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TMI Blog1992 (7) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the previous year is the calendar year, the total income was assessed by the Income-tax Officer on January 24, 1973, at Rs. 1,30,92,040. The appellant claimed deduction of Rs. 2,02,907 being the contribution made by the assessee towards the cost of Town Planning Scheme under section 66 of the Bombay Town Planning Act, 1954. The aforesaid payment made by the assessee was described as betterment charges. The Income-tax Officer disallowed the claim for deduction by his order dated January 25, 1974. The appellant preferred an appeal before the Appellate Assistant Commissioner The Appellate Assistant Commissioner, by his order dated September 19, 1974, held, inter alia, that the expenditure in question was a revenue expenditure but, since the assessee had paid the betterment charges in ten equal instalments with interest, instead of payment in a lump sum of the entire amount of Rs. 2,02,907, a sum of Rs. 14,434 only since paid by the assessee by way of instalment in the year of assessment should be deducted from income. The contention of the assessee that, since the method of accounting of the assessee was mercantile, the entire amount of Rs. 2,02,907 should be deducted and not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dollar Co. v. CIT [1986] 161 ITR 455. The assessee Dollar Company had to make payment towards the betterment contribution for the lands owned by the company coming within the Madras Town Planning Scheme. The assessee-company claimed deduction of the above payment on the tooting that such payment was a revenue expenditure. The Income-tax Officer, however, disallowed the claim by holding that such payment was in the nature of a capital expenditure. Such decision of the Income-tax Officer was affirmed by the Appellate Assistant Commissioner and also by the Income-tax Appellate Tribunal. On a reference, the Madras High Court held, inter alia, that, on a reading of the various provisions of the Madras Town Planning Act, it was evident that the betterment contribution was a compulsory levy made by the Corporation and the precondition for such levy was that, consequent upon making any Town Planning Scheme, the value of the property in the scheme has increased or is likely to increase. Hence, the payment of betterment contribution did not result in any increase in the value of the property but, because of the increase in the value of the property as a result of the making of the Town Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 341 ; AIR 1969 SC 634. He has contended that, under the Scheme, lands of various owners are treated as lands belonging to a common pool and, for better enjoyment of these lands by the residents, certain improvements are effected and facilities are provided under the Scheme. Although, by such process, the value of the land is likely to increase, the involuntary payment of betterment charge has a direct nexus with the running of the business in a better way because of the improvement effected and, by that process, the same becomes a revenue expenditure as indicated by the Madras High Court. Mr. Salve has referred to the decision of the Privy Council in Mohanlal Hargovind v. CIT [1949] 17 ITR 473. In consideration of certain sums payable, a short-term licence was granted to acquire tendu leaves for manufacturing beedis (country made cigarettes). The Privy Council held that such expenditure was revenue expenditure and not capital expenditure. Mr. Salve has also referred to a decision of this court in the case of L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293. In the said case, the assessee, private company, was carrying on business in the manufacture and sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances, this court has held that such expenditure should be held to be a revenue expenditure and was deductible. Mr. Salve has contended that, because of the improvement effected under the Town Planning Scheme, the running of the business of the assessee improved and thus the betterment fee required to be paid under the Scheme had a direct nexus with the running of the business of the assessee. Hence, such betterment charge, particularly in the context that such payment was involuntary and was in the nature of a compulsory exaction from the assessee, should be held to be a revenue expenditure made for the better running of the business. He has submitted that, since the construction of the road in and around L. H. Sugar Factory had nexus with the running of the business more efficiently and profitably, this court, in the said L. H. Sugar Factory's case [1980] 125 ITR 293, has held that a contribution of Rs. 50,000, even when such contribution was not in the nature of a compulsory payment but a pure and simple voluntary contribution, was a revenue expenditure and as such it was deductible from the income of the assessee. Mr. Salve has, therefore, submitted that the impugned decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing beedis. Hence, the said decision of the Privy Council is clearly distinguishable. He has contended that, in the facts of this appeal, the Gujarat High Court has rightly held that the expenditure was a capital expenditure and not a revenue expenditure. Learned counsel has contended that, when a capital expenditure is incurred, the said capital expenditure also ultimately enures to the efficient running of the business but, on that score, the expenditure on the capital asset does not lose the character of capital expenditure and does not become a revenue expenditure. He has submitted that the Madras High Court has failed to appreciate that the expenses incurred by making payment of betterment fees was in essence an expenditure on account of increase in the value of the land of the assessee and such expenditure has no direct nexus with the day-to-day running of the business. In the aforesaid circumstances, learned counsel for the respondent has submitted that no interference is called for in this appeal and that the same should be dismissed. After considering the respective contentions of learned counsel for the parties, it appears to, us that under the Bombay Town Planning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred for obtaining licences for acquiring tendu leaves for manufacturing beedis was a revenue expenditure can be easily explained by indicating that such expense for obtaining a licence to procure tendu leaves was an expenditure to acquire a basic raw material for manufacturing beedis. Such expenditure had nothing to do with any capital asset. Hence, the expenditure having direct nexus with the day-to-day running of the business of manufacturing beedis by procuring a basic raw material is certainly a revenue expenditure. But the facts in the instant appeal are quite different. The aforesaid aspect is totally absent in the instant case. In our view, the High Court of Gujarat has rightly held that the betterment charge on account of increase in the value of the land of the assessee should not be held to be revenue expenditure although general improvement of the area may have an impact on the better running of the business. We, therefore, find no reason to interfere with the decision of the Gujarat High Court by accepting the reasoning of the Madras High Court in Dollar Co.'s case [1986] 161 ITR 455. The instant appeal, therefore, fails and is dismissed without any or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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