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TMI Blog1994 (8) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... the said premises facing Sardar Patel Road, Secunderabad as per the approved plan annexed, admeasuring 240' x 67' comprising an area of 16,080 sq. ft. equivalent to 1,494 sq. meters. Assessee offered to take up the said development programme and agreed, as per the agreement dated 9-9-1984 for the following :-- (1) to take the premises on lease for 25 years (9+9+7) on an yearly rent fixed therein ; and (2) to construct at own cost a building as per approved sanction plan. The ownership of the constructed building is to belong to the owner of the land brick-by-brick. Clause 6 of the agreement in this regard reads as under : " 6. The entire building and the structure that will be constructed by the Lessee with all the fittings, fixtures, equipment, water connections, taps, drainage lines, therein including the Lifts, transformers, if any, not belonging to the sub-tenants or occupants therein shall be the property of the Lessor at all points of time and the Lessee shall have no right whatsoever on the said building except the lessee shall have the right to lease out the said premises. The lessee shall have the right to lease out the premises or portions of such premises that have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee relying on the decision of the Tribunal (Hyderabad Bench 'B') for the assessment years 1983-84 and 1984-85 in the case of ITO v. Satish Chandra Modi [IT Appeal Nos. 103 and 104 (Hyd.) of 1988, dated 12-3-1993], and for assessment year 1988-89 in ITA No. 1117/Hyd./92 dated 18-3-1994, submitted that the property development expenditure incurred by the assessee in the course of business as real estate developer was revenue expenditure and it should be allowed. Relying on the decisions of the Supreme Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 ; of the Andhra Pradesh High Court in CIT v. Singareni Collieries Co. Ltd. [1980] 121 ITR 466 ; and of the Madras High Court in CIT v. Madras Auto Service Ltd. [1985] 156 ITR 740, the learned counsel for the assessee submitted that the expenditure incurred by the assessee would be of revenue nature and it is not a case of acquiring a benefit of enduring nature, falling in the capital field. As regards the applicability of section 32(1A), the learned counsel for the assessee submitted that the assessee was carrying on the business with the property and not in the property which is the requirement for the application of this se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lease deed, is the lessor. Brick-by-brick ownership belongs to the lessor and not the assessee. He submitted that in similar circumstances in the case of Satish Chandra Modi, the Tribunal by its order dated 12-3-1993, held that the activity undertaken by the assessee was nothing but business, and income received by way of rent and licence fees, from the property was business income, and it should be assessed under the head 'profits and gains of business' and not under the head 'income from other sources'. 9. We have heard the parties and considered their rival submissions. In the case of Satish Chandra Modi the Tribunal in the order for the assessment years 1983-84 and 1984-85, held that the expenditure incurred by the assessee on the development of the property in the course of carrying on the business as real estate developer was revenue expenditure and it should be allowed. In that case, the Tribunal placed reliance on the decisions of the Supreme Court in the case of Empire Jute Co. Ltd. of the Andhra Pradesh High Court in Singareni Collieries Co. Ltd.'s case ; and of the Madras High Court in Madras Auto Service Ltd.'s case. The aforesaid decision of the Tribunal was follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovation or extension of, or improvement to the building, then, in respect of depreciation of such structure or work, the following deductions shall, subject to the provisions of section 34, be allowed :-- (i) such percentage on the written down value of the structure or work as may in any case or class of cases be prescribed ; (ii) in the case of any such structure or work which is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building in the previous year (other than the previous year in which it is constructed or done) the amount by which the moneys payable in respect of such structure or work together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. " This is a special provision enacted for the benefit of lessees providing for depreciation on the structure or work put up by them in the leasehold premises which they are not entitled to in the normal course, since they are not the owners.This is an enabling section. It does not alter the position of an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat circumstance, it would not make any difference if the super-structure was to be handed over at the expiry of the lease. This observation, however, in our opinion, would not have any relevance in a case where the super-structure is never owned by the lessee, and its ownership at no point of time rests with the assessee either at the time when the expenditure was incurred or at any point of time during the currency of the lease or thereafter. However, as aforesaid, the proviso to section 32(1A) are enabling provisions and would not alter the position where the expenditure even otherwise was of revenue nature. The Tribunal order in the case of Satish Chandra Modi and the three decisions of the Supreme Court, Madras High Court and the Andhra Pradesh High Court referred to therein and noted above, in our opinion, clearly support the view that the expenditure incurred by the assessee in raising the building was an expenditure of revenue nature and incurred for the purpose of carrying on or conducting the business of the assessee, and it is an integral part of profit earning process. By incurring this expenditure, there was no acquisition of capital goods. Merely because the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance insofar as this year is concerned. 15. The Revenue's grievance on the first aspect does not hold good even in the subsequent years. The order of the CIT(A) in this regard is as under : " 3. The appellant is entitled to sub-lease of property and receive the rent. The appellant has carried on substantial activities of construction at her own cost. Presently, the appellant is responsible for maintaining the building to terminate sub-lease or to enter into fresh sub-lease. The activities carried on by the appellant are essentially the leasing activities, i.e, leasing of property. Considering that the appellant is not the owner and the appellant is bound to give back the possession and the ownership will be passed on to YMCA, I am inclined to hold that the agreement entered into by the appellant is a trade agreement and adventure in the nature of business. The activity is essentially a business activity and I direct that the income from properties of Deepthi Builders and Deepthi Arcade should be assessed as income from business and not income from house property. Hence, this ground of appeal is allowed. " In similar circumstances, the matter was decided against the Revenue and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd clearly covers the facts on hand. Following the said decision of the Supreme Court, we uphold the view taken by the first appellate authority that the activity undertaken by the assessee Is nothing but business and that the income by way of rents or licence fee realised by him from Rasoolpura property is business income and that it should be assessed under the head 'Profits and gains of business' and not under the head 'Income from other sources'. " In that case, the assessment of rental income was made by the Assessing Officer under section 12 of the Act, and the contention of the Revenue in that case was that it was assessable under the head 'other sources' only, and reliance was placed on the decision of the Karnataka High Court in the case of D.R. Puttanna Sons (P.) Ltd., wherein it was held that income under the head 'house property' can be assessed in the hands of the owner of the building only, Here, as we have already observed aforesaid, the assessee has never been the owner of the property. She has been given only a right to exploit the property during the period of lease. The income earned by letting out the constructed portions during the lease period would be incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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