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TMI Blog1994 (11) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ahmedabad Municipal Corporation. The assessee had brought to the notice of the Appellate Assistant Commissioner of Income-tax the fact that though the assessee had claimed an allowance of Rs. 72,014, the said sum consisted of two allowances, viz., betterment charge of Rs. 65,009 and interest of Rs. 7,005. At the request of the Appellate Assistant Commissioner of Income-tax, the assessee had furnished the particulars of the municipal bills in connection with the levy of betterment charge by way of production of the notice issued to the assessee. The particulars furnished by the assessee before the Appellate Assistant Commissioner of Income-tax were as under : -------------------------------------------------------------------------------------------------------------------------------------------------- Date of bill Incremental Unpaid Interest at the Total levy previous rate of 4 1/2 per cent. balance on balance to be paid in future --------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. Rs. 30-8-1973 48,066 ---- 4,326 52,392 30-8-1973 343 ---- 31 374 8-10-1972 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of the assessee-company. It was further submitted that the rate of interest as provided in section 74(1) of the Bombay Town Planning Act, 1954, is much lower than the market rate of interest and, therefore, election of option to pay the amount of betterment charges in instalments together with interest, can be said to have been made out of commercial expediency and as such the said expenditure was an allowable deduction in computing the taxable profits of the assessee-company. 22. In support of the abovereferred submissions, learned counsel for the assessee placed reliance on the decision of the Supreme Court rendered in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52. 23. In the context of the above rival contentions, we are called upon to answer the question referred to us. The relevant provisions relating to payment of betterment charges were contained in sub-section (1) of section 74 of the Bombay Town Planning Act, 1954, which was in force at the relevant time. The provisions of section 74(1), as it was in force at the relevant time, read as under : " 74. (1) The net amount payable under the provisions of this Act by the owner of a plot included in the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an expenditure for producing profits in the conduct of business. The instalment of contribution paid under the Town Planning Act was not deductible under section 37. " 24. In the case of Arvind Mills Ltd. v. CIT [1992] 197 ITR 422, the Supreme Court considered the question whether betterment charges required to be paid by the assessee were revenue expenditure deductible in computing the profits of the assessee. Therein the appellant-company which ran a textile mill had to pay a sum of Rs. 2,02,907 during the previous year relevant to the assessment year 1972-73, being its contribution, called betterment charges, towards the Bombay Town Planning Scheme under section 66 of the Bombay Town Planning Act, 1954. Under the scheme, the lands (a different owners including the land of the appellant-company were treated as included in a common pool and the various improvements such as laying roads and making provision for drainage were effected for the better enjoyment of the lands under the scheme. Because of such improvements, the owner got betterment of the land and the value of the land increased. Such improvements also resulted in providing better facilities for carrying on the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Town Planning Act, 1954, cannot be equated with obtaining a loan by the assessee and, therefore, in our view, the principles laid down by the Supreme Court in the case of India Cements Ltd. [1966] 60 ITR 52 are not applicable to the facts of the present case. 28. It is well-settled that expenditure takes colour from the thing on which the expenditure is made. The payment of interest is on annual instalments of betterment charges. As noted above, the Supreme Court as well as this court have taken the view that the payment of betterment charges is capital expenditure. Therefore, payment of interest on annual instalments of the betterment charges will have to be regarded as capital expenditure. Under section 74 of the Bombay Town Planning Act, 1954, the owner had an option to pay the amount of betterment charges in one sum or in annual instalments not exceeding ten. If the assessee had made payment of betterment charges in one sum, the same could not have been allowed as a deduction in computing the taxable profits of the assesseecompany. So also, the claim for payment of interest on the instalments of betterment charges which is part and parcel of the net amount payable in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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