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TMI Blog1982 (10) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for further extension of time, it was proposed that a building should be constructed in 18-20, Kasturba Gandhi Marg, New Delhi for housing the press of the assessee-company. At this stage, it might be relevant to mention that the LIC of India agreed to advance a sum of Rs. 50 lakhs to the assessee-company for the construction of the building. There was a deed of mortgage executed by the assessee in favour of LIC of India in respect of the loan of Rs. 50 lakhs. This mortgage deed executed by the assessee is dated 26-5-1969. Clause 14(G) of the deed mentions : "That the Mortgager undertakes to vacate the entire portion admeasuring about 38,008 square feet occupied by it at present in Bombay Life Building at Connaught Circus, New Delhi, as tenant of the Corporation as soon as the proposed multi-storeyed building at 18-20, Curzon Road, New Delhi, has been completed." It, therefore, appears that though the lease expires, the LIC agreed to continue the lease in favour of the assessee till the new building was completed. As soon as the building was completed, that is, sometime in the accounting year relevant to the assessment year 1974-75, the assessee started shifting its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, the assessee had to shift because its lease expired and that the lessor advanced money with the specific understanding that the assessee would quit the premises and shift to its newly constructed building. It is also pointed out that the decision of the Supreme Court was mainly based on the fact that there was an enduring advantage in that case on account of shifting, whereas, there was no enduring advantage in the instant case. It was no doubt felt, Mr. Vaish pointed out, that the premises became rather cramped in view of the expansion already achieved and that reason was only incidental and the main reason which prompted the assessee to shift its own building was that it had to vacate on account of the expiry of the lease. Mr. Vaish also contended that the assessee had to incur the expenditure as it would have incurred substantial loss had it closed its daily publication of newspaper even for a day. The above argument of Mr. Vaish was refuted by Mr. Nagrajan, the learned departmental representative. In his usual simple and lucid style, Mr. Nagrajan pointed out that the assessee itself admitted that its activities expanded and, therefore, it was not able to continue its work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shift a new building by advancing a substantial amount. We are not able to agree with the Commissioner (Appeals) that the object for which the assessee shifted the premises is what was mentioned by him (quoted above). We are also not disbelieving what the assessee stated in its letter dated 25-9-1975 to the ITO as also the letter dated 4-1-1962 to the Land Development Officer. In the letter dated 25-9-1975, it was clearly mentioned by the assessee that it had to vacate the premises because of the expiry of the lease period. This is what the assessee mentioned : " Further, in terms of the lease deed dated 31-12-1960, the company had to vacate the office and press premised at N-Block, Connaught Circus, New Delhi by 30-9-1969, since there was no provision for further extension of time. We had therefore decided to construct a building at 18-20, Kasturba Gandhi Marg, New Delhi for housing its press and office." 6. The letter dated 4-1-1962 to the Land Development Officer also does not improve the case of the revenue. This letter was only for the purpose of getting the clarification in regard to the expansion of the building and it has nothing to do with the purpose of shifting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the claim at all nor the real purposes which prompted the assessee to shift the building. We may end this part of the case by adding a small passage from the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 : " ...There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it Is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or allowing gratuity and if the assessee wants to claim the same, it can get the benefit only if the conditions are fulfilled. There is also the contention on behalf of the assessee that the assessee had not made the provision but had only made a claim. But this point also has to be negatived in view of the decision of the Special Bench in the case of Soft Beverages (P.) Ltd. v. ITO [1982] 1 SOT 311 (Mad.--Trib.). The claim is, accordingly, rejected. 10 to 13. [These paras are not reproduced here as they involve minor issues]. IT Appeal No. 2193 (Delhi) of 1981--Assessment year 1974-75 (Revenue's appeal) 14. The first item of dispute in this appeal relates to claim of collection charges allowed by the Commissioner (Appeals) as against the disallowance made by the ITO. The facts dealing with this claim may be stated in a nutshell. We have already seen that the assessee constructed its own building with several floors. It decided to sell 6th to 12th floors to Orient Investment (P.) Ltd. In fact, the assessee received a sum of Rs. 5 lakhs as earnest money. The deal, however, could not be gone into because the Government has to approve the transfer. Pending finalisation of the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed these amounts as collection charges under section 24(1)(viii) of the Act. The ITO disallowed the same for the assessment year 1974-75 by holding that the amount paid cannot be allowed as deduction under section 24(1)(viii). It may be mentioned here that for the assessment year 1975-76, the IAC who made the assessment allowed the claim. However, the assessment proceedings were reopened for that year on the ground that the allowances were wrongly made. Be that as it may, coming to the assessment year 1974-75 since the claim was disallowed by the ITO, the assessee came up in appeal before the Commissioner (Appeals). On the thorough examination of the matter, the Commissioner (Appeals) agreed with the contentions of the assessee and directed that the amount claimed by the assessee be allowed as collection charges. He found that the amount was paid with the following objects : " (i) secure tenancies at over Rs. 3/25 per sq. ft. (net), against Rs. 3 per sq. ft. it secured directly, (ii) obtain the maximum amount of advance rent generally adjustable later over a period, and (iii) ensure regular, prompt collection/realisation of the rent. " The revenue is in appeal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That Orient Investment (P.) Ltd. is also responsible for the collection of rent is evidenced from the correspondence on record between the assessee, various tenants and Orient Investment (P.) Ltd. In a letter addressed by Orient Investment (P.) Ltd. to Assistant Director of Inspection (Intelligence), Income-tax Department dated 6-9-1979 when some independent enquiries were made by the department at Calcutta, Orient Investment (P.) Ltd. mentioned as follows : " Incidentally, it may be mentioned as stated to you in course of our discussions that this company rendered valuable services in arranging tenants/licensees for Hindustan Times Building and the service charges/commission/brokerage was quite reasonable and in no way excessive in view of the services rendered by us. Moreover, we were also responsible for timely and proper payment of rent by lessees/licensees. We also got favourable terms for Hindustan Times Ltd. in regard to area for which the rent was to be calculated such as covered area and carpet area." It is thus clear that Orient Investment (P.) Ltd. was not only responsible for securing tenants but also for the prompt and proper collection of rents. There is also ince ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at London. The right of Mr. Martin to continue as a tenant was protected by conveyance deed executed on 1-2-1973 in favour of SSITL. However, Mr. Martin agreed to vacate the premises and SSITL agreed to pay a sum of pound 24,000 as compensation. On 1-2-1973 this is what SSITL wrote to Mr. W.H. Martin : " In consideration of your vacating your office premises and the Exchange of Contracts for the sale and purchase of the above property, today, we agree that we will pay to you, as soon as you vacate your present premises, the sum of pound 24,000 (twenty-four thousand pounds) as a contribution towards your rent for five years on the alternative accommodation which you will be occupying, comprising 600 sq. ft. on the fifth floor of the London International Press Centre, Shoe Lane, E.C.4. We will pay a further sum of pound 24,000 (twenty-four thousand pounds) as an agreed contribution towards rents and outgoings, such sum to be paid five years after the first payment. " In accordance with the aforesaid terms, the SSITL paid a sum of Rs. 4,32,000 equivalent to pound 24,000. The assessee credited this amount in the profit and loss account for the year ended 31-3-1974, i.e., for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. The contention was refuted. In fact, Mr. Vaish did not dispute the finding recorded by the Commissioner (Appeals) in this behalf. We, therefore, proceed on the premises that the amount was paid or payable to the assessee by SSITL. The question, however, is whether it is capital receipt or a revenue receipt. 21. There is lot of force in the submissions made on behalf of the assessee and which have been accepted by the Commissioner (Appeals). The compensation paid by SSITL is not really reimbursement of the actual expenditure incurred. It is only by way of measure that the compensation is determined. In all cases where tenancy right is terminated, such will be the position. Some measure has to be found for determining the amount of compensation. The compensation is always expressed in terms that may lead one to infer that there is reimbursement of a part of the expenditure, but it is really not so. It is a compensation paid in lumpsum for termination of tenancy right. It may be that the tenant has to pay more rent or less rent, but it has no relevance at all. The amount of compensation is fixed by a lumpsum amount. 22. The compensation paid is for parting with a capital a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem. Additional ground rent will be charged for any extra coverage either on the existing storeys or with additional storeys (in addition to the additional charges already communicated). 2. For letting out the premises or any portion thereof to outsiders, further additional premium and additional ground rent will have to be paid. 3. The Curzon Road area is leased for a specific purpose and any change in the user will be permitted only on payment of additional charges." In addition to the commercialisation charges, the assessee also paid extra ground rent for the land. A formal agreement was executed on 29-10-1962 indicating the above terms. In the year 1965-66 the original building was demolished and the assessee constructed a new multi-storeyed building, the name of which is 'Hindustan Times House'. The construction was completed sometime in 1973. The assessee paid additional premium for commercialisation charges to the extent of Rs. 34,96,560 to the Land Development Officer in February 1973 for obtaining permission for using the newly constructed multi-storeyed building for commercial purposes. Evidently, this was paid because the assessee had got more built-up area in exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since it is the owner of the land, whatever charges are imposed, called by any name, would relate to the land and it cannot relate to the building. The argument proceeds on the premises that the Government is the absolute owner of the land and the assessee is only a lessee and the Government has nothing to do with the building as such and whatever it charges this is in respect of the land which is given by way of lease. 2. That the agreement entered into between Land Development Officer on one hand and the assessee on the other clearly shows that the commercialisation charges were paid for the use of the land. 3. That the subsequent clarification given by the Land Development Officer further strengthened the case of the assessee that the amount paid was in respect of the land only.On the other hand, the contentions raised on behalf of the assessee are that so far as commercial use of the plot was concerned, it was already granted when the original building was existed. It is only because the assessee is having more built-up area that the additional commercial charges are payable, the land being the same, according to the assessee, whatever is paid is only for the exploitation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toreyed building. We are unable to see how the commercialisation charges cannot be treated as part of the cost of building. The building had been put up and it could be put up only because of the amount payable by the assessee to the lessor. It has a direct nexus to the cost of the building. It has no connection or nexus to the cost of the land. 27. The agreement dated 5-3-1973 also shows that the charges are paid because the lessor agreed to the lessee using the multi-storeyed building. It is nowhere found that the amount is payable for the land. No doubt, some confusion has been created because of the letter of the Land Development Officer dated 12-7-1979. This letter stated : " The said premium is an additional levy to the cost of land which was commercialised on 31-1-1979 and not to the cost of super-structure with which this office is not concerned. No doubt by constructing the permissible coverage, additional covered space for business use have become available to M/s. Hindustan Times." But this matter was clarified later on by the letter dated 18-11-1980 wherein it was mentioned : "(i) The question of payment of a sum of Rs. 36,96,516 as additional premium would not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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