Ajit k. Sengupta, J.
1. In this reference made at the instance of the Revenue, the following two questions have been referred by the Tribunal under Section 256(2) of the Income-tax Act, 1961, for the opinion of this court for the assessment year 1971-72 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that a sum of Rs. 2,51,350 relating to the railway siding should be included in the computation of capital of the fertilizer project of the assessee for the purpose of arriving at deduction allowable under Section 80J of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the development rebate and depreciation were allowable in respect of Rs. 2,51,350 relating to the aforesaid railway siding ?'
2. The facts which are admitted and/or found by the Tribunal are as under :
During the year under consideration, the assessee had two projects in operation, viz., Detonator Project (Explosive) Division and Fertilizer Project. In computing the capital in the fertilizer project, the Income-tax Officer did not include a sum of Rs. 2,51,351 claimed to be the value of a railway siding. The Income-tax Officer found that the assessee purchased land for Rs. 2,51,351 for construction of a railway siding but later the land was transferred to the Railways for a nominal value of rupee one. Therefore, the Income-tax Officer was of the view that the sum of Rs. 2,51,350 represented a loss arising from the transaction and was not an expenditure incurred for the construction of the railway siding. The Income-tax Officer also did not allow development rebate and depreciation on the railway siding claimed by the assessee.
3. The assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the sum represented capital loss and that it was not an asset at all and could not be included in the capital. Therefore, he upheld the action of the Income-tax Officer, As regards the claim of development rebate/depreciation, the Appellate Assistant Commissioner held that the land had been transferred to the Railways and there was no asset owned by the assessee and consequently, he upheld the action of the Income-tax Officer.
4. On second appeal by the assessee, the Appellate Tribunal held that the claim of Rs. 2,51,350 should have been allowed. The Appellate Tribunal observed that the sale of land to the Railways for rupee one was a normal act of sale and it was intended to facilitate construction of a railway siding for the purpose of the business and, but for such transfer, the siding could not have been constructed and utilised for the purpose of business. Consequently, the Appellate Tribunal allowed the claim of the assessee treating it as part of the cost of setting up the railway siding. On the same reason, the Tribunal also directed the Income-tax Officer to allow development rebate and depreciation.
5. Before us, the Revenue reiterated the contentions raised before the Tribunal.
6. It is an admitted position that the assessee is not the owner of the railway siding. The assessee had already transferred the land to the Railways and the railway siding was thereafter built by the Railways. It is, however, difficult to accept the position taken by the lower authorities with regard to the sum of Rs. 2,51,350 being the value of land which the assessee had to forgo for the purpose of having the advantage of the railway siding adjacent to its works. It cannot be treated as a loss suffered by the assessee because, in exchange for the land transferred to the Railways, the assessee acquired the right to use the railway siding. Though the assessee's ownership rights in the land vested in the Railways, in exchange the assessee secured an advantage of enduring nature, namely, the right to have the use of the railway siding for transportation of raw materials and the finished products. It cannot be said that there was no quid pro quo for the surrender of the land to the Railways. In exchange for the land, the assessee acquired an interest in the land by way of a permanent right to have the use of the railway siding but for which the assessee would have been at a great disadvantage in the matter of quick transportation of goods. The entire arrangement was struck with a view to increasing the mobility of its goods. Therefore, the sum of Rs. 2,51,350 spent on acquiring land for the purpose of its transfer to the Railways to have in exchange a railway siding available for use cannot be treated as a loss. Despite the surrender of its rights of ownership in the land, the assessee still retained an interest in the said land by way of the right to use the railway siding built on the land by the Railways. The interest so acquired is a tangible interest and the interest subsists in immovable assets, i.e., the land. Therefore, in our view, it does not stand to reason and reality of the true effect of the transaction to say that such right cannot constitute an asset. May be, the asset does not represent any absolute right in the land but represents interest in the sidings on the land ; such interest not being ephemeral has to be treated as an asset. It must, therefore, be held that this sum of Rs. 2,51,350 spent by the assessee for the purpose of acquiring an advantage by way of the right to use the railway siding for the purpose of the business should be taken as an expenditure representing a capital asset for the purpose of Section 80J.
7. However, the interest acquired does not admit of an equation with ownership of the railway siding though available for use by the assessee for its business of manufacture. Therefore, it cannot be taken to be an asset which is depreciable. The interest consisting merely of the right to use the railway siding, the assessee cannot be entitled either to depreciation or development rebate on the railway siding which, in any case, remains the property of the Railways, subject to the subordinate interest of the assessee in the use of it. Such interest is not depreciable. Nor can the railway siding be said to be the asset of the assessee eligible for development rebate. Both depreciation and development rebate are admissible to an assessee only when the asset itself is owned by the assessee. This much is clear in Section 32 as well as Section 33 of the said Act. Since the assessee is admittedly not the owner of the railway siding, it is not entitled to claim either depreciation or development rebate.
8. For the reasons aforesaid, we answer the first question in the affirmative and in favour of the assessee and against the Revenue and the second question in the negative and in favour of the Revenue and against the assessee.
9. There will be no order as to costs.
K.M. Yusuf, J.
10. I agree.