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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