Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF INCOME TAX, DELHI
Vs.
RESPONDENT:
M/S. HINDUSTAN TIMES LTD., NEW DELHI
DATE OF JUDGMENT: 06/05/1998
BENCH:
SUJATA V. MANOHAR, M. JAGANNADHA RAO
ACT:
HEADNOTE:
JUDGMENT:
O R D E R
These appeals pertain to one of the questions
considered by the High Court under Section 256(2) of the
Income Tax Act, 1961 at the instance of the Revenue. The
appeals pertain to assessment years 1973-74, 1974-75 and
1977-78 to 1980-81.The question as framed for the assessment
years 1973-74, 1974-75 and 1977-78 was as follows :-
"Whether, on the facts and in the
circumstances of the case, the ITAT
was justified in law in upholding
the order of the CIT(A) on the
ground that no injustice was caused
to the revenue by the order passed
by the CIT(A) in directing that the
assessee was entitled to add a sum
of Rs. 36,96,516 to the cost of
building and claim depreciation
thereon?
The question is not very happily worded. A similar
question was also raised in respect of the other assessment
years. The question basically is : Whether the assessee is
entitled to depreciation in respect of a sum of
Rs.36,96,516/- which it claimed as part of the actual cost
of construction of a building constructed by it for business
purposes.
The assessee had purchased an existing residential
building bearing Nos. 18-20, Kasturba Gandhi Marg, New
Delhi, in the year 1961. The assessee wanted to use that
building for commercial purposes. For this purpose, it paid
certain additional charges to the Development officer of the
Government of India and also extra ground rent in respect of
the land. The built-up area then existing on that plot was
51,198 square feet. A formal agreement was executed on
21.10.1962 in this connection. Under the said agreement, the
assessee had inter alia paid a sum of Rs. 3,65,875/- to the
Land Development Officer, Government of India, as
commercialisation charges in addition to the ground rent.
In the year 1965-66, the original building was
demolished and the assessee constructed a new multi-storeyed
building on the said land. The construction was completed
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some time in the year 1973. The assessee applied to the Land
& Development Officer, Government of India for using the
building for commercial purposes. An indenture was executed
between the President of India and the assessee on 5.3.1973.
Clause (1) of the indenture is asa follows :-
"In pursuance of the said agreement
and in consideration of the sum of
Rs.36,96,516/- (Rupees thirty six
lakhs, ninety six thousand and five
hundred sixteen only) paid by the
lessee to the lessor as additional
premium before the execution of
these presents (the receipt thereof
the lessor doth hereby admit and
acknowledge) and of the additional
ground rent reserved and of the
convenants on the part of the
lessee contained in the Principal
Indenture, Supplemental Indenture
and herein, the lessor doth hereby
grant his consent to the lessee
using the multi-storeyed building
under erection and construction on
a part of the demised premises
according to the plans sanctioned
by New Delhi Municipal Committee
vide its Resolution No. 30 dated
20th January, 1967, save and except
the built-up area of 51198 square
feet therein, for commercial
purposes and the built-up area of
51198 square feet in the said
multi-storeyed building only for
the purpose mentioned in the
Supplemental Indenture."
(underlining ours)
The assessee thus paid a sum of Rs. 36,96,516/- for
using the multi-storeyed building for commercial purposes
containing an area in excess of 51198 square feet.
The assessee added this amount of Rs.36,96,516/- to the
cost of the building constructed by it and claimed
depreciation on the same for the assessment years in
question. For the assessment years 1973-74 and 1974-75, the
depreciation was duly allowed. However, the same has been
re-opened and the depreciation so granted has been
disallowed. Disallowance is for the relevant assessment
years set out earlier. However, for the assessment years
1975-76 and 1976-77, depreciation has been granted as
claimed by the assessee and no appeals have been filed from
the orders so allowing depreciation.
In respect of the present assessment years, however, it
is the contention of the Department that the amount of
Rs.36,96,516/- has been paid for commercial use of the land
and hence it should be added to the cost of the land. The
Department contends that adding this amount to the cost of
the building for the purposes of depreciation, is not
justified. The Commissioner (Appeals) as also the Tribunal,
however, have come to the conclusion that the sum of Rs.
36,96,516/- has been correctly added to the cost of the
building constructed by the assessee because the amount has
been paid in respect of the commercial use of the additional
area constructed as a result of the multi-storeyed building
being put up by the assessee. It, therefore, pertains to the
building and not to land. The High Court has also come to a
similar conclusion. The High Court has pointed out that the
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use of the land had already been converted to commercial use
in 1962 when the assessee had paid an additional amount of
Rs. 3,65,875/-. There was no question, therefore, of any
additional commercialisation of the said plot. The amount
has, however, been paid for the additional construction
which has been put up by the assessee and hence forms a part
of the cost of the building. For the land, the assessee has
paid additional ground rent under the said agreement of
5.3.1973, which is a separate amount. The High Court has,
therefore, upheld the view taken by the Tribunal that the
sum of Rs.36,96,516/- has been laid out by the assessee in
order to construct the additional space of 345144 square
feet for office purposes. The payment has been made for
construction of a business asset and forms a part of the
cost incurred by the assessee in putting up that building.
We agree with the view so taken by the High Court.
The Department has relied upon a decision of this Court
in Commissioner of Income-tax, Punjab, Jammu & Kashmir and
Himachal Pradesh vs. Alps Theatre, 1967 (65) ITR 377, which
makes a distinction between the cost of the land and the
cost of the building and holds that depreciation can be
allowed only on the cost of the building. The question
before us, however, is different. It is whether, in the cost
of the building, is different. It is whether, in the cost of
the building, the amount in question should have been
included or not. Therefore, the decision in the above case
has no bearing on the question which is before us.
The appeal are, therefore, dismissed with costs.
IN THE MATTER OF