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TMI Blog1987 (7) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... r period of 95 years. The assessee company was required to pay a nominal rent of rupee 1 per annum. The terms of the lease deed have been reproduced in the order of the Commissioner of Income-tax and there is no dispute on these terms. 3. On the leasehold plot, the assessee constructed factory building. In the original statement of depreciation, the assessee company had not included the amount of Rs. 3,84,000 as cost of the factory building. However, in the revised statement, the assessee included the said amount as well as the incidental charges for acquiring the leasehold rights and claimed depreciation not only on the cost of building but also on the said amount of premium and other charges totalling Rs. 4,06,797. The Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the said decision was distinguishable. The learned Commissioner of Income-tax considered the objections raised by the assessee and held that the premium paid as consideration for securing the leasehold rights of the land and user there of had no direct nexus with the construction of the building, the fact that the building could not have been constructed without securing the leasehold rights would not mean, according to the learned Commissioner, that premium paid for securing the leasehold rights formed part of the cost of structure, which alone was entitled to depreciation. He relied on the decision of the Supreme Court referred to above. The learned Commissioner directed the Income-tax Officer to recompute the depreciation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land and not referable to the building as distinct from the land, cannot constitute part of the cost of construction of the building for the purpose of allowance of depreciation. We are supported in this view of the matter by the decision of the Delhi High Court in Vijay Shree (P.) Ltd. v. CIT (1963) 67 ITR 420. On the basis of the above principles, it is obvious that premium paid for acquiring the leasehold rights in the site and incidental charges for acquiring those leasehold rights would not form part of the cost of construction of the building. Depreciation would be allowable only on the cost of the structure and not on the cost of acquiring the leasehold rights in respect of the site. In this view of the matter, the learned Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding itself, and so long as the said provisions allowed depreciation only on the building, any item of expenditure directly referable to the land and not referable to the building, as distinct from the land cannot constitute a part of the cost of construction of the building for the purpose of allowance of depreciation. The ratio of this decision applies to the facts of the present case. The premium paid and incidental charges incurred for obtaining the leasehold rights in the plot in question are directly referable to the land itself and not to the building as distinct from the land and as such on the basis of the above decision, cannot constitute a part of the cost of construction of the building for the purpose of allowance of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27/Bom. /1980 dated 28.1.1981. The Tribunal has followed the decision in the case of Indian Oil Corpn. Ltd. which we have discussed above. As already stated, the decision of the Supreme Court referred to above, does not appear to have been considered in the case of Indian Oil Corpn. Ltd. We have also indicated that the principle laid down in the decided cases is that the expenses attributable to the acquisition of land on which the building stands do not form part of the cost of the construction of the building. In view of the decisions of High Court and Supreme Court, we are unable to accept the alternate claim of the assessee. 7. Another alternate claim made before us was that the sum of Rs. 4,06,797 consisted of Rs. 38,400 representing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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