T.A.T. is correct in law in holding that the entire expenditure incurred by the assessee on the construction of the building on the leasehold land is a revenue expenditure? ....
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....d up to which the lease is subsisting. He seeks to derive support to his contention from the judgment of the Karnataka High Court in D.R.PUTTANNA SONS PVT. LTD. Vs. COMMISSIONER OF INCOME TAX 162 ITR 468 and the judgment of this Court in COMMISSIONER OF INCOME TAX Vs. NANDANAM CONSTRUCTIONS 222 ITR 737. Sri Y.Ratnakar, learned counsel for the respondent, on the other hand, submits that the subject matter of Question No.1 is squarely covered by the judgment of the Honble Supreme Court in CIT Vs. MADRAS AUTO SERVICE PVT. LTD 233 ITR 468 and the expenditure incurred for construction of the building deserves to be treated as the revenue expenditure and not capital expenditure. He fairly submits that if the contention of the respondent on Question No.1 is accepted, Question No.2 virtually becomes redundant and superfluous. Regarding Question No.3, learned counsel submits that it is fairly settled in law that once a lessee always a lessee and unless a lease in respect of an immovable property between two persons is transformed into the one of ownership, in accordance with the procedure prescribed by law, the question of a lessee being treated as owner, does not arise. Learned counsel ....
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.... to the purport of capital expenditure with reference to different provisions. Either it has to be treated as capital expenditure for all purposes covered by the Act or not at all. Viewed from that angle, Question No.2 deserves to be answered in favour of the Revenue and against the respondent. Question Nos.3 and 4 touch a different aspect altogether, namely, income. The respondent has admittedly derived income from the premises constructed by her on the land taken on lease. The whole controversy was as to whether the income must be treated as the one from house property or the one from business. The record discloses that the Income Tax Officer treated the income in the form of rents from the buildings constructed by her; as the one from business, for the assessment year 1986-87. It is only in the subsequent year, that an attempt was made to treat it as the one, from house property. Under both the heads, the income is taxable, except that the rates and other incidents differ. In NANDANAM CONSTRUCTIONSs case (supra), a Division Bench of this Court took the view that if an individual is to be treated as owner, it is not necessary that there must exist a sale deed in his favour.....
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....he landed property was to promote and develop a market thereon. It would also make no difference if the assessee was a company which had been incorporated with the object of buying and developing landed properties and promoting and setting up markets thereon. We find a bit difficult to fit the proposition enunciated by the Karnataka High Court into the observations made by the Supreme Court in S.G.MERCANTILE CORPORATION P. LTDs case (supra). The Transfer of Property Act maintains a clear distinction between the ownership, on the one hand, and the lease, on the other. The rights of the lessor and the lessee vis-a-vis the leased property are clearly delineated under Chapter-V of that Act. We hardly find any circumstances or possibility where a lease can metamorphosise or transform into ownership, unless the parties to the transaction take the steps, those are required under law. The very statement that an individual remained as owner of the property for a period of 30 years during the lease was in force, does not accord with the basic tenets of those two concepts. Just as a lessee cannot be treated as owner, a person who acquires the rights of ownership would cease to be a less....