1995 (12) TMI 56 - HC - Income Tax

Capital Employed Capital Expenditure Depreciation On Building Expenditure On Scientific Research New Industrial Undertaking Special Deduction

Summary

Issues:
1. Deduction under section 80J of the Income-tax Act, 1961
2. Inclusion of premium paid on leasehold lands in the cost of building for depreciation
3. Distinction between deduction under section 35(1)(iv) and depreciation under section 32 for capital assets used in scientific research

Analysis:
1. The court addressed the issue of deduction under section 80J of the Income-tax Act, 1961. It was noted that the Supreme Court had previously ruled in favor of the Revenue in similar cases. The court referred to decisions in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 and Escorts Ltd. v. Union of India [1993] 199 ITR 43 to support its decision. Consequently, the court answered questions 1 and 3 in the negative and in favor of the Revenue.

2. The main issue remaining for consideration was the inclusion of the premium paid on leasehold lands in the cost of the building for depreciation under section 32 of the Act. The Tribunal had allowed depreciation on the premium paid, which was challenged by the Revenue. The court analyzed the relevant provisions of the Act and referred to the decision in CIT v. Alps Theatre [1967] 65 ITR 377. It was established that depreciation is only allowable on buildings, machinery, plant, or furniture, and not on the land itself. The court concluded that depreciation cannot be granted on the premium paid for leasehold land as it is not part of the cost of the superstructures. Therefore, the court answered question 2 in the negative and in favor of the Revenue.

3. The court also discussed the distinction between deduction under section 35(1)(iv) and depreciation under section 32 for capital assets used in scientific research. However, this issue was not elaborated upon as questions 1 and 3 were already decided based on previous Supreme Court decisions.

In conclusion, all three questions referred to the court were answered in the negative and in favor of the Revenue. The judgment clarified the treatment of premium paid on leasehold lands for depreciation purposes and highlighted the importance of adhering to the provisions of the Income-tax Act.