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TMI Blog2007 (1) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... 315 on cost of land component of the building and (ii) deleting addition of Rs. 1,92,878 made on account of interest earned during pre operative period. 2 In regard to ground No. 1, it is mentioned in the assessment order that the assessee acquired a part of commercial complex along with undivided interest in the land in the relevant previous year. However, in the schedule of fixed assets, the whole of the cost was shown under the head "Building". Therefore, the assessee was required to furnish a valuation report with a view to find out the component of land cost and state why depreciation on the value of land claimed in the return may not be disallowed. The case of the assessee was that he acquired interest only in the building and not in the land. On this plea, valuation of land and building in separate terms was not furnished. It was claimed that the assessee was entitled to deduct depreciation on the whole of the cost in view of the decision of the hon'ble Supreme Court in the case of CIT v. Hindustan Times Ltd. [1998] 231 ITR 741. However, the Assessing Officer did not accept the arguments of the assessee. He was of the view that the case was squarely covered withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of land arid building could be segregated. That was not done by the assessee. Therefore, the Assessing Officer had no option but to estimate the value of the land. It was his case that the estimate made by the Assessing Officer was fair and reasonable and the matter was discussed by him on page 6 of the order. It was mentioned therein that it was a common knowledge that construction cost is normally between 100 per cent. to 200 per cent, of the cost of land. Therefore, it would not be wrong to estimate one-third of the purchase consideration to be the cost of the land. 4 Coming to the legal issue, the learned Departmental representative read out extensively from the decision in the case of Alps Theatre [1967] 65 ITR 377. In that case, the Tribunal while accepting the case of the assessee had lion observed that you cannot conceive of a building without land beneath it. It was not possible to conceive a building without a bottom. What section He 10(2) (vi) of the 1922 Act says is that depreciation will be allowed on building. The word "building" itself connotes land on which something has the been constructed. It was, therefore, wrong on the part of the authorities b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 967] 65 ITR 377. 5 He also referred to the decision of the hoi Supreme Court in the case of Hindustan Times Ltd. [1998] 231 ITR 741. In that case the assessee had purchased an existing building in the residential area. Subsequently, it wanted to convert its user from residential to commercial. A formal agreement was entered into between it and the Land Development Officer (LDO), under which a sum of Rs. 3,65,875 was paid to the LDO. Higher rent was also fixed for the land. The assessee demolished the existing structure on the land and constructed a multi-storeyed building thereon, which was several times the original area of the said land. After completion of the construction, the assessee applied to LDO for using the building for commercial purposes and paid a further sum of Rs. 36,96,516 for such user. The Assessing Officer disallowed, the deduction of depreciation on this payment by holding that the impugned amount was paid for conversion of the land user and, therefore, it should be added to the cost of the land. The matter was decided in favour of the Revenue by the Commissioner of Income-tax (Appeals) and the Tribunal. The High Court gave a finding that the conversion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt, which the company was required to pay to the owners of the ship,was payable on account of carriage of goods of the owners of the shipwithin the meaning of section 172(2) of the Act or not ? The company paid he hire charges to the owners of the ship, but it loaded the ship with company's own goods. It was held that the company received nothing onaccount of carriage of the goods and, therefore, the provisions of section172(2) were not applicable. The hon'ble court pointed out that it was true that excessive reliance could not be placed on the form which the partiesgave to their agreement, or on the label which they attached to the payment due from others. One must have regard to the substance of thematter and, if necessary, the veil may be lifted in order to see the truecharacter of the payment. In this very connection, he also relied on thedecision of the hon'ble Supreme Court in the case of Controller of Estate Duty v. Aloke Mitra [1980] 126 ITR 599. The decision of the hon'ble courtwas that section 5(1) of that Act alone was capable of imposing a charge ofduty. By no rule of construction, the operation of this section can be curtailed by operation of section 6, as the lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that the land will be of no use to the buyer if he received right of possession and occupation of superstructure only and, therefore, the issue should be decided on the basis of ground realities. In this connection, he relied on the decision of the hon'ble Supreme Court in the case of CIT v. Podar Cement P. Ltd. [1997] 226 ITR 625, where the hon'ble court was occupied with the interpretation of the term "owner", occurring in section 22 for the purpose of bringing to tax income from house property. The hon'ble court pointed out that construction of the statute should be so made as to take into account the changes occurring after enactment of the statute. On that basis, it was held that the owner must be that person who can exercise the rights of ownership in his own right and not on behalf of the owner. Thus, it was held that registration of sale deed was not sine qua non for coming to the conclusion whether a, person was owner of a house property or not. 9 Thereafter, learned counsel took us through paragraph 2.2 of the agreement, which fixes the consideration at Rs. 6,73,29,473 at Rs. 750 per sq. ft., consisting of price of the land and the superstructure. His case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated as if the land and building were used in the business for more than 180 days. However, the fact is that it was used for less than 180 days and, therefore, the disallowance was excessive. It was also claimed that apportionment to the cost towards the land at one-third of the overall consideration was excessive and the matter may be restored to the file of the Assessing Officer for this purpose. 12 In the rejoinder, the learned Departmental representative referred to a number of clauses in the main agreement which speak about proportionate ownership of the land passing to the assessee under the agreement. It was pointed out that in spite of requisition of the valuation report by the Assessing Officer, it was not filed by the assessee and, therefore, his estimate may be upheld. It was also pointed out that the assessee had not taken any ground about excessive disallowance of depreciation on land. It was clarified that the stipulation of the sale of units in the agreement with GDA was made to ensure that the assessee constructed commercial building and did not sell land to the prospective buyers. It was agitated that the issue has to be decided on the basis of facts as they e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of property comprising of land price and building superstructure cost at Rs. 750 per sq. not ft. It was further mentioned that the said total consideration shall include the consideration for common areas, service areas and facilities described in schedule 2 of the agreement. Thus, it is clear that the subject-matter for which the consideration was fixed was land, building, common areas, service areas and facilities. The fixation of rate was merely a methodology to work out the total consideration for the aforesaid land, building, common areas, service areas and facilities. It could have been fixed with reference to proportionate area of land or constructed space as the two are linked with each other by a multiplication factor of FAR The article nowhere curtailed of the right of the assessee to ownership of undivided proportionate share in land. It was also argued by learned counsel that the land was of no use to the assessee. There is nothing on record to suggest the same. In fact, common areas, service areas are necessary to get ingress into the building for its effective utilisation. The building cannot stand without the land ole beneath it. Therefore, for the effective u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee exercises the right of an owner in the proportionate area of the land by way of user and legal right therein. The position of roads is quite different from that of land, which falls within the ratio of the decision in Alps Theatre's case [1967] 65 ITR 377 (SC) and, therefore, the decision in the case of Southern Petro Chemical Industries [1998] 233 ITR 391 (Mad) does not come in aid of the assessee's case. 16 The assessee had also taken a plea that the land and building were used in the business for less than 180 days and, therefore, disallowance of depreciation relatable to land at 10 per cent. was excessive, which should be reduced to 5 per cent. His case was that as a respondent, he could support the findings of the learned Commissioner of Income-tax (Appeals) by any other argument or on any other ground. We find that this view is supported by the decision of the hon'ble Bombay High Court in the case of B. R. Bamasi v. CIT [1972] 83 ITR 223. The hon'ble court pointed out that the position of an appeal under section 33 of the Indian Income-tax Act (1922 Act) and an appeal under the Code of Civil Procedure is identical. In the case of Venkatarao v. Satya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order under section 154 of the Act. 17 It was also argued by learned counsel that the rate of the land fixed by the Assessing Officer at one-third of the consideration was excessive and the same may be reduced suitably. We find that the Assessing Officer had directed the assessee to file his own valuation report so that the value of the land could be fixed properly. The same was not done. The report was also not filed before the learned Commissioner of Income-tax (Appeals). In view of these facts, it will not lie in the mouth of learned counsel now to say that the rate fixed by the Assessing Officer was excessive for reasons that (i) there is no evidence on record to support the case of the assessee, and (ii) the Assessing Officer had adopted a very reasonable method of allocating cost in absence of any evidence filed before him. 18 In a nutshell, it is held that on a complete reading of the documents, it is found that the subject-matter of agreement was land and building and fixation of rate on the basis of built-up area and the clause in the agreement between seller and the GDA do not detract us from the aforesaid conclusion in any manner. The land was very much us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icals, the main business for which the company was set up ? In this connection, the hon'ble court referred to the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) and it was pointed out that that was a case in which the question related to interest earned by the company during the formative period by investments, which was held to be taxable as "income from other sources". The court had held in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) that it is so confined and did not apply where the receipts were directly connected with or were incidental to work of construction of the assessee's plant. The decision in the case of Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) had been followed in the case of CIT v. Karnal Co-operative Sugar Mills Ltd. [2001] 243 ITR 2 (SC) and CIT v. Karnataka Power Corporation [2001] 247 ITR 268 (SC). It was also pointed out that in the latter case, it was not disputed by the Revenue that the question related to hire charges paid by contractors had to be answered in the light of judgment in the case of Bokaro Steel Ltd. [1999] 236 ITR 315 (SC). Therefore, it was not now possibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Refinery and Petrochemicals Ltd. [2001] 251 ITR 329 (SC), relied upon by learned counsel and the learned Commissioner of Income-tax (Appeals). In that case, contractors were working at the premises of the assessee for installing plant and machinery. The contractor was occupying certain portions of the building owned by the assessee for executing project, for which rental charges were received and set off against the payment to be made to the contractor. The finding of the hon'ble court was that such receipts can be set off against the expenditure for finding out the cost of installation of plant and machinery. Learned counsel had also spoken about some case of the Tribunal, which distinguished the case of the aforesaid Tuticorin [1997] 227 ITR 172 (Sc). That case was, however, not cited before us. We are of the view that the Tribunal can legitimately distinguish facts of the case at hand from the facts of the case decided by any court and thereafter may come to an appropriate conclusion in the matter. However, the expression used by learned counsel "distinguished the case of Tuticorin" is vague and he has not distinguished the facts of the instant case from the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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