1. As appeals No. 2189/M/2000 and 2190/M/2000 filed by the assessee for assessment years viz. 1992-93 & 1993-94 consisting of some identical / similar common grounds of appeal, they are clubbed together, heard together and are being disposed off by this common and consolidated order for the sake of brevity and convenience.
For the Assessment year 1992-93 following grounds have been raised by the assessee.
1. The learned Commissioner of income-tax (Appeals) erred in upholding the decisions of learned Assessing Officer (Assessing Officer) in not granting the depreciation on the expenses of Rs. 50,60,433/- Incurred by the Appellant towards acquiring the right to use the lands for laying the pipelines.
2. The learned Commissioner of Income-tax (Appeals) erred in not directing Assessing Officer to allow the depreciation on legal and professional expenses of Rs. 65,000/- Appellant submits that the direction may please be given to allow the depredation as claimed.
3. The learned Commissioner of Income-tax (Appeals) erred in not upholding the action of the. Assessing Officer by not directing to set-off the Income of Rs. 4,32,000/- by way of interest against the Pre-Operative Expenses and not of such expenses and income ought to have been capitalised.
4. The learned Commissioner of Income-tax (Appeals) erred in not allowing donation of Rs. 2,301/- capitalised in the development account and- also erred in not directing to allow depreciation on the said amount.
Your appellant submits that donation of Rs. 2,301/- is wrongly been disallowed as the said amount is not debited to Profit & Loss Account but to the Development Account.
Appellant therefore submits that the addition of Rs. 2,301/- ought to be deleted.
2. Out of the above, Learned counsel for the assessee did not press for ground No. 3,4 and 5. Hence they are treated as rejected.
3. In respect of the ground No. 2, the Ld. counsel for the assessee did not press for the amount of Rs. 15000/- being legal fee paid for obtaining opinion of Justice P.N. Bhagwati on capital issue. For the other amount that is Rs. 50,000/- paid to A.A. Behlime for services rendered in connection with the land, it was submitted by the Ld.
Counsel for the assessee that it should be allowed to be capitalised in block of Plant and Machinery and depreciation thereon should be allowed. After hearing both the parties, we find that this expenditure was incurred for acquiring the rights for use of the land for laying pipelines for carrying crude Naphtha. Since such expenditure was incurred in acquisition of land and use of land cannot form part of plant and machinery, it cannot be clubbed with that block for claiming depreciation. This issue is related to ground No. 1, which is being dealt with herein below.
4. The ground No. 1 relates to claim of the assessee that a sum of Rs. 50,60,433/- was incurred on acquiring right to use of the land for laying pipelines. This expenditure was incurred in three Assessment Years as under: 5. The assessee had claimed before the Assessing Officer that it should be capitalised alongwith block of Plant and machinery and depreciation should be allowed accordingly. Alternatively, by way of additional ground raised before us, it was claimed that the said sum should be allowed as revenue expenditure as it was akin to rent for use of the land for laying pipelines for carrying crude Naphtha.
6. Facts of the case are that assessee company had to lay pipe lines at a depth of 1 Meter in the land. Agreement were entered into with the land owners and lump sum one time compensation was paid for enabling assessee to acquire rights in the land for this purpose. On this, a sum of Rs. 50,60,433/-, spread over three Assessment Years as stated above, was incurred. These expenses were debited by the assessee company in the development account and were termed as compensation paid to various land owners for acquisition of right of use (ROU) in the land below wherein pipe lines were laid. The pipeline project was completed and commissioned on 13th March'92. The assessee company capitalised the above amount in the block "plant and machinery" and claimed depreciation. While disallowing the claim of the assessee and treating the expenditure as capital, as incurred for acquiring right in the land, the Assessing Officer observed as under : It is admitted fact that the assessee company has not purchased the and therefore, it is not the owner. Moreover, no depreciation is allowable on the cost or expenditure on land even if it is owned or used by assessee company. Therefore, the assessee company was required to explain why expenditure on right of user of land should not be excluded from the value of the asset i.e. plant and machinery for depreciation purpose. It was submitted vide letter dated 30^th December. 1994 that the expenditure pertaining to the period prior to the laying of and commissioning of pipeline is capital in nature and without such land it is not possible for the company to lay, operate and maintain the pipe line. Further, it was submitted vide letter dated 24.1.1995 that the expenses incurred has been made in order to use the property land from which pipe line had gone through a distance of approximately 52 Kms. The reason for capitalizing the ROU expenses is that without making the payment for the use of the land i.e. compensation etc. the assessee company could not have used the land for laying the pipe line. It was submitted that as the same is of capital nature it has been debited to Development Account.
The submission of the assessee has been analysed and considered.
There is no dispute on the point that the said expenditure is of capital nature. The issue is whether depreciation should be allowed on such expenditure or not? For depreciation purpose the asset should be owned and used by the assessee for business purpose.
However, incase of expenditure pertaining to land there is no depreciation, even if it is owned and used by the assessee as held by the Supreme Court in the case reported at 65 ITR 377. Further, it cannot be said to be cost of pipes etc. or cost of material used for laying pipe lines.
In view of the above an amount of Rs. 50,60,433 is excluded from the cost of plant and machinery for depreciation purpose.
7. On appeal, the CIT(A) confirmed the action of the Assessing Officer but observed that such expenditure is of the nature of licence fee for the use of the land. He observed as under: I have considered the entire material on record - Assessing Officer's reasoning in the assessment order, submissions of the appellant and the Assessing Officer's counter comments. I find that the appellant company had claimed depreciation on capitalized expenditure of Rs. 50,60,433/- incurred by way of payment of compensation to various land owners to acquire right of user of their land alongwith the pipe line laid, out. As per Section 32 no depredation is allowable on land and only the building, plant & machinery, furniture & fixture qualifies for depredation. I find that it is neither a case of the Assessing Officer nor that of the appellant that the expenditure in question is for acquisition of land. The appellant has argued that the expenditure in question has been incurred to bring the asset to working condition for its intended use, placed reliance on Supreme Court judgment in Challapalli Sugars Ltd. 98 ITR 167. It has been high-lighted that without obtaining the valuable rights, the pipe line could never had been laid down between Chembur and Patalganga and not incurring this expenditure, the pipe line could never had been brought to its working condition for its intended use. According to the appellant, the Accounting Standard also requires that the development cost of the pipe line ought to be capitalised to the pipe line account and that is what has been done by the appellant.
It would be significant to note that in the instant case only use the land for laying down pipe line acquired. This is in the nature of license to use the land. This transfer of right is in respect of land. Thus, no depredation is allowable either on the land purchased by the assessee for business purpose of purchase of any right in respect of that land. In respect of plant and machinery, depreciation is allowable on the cost incurred by the appellant to set up of machinery. It is seen that expenditure on acquisition or right of user of land is not at all related with the installation of plant and machinery to be included as cost of plant and machinery installed. In other words, the cost of plant and machinery installed by an assessee has no nexus with the right of user obtained by the assessee. Accordingly, expenditure on right of user of land has no relationship or nexus with the cost of plant and machinery installed. Thus, depredation was rightly disallowed by the Assessing Officer. As regards the reference to Guidance Note etc, I find that there is considerable force in the Assessing Officer's assessment in this regard. Para 3.11 of AS. 10 refers to expenditure on site preparation, initial delivery and handling costs, installation cost such as spedal foundations, professional fees etc. The expenditure on site preparation is different from expenditure on site acquisition. For certain types of business land, acquired can be used without much of preparation of land for the specific use. On the other hand, for a specific plant which requires spedalised foundation, expenditure may be required to be incurred on making the silt: suitable for installation of such plant and machinery. It is this expenditure on preparation of the site making it suitable for installation of plant and machinery which is referred to in Clause 3.11 of AS-10. On the other hand expenditure on site acquisition is a different matter. No plant and machinery can be installed without the land being available. However, the land can be acquired through outright purchase, lease or licence etc. After the land has been acquired through any one of these means, it can be put to use for the specific needs of the assessee. Nevertheless, expenditure on such acquisition of land through purchase, lease or licence etc.
does not add any value to the cost of plant and machinery. It is also not connected in any way with the cost of installation of plant and machinery.
I find that appellant company has acquired right of user through various agreements with number of parties. These agreements particularly with MSEB & CIDCO shows that the transaction is in the nature of licence to use land against payment of rent annually for the period of licence. In this context Delhi High Court decision in the case of Vijay Shree Pvt. Ltd. v. CIT 67 ITR 420 is relevant as it dealt with a similar issue. In this case the vacant land was taken on lease for constructing cinema theatre. Rent was paid for the period prior to construction of theatre. Rent was also paid for the period subsequent to the construction of theatre. Rent for the period after the commencement of business was allowed by the ITO. However, the claim of assessee of deduction of rent prior to construction of theatre was not allowed. Assessee's claim of capitalization of this rent of Rs. 1,80,780/- as the cost of theatre was disallowed by the ITO. The High Court has held that under the I.T. Act there is a distinction between the land and building.
Depreciation is allowable on the building. However, any item of expenditure incurred by an assessee referable to land and not referable to building is not allowable expenditure. It was held in this case that the rent paid for the pre-construction period cannot be taken to be the pan of cost of construction of cinema theatre. I find that decision in this case is directly applicable to the appellant's case.
The assessee has placed reliance on the cases reported in 216 ITR 742, 233 ITR 391, 209 ITR 174 & 127 ITR 37. I find that the facts of the cases reported in these judgments were totally different. IN all these cases expenses referred were in respect of borrowings, establishment charges, expenditure on horticulture, periodicals. In Herdillia Chem. Expenditure was on development of land. It was not on the issue of acquisition of land. Therefore, none of these cases are applicable to assessee. On the other hand decision of Hon'ble Supreme Court in the case of CIT v. Alps Theatre 65 ITR 377 is directly applicable. It was held in this case that the land does not depreciate and if depreciation is allowed, it would give a wrong picture of true income.
It is seen that assessee company by obtaining right of user has not acquired any title over the land. Only a permission or licence has been acquired to use the land for a specific activity. In respect of CIDCO and MSEB agreements are for a fixed period. On the other hand, agreements with private parties are for perpetuity. Any expenditure incurred as rent for use of land is allowable as business expenditure after the commencement of business. But the expenditure on rent incurred prior to commencement of business is neither allowable as revenue expenditure nor it can be capitalised as cost of plant and machinery. Decision of Hon'ble Delhi High Court in Vijay Shree Put. Ltd. (Supra) is directly on the point. Payment of rent by the assessee company for the use of land prior to commencement of business therefore, cannot be capitalised as the cost of plant and machinery.
In view of the foregoing the Assessing Officer was justified in disallowing depreciation claimed by the appellant company.
Accordingly, Assessing Officer's action is upheld.It is this finding of the CIT(A) which has become the basis for the assessee to file additional ground as under : In the alternative and without prejudice to the contention in grounds of appeal no. 1 the Appellant submits that the total expenses of Rs. 50,60,433/- incurred for acquiring right to use the land for laying the pipelines shall be allowed as deductible revenue expenditure in the year under consideration.
8. In appeal before us the Ld. Counsel for the assessee argued that primarily this expenditure has been incurred to lay pipeline. The use of the land is integral part of the pipeline project and hence pertains to the block of plant and machinery. Alternatively, it is one time payment in the nature of licence fee for the use of land. The period of use according to him, varies from agreement to agreement. There are several agreements. Total length of the pipeline is about 52 Kms. What the assessee has acquired by way of payment of compensation is only right to use the land. It has not acquired any property. No asset has been transferred to the company. The land owner will continue to be the owners of their land before acquiring the right, during the laying of pipelines, and after the pipelines are removed from the land. The Ld.
Authorised Representative took us to various clauses of one of the agreement which was produced as an example. He, in particular, emphasized on Clause-4, Clause-8, Clause-13 of the agreement which highlight that what the assessee, after payment of compensation, is acquiring is not capital asset but only a right to use the land. The Ld. Counsel for the assessee also referred to some of the provisions of Petroleum and Minerals Pipelines (Acquisition of right of user in the land), Act 1962. In particular, he referred to Section 6, Section 7(1)(ia), Section 7(1)(ii) and Section 9 which provide that the licencee (i.e. the assessee in the present case) will only have a right to use in the land. Thus the Ld. Counsel for the assessee emphasized that expenditure of Rs. 50,60,433/- is of "revenue" nature and it is only one time payment for use of land. His Plant i.e. pipeline is resting inside the land of the licensor and the assessee has to pay licence fee for use of such land as observed by the C1T(A) while dismissing the appeal of the assessee.
9. The Ld. Counsel for the assessee submitted that it is not material whether payment is made one time or periodically, if its character is otherwise "revenue". Periodical or lumpsum payment will not alter the character of the payment. For this purpose he relied on the decision of Hon'ble Supreme Court in CIT v. Madras Auto Services Pvt. Ltd. 233 ITR 468(SC) and also on the decisions by Hon'ble Madras High Court in the case of CIT v. Gemini Arts P. Ltd. 254 ITR 201. In a nutshell, it was claimed by the Ld. Counsel for the assessee that his claim should be either allowed by including the said expenditure in the block of plant and machinery, if it is to be held as capital expenditure, and alternatively, it should be allowed as "revenue" expenditure being rent/licence fee for right of use of the land. .
10. On the other hand the Ld. Departmental Representative for the revenue defended the order of the authorities below. He argued that what is spent is initial and preoperative expenditure. The expenditure is incurred to acquire a right in the bundle of rights pertaining to land. The assessee has got an enduring benefit. He has obtained a partial right in the land. According to him the expenditure is not only capital in nature but also depreciation will not be allowed as nature of the right acquired by the assessee pertains to the land and hence no depreciation will be admissible. The Ld. Departmental Representative in support of his argument relied on the decision of Hon'ble Bombay High Court in Siemens India Ltd. v. CIT 217 ITR 622(Bom.) for the proposition that functional test should be applied so as to find out whether expenditure creates an essential tool of the trade. A building according to Ld. Departmental Representative where plant and machinery is housed cannot become plant and machinery itself. He contented that in certain circumstances a premises can become the tool of trade like an 'operation theatre', where a doctor carries out his surgical operations etc. However, a premises in which business is carried out or plant is set, or housed, cannot become plant itself. What the assessee acquired is a long lease on land for which compensation has been paid to the land owners for laying pipelines beneath the ground. He has acquired a right in a capital asset. He further emphasized that if functional test is over used to determine, whether a building or space is used as tool for business, then almost all buildings will become part of the plant, as without such building, a business cannot be carried out. Relying on the decision of Hon'ble Bombay High Court in CIT v. Mazgaon Dock Ltd. 206 ITR 260, the Ld. Departmental Representative submitted that an approach channel made by dredging the sea was not held as plant for the purpose of depreciation. Similarly a channel created for allowing pipeline in the land can also not become a plant. Distinguishing the decision in Madras Auto Ltd. (supra), the Ld.
Departmental Representative submitted that it pertained to a running company where business has already commenced and new office was sought to be opened at Bangalore. An amount was spent on the construction of the building after demolishing the old building and a very low rent for the new building was agreed. The amount so spent was held to be revenue in that case. The Ld. Departmental Representative also relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Klimline Pumps Ltd. 258 ITR 469 wherein payment made for land and building was held to be capital. The Ld. Departmental Representative also referred to various provisions of the agreement and the Petroleum and Minerals Pipelines (Acquisition of right of user in the land), Act 1962, emphasising that assessee has acquired right in the part of the land for perpetuity and thus obtained an enduring benefit for itself. This is a capital asset of the nature of the land and hence depreciation would also be not be allowable.
11. In reply, the Ld. Counsel for the assessee sought to distinguish various case laws cited by the Ld. Departmental Representative and emphasized that what he has acquired is the use of the land for which licence fee has been paid for lumpsum and hence the payment is 'revenue" in character.
12. We have heard the rival submissions and perused the material on record and considered the case laws cited on behalf of the parties. We are of the view that expenditure of Rs. 50,60,433/- paid as compensation for acquiring the right of user in the land for laying pipelines is capital in nature and relates to land and hence it cannot be allowed as "revenue" expenditure and also no depreciation can be allowed on it treating it as part of block of plant and machinery. The reasons for coming to this conclusion are as under : Firstly, a right in the land was acquired by the company with the aim and objective of creating space inside the land to lay pipelines. The assessee company incurred expenditure to create such void/space inside the land wherein its pipeline would lay for a long period. This expenditure incurred for creating space/void is already treated as capital in nature and made a part of block of "plant and machinery" as it is equivalent to installation of the plant. When the assessee acquired a right, that right itself becomes a capital asset. Support is derived from the decision in South Eastern Coal Fields Ltd. v. JCIT 260 ITR (A.T.) (Nag.)01, wherein an amount was paid to State Govt. for rehabilitating the people while right to use the land for business purposes was acquired by the company. The assessee in the present case has acquired valuable right out of a bundle of rights in the land.
Secondly, the agreement with the land owners, a copy of one such agreement was submitted and it was stated that others are similar to this, does not give blanket power to evacuate the assessee from the land at his will unless a breach as per agreement is established.
Thus, evacuation right is conditional. So long as the assessee obeys the terms of the agreement, the licensor cannot compel the assessee to get out of the land for its use. This is provided in Clause-14 of the agreement. This is a right of permanent character which has been acquired by the assessee.
Thirdly, what is paid is of the nature of premium or salami for acquiring right. Interest of the owner of the land is parted away for a price. It is not a lumpsum payment for continuous enjoyment of the land but it is for a compromise on the absolute ownership of the land for which compensation is paid. Such a compromise on the ownership of land can be seen from Section 7(1)(ia), Section 7(1)(ii), Section 8 and Section 9 of the Petroleum and Minerals Pipelines (Acquisition of right of user in the land), Act 1962.
These sections are quoted for reference as under: Section (7): Central Government or State Government or Corporation to lay pipelines - (1) where the right of user in any land has vested in the central government or in any state government or corporation Under Section 6 (ia) for laying pipelines for the transport of petroleum, it shall be lawful for any person authorised by the Central Government or such state government or corporation to use such land for laying pipelines for transporting any mineral and where the right of user in any land lhas so vested for laying pipelines for transporting any mineral, it shall be lawful for such person to use such land for laying pipelines for tranporting petroleum or any other mineral: and (ii) such land shall be used only for laying the pipelines and for maintaining, examining repairing, altering or removing any such pipelines or for doing any other act necessary for any of the aforesaid purposes or for the utilisation of such pipelines.
Section 8: Power to enter land for inspection etc. : For maintaining, examining, repairing, altering or removing any pipeline or for doing any other act necessary for the utilisation of the pipelines or for the making of any inspection or measurement for any of the aforesaid purposes any person authroised in this behalf by the central government, the state government or the corporation, as the case may be, may, after giving reasonable notice to the occupier of the land under which the pipeline has been laid, enter therein with such workmen and assistants as may be necessary: Provided that, where such person is satisfied that an emergency exists, no such notice shall be necessary: Provided further that, while exercising any powers under this section, such person or any workman or assistant of such person, shall cause as little damage or injury as possible to such land.
Section 9: Restriction regarding the use of land: (1) The owner or occupier of the land with respect to which a declaration has been made under Sub-section (1) of Section 6, shall be entitled to use the land for the purpose for which such land was put to use immediately before the date of the notification under Section 3(1): Provided that, such owner or occupier shall not after the declaration under Section 6(1)- (2) The owner or occupier of the land, under which any pipeline has been laid shall not do any act or permit any act to be done which will or is likely to cause any damage in any manner whatsoever to the pipeline.
(3) Where the owner or occupier of the land with respect to which a declaration has been made Under Section 6(1) - on that land, the court of the District Judge within the local limits of whose jurisdiction such land is situated may on an application made to it by the competent authority and after holding such inquiry as it may deem fit, cause the building, structure, reservoir, dam or tree to be removed or the well or tank, to be filled up, and the costs of such removal or filling up shall be recoverable from such owner or occupier in the same manner as if the order for the recovery of such costs were a decree made by the court.
There is a statutory compulsion on the owner of the land to allow use of the land for the said purpose. Section 7(2) defines the right of the licencee that it can lay pipeline maintain, examine, repair alter or remove, Section 8 provides right to enter the land for inspection. Section 9 curtails the right of the land owner and imposes the condition that it cannot construct any building or any other structure, construct or excavate any land, well reservoir or plant any tree. Thus free enjoyment of the property by the landowner is curtailed by statute to serve and protect the interest of the licensor. Further, Section 9(2) has also put embargo not to do any act or permit any act which will damage or is likely to damage the pipelines. Thus the statutory protection has been provided to the licensee to its rights acquired by paying compensation. It is clear that out of a bundle of rights in the land, which include possession, ownership and enjoyment a part has been curtailed and compromised.
Fourthly, the assessee has created a profit earning apparatus in the form of right in the land. The expenditure is not part of profit earning process as the void/space in the land is the premise in which the business is carried out and not a plant or part thereof with which its business is carried out. The support is derived from decision of Hon'ble Supreme Court in CIT v. Anand Theatre 244 ITR 192 (SC). The void in the land will not be part of plant and machinery but would be house/premises for fixing, installing the pipeline. The void in the land is not a tool of the trade. Support is derived from the decision in Rajasthan High Court CIT v. Lake Palace Hotels 85 Motels Pvt. Ltd. 226 ITR 561 (Raj.).
The company also treated this expenditure in its account as capital by debiting into development account.
Fifthly, the assessee is deriving enduring benefit by paying compensation. The benefit is lasting in perpetuity. No time limit is fixed about continuity of the agreement with the land owner. The assessee could continue to own the right of use for the period it wants.
Sixthly, the expenditure, can also be viewed from a different angle.
The assessee has not only acquired a part of bundle of right relating to land but also acquired attached liabilities. What it has acquired is similar to tenancy rights in the sense that it is transferable to its successors and permitted assignee. The preamble to the agreement supports this view.
This INDENTURE made at Bombay the 15th day of October One thousand nine hundred and ninety one between LALUBHAI AMICHAND LIMITED a Company incorporated under the Companies Act, 1956 and having its Registred Office at 48/50 Kansara Chawl, Bombay-400 002 (hereinafter referred to as "the Licensor" which expression shall, unless the context does not so admit, include its successors and permitted, assigns) of the One part and CHEMBUR PATALGANGA PIPELINES LIMITED, a Company incorporated under the Companies Act, 1956 and having its Registered Office at N.K.M. International House, 5^th Floor, Babubhai Chinai Road, Bombay-4 00 020 (hereinafter called "the licensee" which expression shall, unless the context does not so admit, include its successors and permitted assigns) of the other Part: 13. The assessee has acquired a right to protect pipelines and land as is evident from Clause 3 and 6 of the agreement. It has right to enter into the land for examination, maintenance, surveillance, repairs (Clause-8 of the agreement). It has a liability to pay enhanced land revenue. Clause-13 of the agreement reads as under : In case the Government or the Local Authority enhance the land revenue tax and impose new levy on account of the laying of the pipeline by the Licensee as hereinbefore mentioned the Licensee shall pay on demand to the Licensor such additional tax or levy as may be imposed by the said Authorities.
Originally land revenue will be paid by the lessor while enhanced land revenue will be paid by the licensee i.e. assessee company. No tax on the land can be imposed unless the assessee has got part of the rights over the land. Further, the compensation is awarded as 10% of the market value of the land for conferring rights of the use to the licensee. The mode of computation is also indicatory of the transfer of an asset being part of the rights in the land valued at 10% of the total rights of the land.
14. The fads of the case are similar to the case of Aditya Minerals Pvt. Ltd. v. CIT 239 ITR 817 (SC) wherein lease was given to allow the use of land for excavation purpose and subsidiary purposes. Entire rent was deposited in advance and claimed annually. The amount claimed annually was not held deductible, (head notes - 239 ITR 817 (SC)) Held, dismissing the appeal, that in the instant case as indicated by the lease deed, what was to be paid by the assessee was rent for the land that was leased. It was payable at the rate of Rs. 35 per acre per month. The assessee was required to pay in advance the rent calculated at this rate for the entire period of the lease, i.e.
fifteen years, in the form of a "deposit". The deposit was "by way of the guarantee for due performance of this lease deed for fifteen years", that is, towards fifteen years' rent. It was adjustable against the rent of each month and it carried no interest. On the facts and in the circumstances, the sum of Rs. 10,752/- paid by the assessee in the accounting year was not expenditure allowable as a deduction in computing the business profits of the assessee company.
15. In the present case also what is paid is a compensation for acquisition of right to use the land for laying pipelines. The land was excavated and pipelines were laid. The only difference with the case of Aditya Mineral case (supra) is that payment was made in the form of deposit for 15 years rent. The yearly portion was held as capital. In the present case entire amount is paid in one go. The nature of the two payments are the same. This case is also similar to CIT v. Meher Textiles 206 ITR 112 (Guj.). It was held therein that the lease creates an interest in immovable property. The price paid to acquire such right or possession by way of lease will be capital in nature.
We now come to question No. 1 referred at the assessee's instance, viz., the treatment to be given to the payment of Rs. 45,000 made by the assessee for the purpose of acquiring tenancy rights in the shop in question, and as to whether the same is an expenditure of a capital nature. Even this aspect is covered by a number of decisions. The Madhya Pradesh High Court in the case of CIT v. Lucky Bharat Garage [1988] 174 ITR 526, has held that, when the assessee in question made payment which represented the acquiring of tenancy rights, the assessee in fact acquired a right to possession which was of an enduring nature and, therefore, such expenditure incurred for the acquisition of such a right was capital in nature A similar view has been taken by the Calcutta High Court in the case of Chloride India Ltd. v. CIT . In this decision, it has been held that, on the facts of the case, the amount was paid for acquiring a right to possession which right was a capital of enduring nature and as such the amount of payment made was to be treated as capital expenditure. This court in the case of Rajabali Nazarali and Sons v. VIT has considered in detail and reiterated the above principle. This decision holds that a lease creates an interest in immovable property and transfer of leasehold rights which are protected by the provisions of rent restriction statutes, in nothing but a transfer of a capital asset. The price paid to acquire such lease hold rights can only be held to be payment on capital account, there being no revenue quality attributable to the same.
Thus expenditure incurred by the assessee is capital in nature and is incurred to acquire a right in the land though restricted. Therefore, the assessee cannot get depreciation thereon also.
16. Now corning to the decision relied on by the Ld. Counsel for the assessee, it is noticed that they are distinguishable on facts. In Madras Auto (supra), Assessee had a running business and expenditure was incurred on construction of new building and not to acquire any right in the land. In Gemini Arts P. Ltd. (supra) the lessee was not conferred any right or the rights of lessor was restricted in the manner, it is done in the present case by virtue of Petroleum and Minerals Pipelines (Acquisition of right of user in the land), Act 1962.
17. Accordingly, the appeal of the assessee for the assessment year 1992-93 is dismissed.
1. "The learned Commissioner of Income Tax (A) erred in confirming the disallowance of depreciation on Rs 1,91,074/- being compensation paid for use of land for laying pipelines.
19. We have already taken a view on similar ground of assessee in ITA No. 2189/M/00 for assessment year 1992-93 in ground No. 1 the same view shall apply to this ground of appeal of assessee and thereby this ground stands dismissed.
20. The second ground is about restricting the deduction Under Section 35D of Rs. 2,31,233. The assessee company had claimed preliminary expenses of Rs. 33,983 and share issue expenses of Rs. 7,00,315/-.
While upholding the order of assessing officer, the CIT(A) observed as under: 3.2 During appellate proceedings, it has been submitted that the A.O. was not justified in restricting the claim Under Section 35D preferred by the assesses company. The appellant had claimed preliminary expenses of Rs. 35,983/- and share issue expenses of Rs. 7,00,315/- which are eligible for deduction for year under reference. Taking into account the fact that the expenses in dispute have been incurred in respect of 'share issue' as was the position in A. Y. 1992-93, I hold that the assessee's claim for deduction Under Section 35D is not in order and accordingly upheld.21. In assessment year 92-93, the CIT(A) allowed the claim of the assessee with the observation that share issue expenses are eligible for deduction Under Section 35D(2)(c)(iv). It seems that there is some mistake in para 3.2 of the appellate order for the assessment year 93-94. The CIT(A) will look into this aspect and decide the issue afresh in view of his finding for assessment year 92-93. The ground of the assessee is allowed for statistical purpose only.
22. In the result, the appeal for the assessment year 92-93 is dismissed and the appeal for the assessment year 93-94 is partly allowed for statistical purpose only.