TaxTMI 
TaxTMI 
2015 (8) TMI 669
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....x? (b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in rejecting the claim of the assessee for depreciation on the expenditure of Rs. 23,34,615/which goes to increase the cost of the building?" 4. The facts relevant for both the aforesaid questions are as under: (a) The Appellant is engaged in the business of manufacturing of cutting tools at its factory. The Appellant owned another area of land other then the land on which factory is situated, admeasuring 47,296 sq. mtrs (the said land) which was vacant at village Aundh in District Pune; (b) In 1976, the Urban Land (Ceiling and Regulation)Act, 1976 (ULCA) was enacted. On 14th January, 1981, the Appellant applied to the Competent Authority under ULCA for exempting an area of 10,462 sq.mtr. (exempted land) out of the said land under Section 20 of ULCA; (c) Pending consideration of its application for exemption, the State Government issued a notification under Section 41 of the Maharashtra Housing & Area Development Act, 1976 (MHADA) on 3rd December, 1987, seeking to acquire the said land. Consequent to the above, on 30th May, 1988, the Appellant made a representation....
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.... for the purpose of business but to acquire full ownership of the exempted land. Thus, the appeal was dismissed on the above account by holding that the payment of Rs. 23.35 lakh was revenue expenditure. (f) Being aggrieved, the Appellant preferred a further appeal to the Tribunal. By the impugned order dated 2nd February, 2000, the Tribunal held: (A) Payment of Rs. 23.35 lakhs in respect of land is capital expenditure for reasons, as under: (i) In view of enactment of ULCA, the Appellant was divested of its right to surplus land including the right to alienate and/or deal with it any manner it deems fit; (ii) The payment was made to complete the title in the land which became defective/ imperfect in view of fetter by virtue of ULCA; (iii) Payment not made to avert threat to the running of its business; and (iv) The payment ensured enduring benefit in respect of the exempted land as otherwise the acquisition of the land under the ULCA with nominal compensation. (B) So far the alternative contention that Rs. 23.35 lakh be considered a part of the costs of the building and be allowed as depreciation. The Tribunal held as under:The expenditure of Rs. 23.35 lakh....
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.... This asset in the form of land was available for future exploitation. Consequently, payment made to thwart the acquisition of 10,462 sq. mtrs. was not made for the purpose of carrying on its business as the business of manufacturing cutting tools would continue whether or not the exempted land was acquired under ULCA. Therefore, in the above facts, the expenditure of Rs. 23.35 lakhs cannot be considered on revenue account; (b) The amounts of Rs. 23.35 lakhs was paid by the RespondentAssessee to the State Government so as to continue to have possession of the land for indeterminate period. Thus ownership became complete and the benefit obtained by making the payment being enduring in nature can only be on capital account as correctly held by the impugned order; and (c) Attention was drawn to Section 3 of the ULCA which prohibits any person from holding any vacant land in excess of ceiling limit. Admittedly, the subject land including 10,462 sq. mtr. of and which was exempted under Section 20 of the ULCA was vacant land in excess of ceiling limit and the Appellant could not have held the same. It is by virtue of an exemption granted to the Appellant on conditions of constructi....
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....e context of a commercial perspective. 10. Keeping the above observations in view, the facts which emerge for our consideration are: (a) Appellant was admittedly in possession of an area of 47.290 sq. mtrs., land all of which were excess vacant land and had sought exemption to 10,462 sq. mtr. of land only under Section 20 of the ULCA; (b) Section 3 of ULCA prohibited any person from holding any vacant land in excess of any ceiling limit provided under the ULCA; (c) Before proceedings under the ULCA for acquiring the land could be completed by issuing necessary notification under Section 10 thereof, the Appellant on its own moved the Competent Authority, seeking exemption under Section 20 of ULCA for an area of 10,462 sq. mtrs out of the 47,290 sq. mtrs. of excess vacant land which is liable for acquisition and would be so in due course; (d) The exemption was granted by the Competent Authority under Section 20 of ULCA by putting conditions viz: constructing building on the land, prohibiting sale/ transfer of the land on which the construction is carried out till such time the construction is complete and making a payment of Rs. 23.35 lakhs to the State Government; and....
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....s excess vacant land by the Competent Authority, then the party concerned will take such steps as are necessary to make the excess vacant land available to the State. Therefore, the construction on the land impliedly was to be carried out by the Appellant at its own risk. It would thus include the obligation to demolish the construction. In the present facts, the Appellant was not willing to take such a risk and for that reason in their representation dated 30th May, 1988 records that the Authorities under ULCA have not permitted the Appellant to construct on the said land. Thus, there was a certain fetter/ restriction of rights/ uncertainty over the use of the said land including the exempted land once it is land in excess of the ceiling limit provided under ULCA. It is only by having the land exempted under Section 20 of ULCA that this fetter/ uncertainty over the use of land is lifted and the same in the present facts is obtained inter alia on making a payment of Rs. 23.34 lakhs. Similarly, the unreported decision of Delhi High Court in Ghanshyamdas Sheth (supra) would not apply to the present facts as it inter alia concludes that there can be no dealing with the excess land ....
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....r the provisions of ULCA. 15. In the circumstances, the payment of Rs. 23.35 lakhs paid by the Appellant was not with a view to protect the property per se but to ensure that the proceedings under ULCA do not result in the entire property being taken over by the State Government, which was otherwise a fait accompli. As a consequence, inter alia, of making a payment of Rs. 23.35 lakhs, the Appellant received a benefit of enduring nature inasmuch as 10,462 sq. mtr of land came out of the clutches of ULCA and an area of 6767 sq. mtr was available for all times to be used by the Appellant including the power to sell of the land along with the structures thereon. In the above facts, the payment of Rs. 23.35 lakhs from a businessman's point of view is a payment made to stop/stall the acquisition of land which a businessman was able to foresee. Therefore, the adoption of the entire process of exemption to ensure that the land is available to the Appellant for indeterminate period albiet with the constructed hostel, training centre and guest house on the same. The exemption itself only prohibits the Appellant from disposing of land in favour of any third party till such time as the ....
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....e ownership of the land which was otherwise imperfect and would be reflected in the title on grant of exemption, the title to the exempted land is no longer encumbered by the provisions of ULCA. Therefore, we do not accept the Appellant's contention that the payment was revenue in nature. As observed by the Apex Court in Dalmia Jain & Co., v/s. CIT 82 ITR 754 if the expenditure is incurred to create, cure or complete the title, then the expenditure is capital in nature. In this case, the payment cures and/or completes the title by removing the fetter/ encumbrance of ULCA being invoked in respect of the exempted land. In fact, the authorities were correct in applying the test laid down in the Apex Court's decision in V. Jagmohan Rao v/s. CIT 75 ITR 375 that to determine an expenditure to be a capital expenditure, it must be incurred in getting rid of a defect in title or a threat to litigation. Moreover, in this case, the threat to a certain acquisition would be on a higher footing then a threat to litigation. Therefore, it has been correctly held to be capital in nature on both counts i.e. getting rid of a defect and avoiding a certain acquisition. 17. We are of the view....