1. These are four appeals-two by the assessee and the other two by the revenue, involving some common issues. We, therefore, propose to dispose of all the four appeals by a composite order.
2. The assessee is carrying on the business of publishing a daily newspaper which has substantial circulation. The assessee-company was functioning from 1937 in a rented building in North Block, Connaught Circus, New Delhi. It belonged to the Life Insurance Corporation of India (LIC). In view of the expansion of the activities, it was found that the accommodation was not sufficient. Further, in accordance with the lease agreement entered into with the LIC of India, the company had to vacate the rented premises by 30-9-1969 and as there was no provision for further extension of time, it was proposed that a building should be constructed in 18-20, Kasturba Gandhi Marg, New Delhi for housing the press of the assessee-company. At this stage, it might be relevant to mention that the LIC of India agreed to advance a sum of Rs. 50 lakhs to the assessee-company for the construction of the building. There was a deed of mortgage executed by the assessee in favour of LIC of India in respect of the loan of Rs. 50 lakhs. This mortgage deed executed by the assessee is dated 26-5-1969. Clause 14(G) of the deed mentions: That the Mortgager undertakes to vacate the entire portion admeasuring about 38,008 square feet occupied by it at present in Bombay Life Building at Connaught Circus, New Delhi, as tenant of the Corporation as soon as the proposed multi-storeyed building at 18-20, Curzon Road, New Delhi, has been completed.
It, therefore, appears that though the lease expires, the LIC agreed to continue the lease in favour of the assessee till the new building was completed. As soon as the building was completed, that is, sometime in the accounting year relevant to the assessment year 1974-75, the assessee started shifting its plant and machinery from the old premises to the new premises. The assessee-company being a publisher of a daily newspaper did not want to stop its publication, perhaps even for a day and planned shifting of plant and machinery with the help of foreign technicians. No doubt foreign technicians were brought to India with the approval of the Government of India. Thus, the assessee incurred expenditure in connection with the shifting as follows: This expenditure was claimed by the assessee as a deduction out of its business income.
3. The ITO as well as the Commissioner (Appeals) disallowed the expenses claimed for shifting on the ground that the expenses incurred for the shifting of the premises cannot be allowed and in that connection they relied on the decision of the Supreme Court in the case of Sitalpur Sugar Works Ltd. v. CIT  49 ITR 160. The assessee's argument based on the Board's Circular No. 22 of 1943, dated 23-6-1943 has also been rejected on the ground that that circular has no application to the facts of the case. The Commissioner (Appeals) has recorded the findings as under: (i) the rented premises at Connaught Circus suffered from various disadvantages and inconveniences in the carrying on of the assessee's expanded and extending business ; (ii) the real object of constructing a new accommodation at Kasturba Gandhi Marg and shifting of the press, machinery and offices to the new premises was to: (a) set up the concern with greater advantages than it had in the previous set up, (b) to put up its press machinery and office, i.e., its business apparatus, in a better shape so that it might produce larger profits for an enduring period in the future; (iii) the expenditure in shifting to a better premises produced an advantage which enabled the assessee's business to prosper and which could be expected to last for ever; and (iv) the expenditure thus related to the whole structure and framework of the assessee's profit making apparatus.
4. The learned counsel for the assessee, Mr. Vaish, reiterated the, arguments advanced by him before the Commissioner (Appeals). He particularly pointed out that the decision of the Supreme Court in the case of Sitaipur Sugar (supra) cannot apply to the facts of this case as, according to him, the assessee had to shift because its lease expired and that the lessor advanced money with the specific understanding that the assessee would quit the premises and shift to its newly constructed building. It is also pointed out that the decision of the Supreme Court was mainly based on the fact that there was an enduring advantage in that case on account of shifting, whereas, there was no enduring advantage in the instant case. It was no doubt felt, Mr. Vaish pointed out, that the premises became rather cramped in view of the expansion already achieved and that reason was only incidental and the main reason which prompted the assessee to shift its own building was that it had to vacate on account of the expiry of the lease. Mr. Vaish also contended that the assessee had to incur the expenditure as it would have incurred substantial loss had it closed its daily publication of newspaper even for a day.
The above argument of Mr. Vaish was refuted by Mr. Nagrajan, the learned departmental representative. In his usual simple and lucid style, Mr. Nagrajan pointed out that the assessee itself admitted that its activities expanded and, therefore, it was not able to continue its work in the old premises and as such the ratio of the decision in the case of Sitalpur Sugar (supra) squarely applies to the facts of the case and the assessee cannot get the benefit of deduction of the shifting charges.
5. Before we look to the case law, it may be necessary to analyse the facts as brought on record. The assessee was always in a rented building and the period of lease was being extended period after period and ultimately the period was to expire on 30-9-1969. In the agreement dated 31-12-1960, by which the period of lease was to expire on 30-9-1969, there was no provision for further extension of lease and the assessee had to vacate the premises on 30-9-1969. In view of this difficulty, the assessee started constructing its own house and the construction was started in 1967 and completed in 1973. By mutual understanding, it was agreed that the assessee would shift to the new premises after it was completed. It is evident from the conduct of the assessee and the situation in which the assessee was placed, there was almost no alternative for the assessee but to shift to its own premises. It is true undoubtedly that the assessee also would be in a better position to expand its activities. It may be that the space occupied by the assessee in the rented premises was little cramped.
However, the assessee would not perhaps have thought of a new premises unless there was compulsion by the lessor. The assessee had no choice but to get out of the premises after the expiry of the lease period.
But with a view to have its own building, the lessor who is no other than the LIC came forward with the amount of Rs. 50 lakhs under a mortgage deed. It is, however, stipulated in the mortgage deed that the assessee should vacate the premises as soon as its own building was completed. This would clearly show that the assessee had to shift not voluntarily but because of compulsion. If that was not so, the assessee would have continued in the rented premises and would not have thought of shifting at all. But since the assessee was forced to shift, it had naturally other advantages and also have more space for its staff which has also gone in size during the course of years. In our opinion, therefore, the dominant purpose of shifting was because of the fact that the assessee's lease expired and the lessor insisted on the assessee's shifting and, in fact, helped the assessee to shift a new building by advancing a substantial amount. We are not able to agree with the Commissioner (Appeals) that the object for which the assessee shifted the premises is what was mentioned by him (quoted above). We are also not disbelieving what the assessee stated in its letter dated 25-94975 to the ITO as also the letter dated 4-1-1962 to the Land & Development Officer. In the letter dated 25-9-1975, it was clearly mentioned by the assessee that it had to vacate the premises because of the expiry of the lease period. This is what the assessee mentioned: Further, in terms of the lease deed dated 31-12-1960, the company had to vacate the office and press premised at N-Block, Connaught Circus, New Delhi by 30-9-1969, since there was no provision for further extension of time. We had therefore decided to construct a building at 18-20, Kasturba Gandhi Marg, New Delhi for housing its press and office.
6. The letter dated 4-1-1962 to the Land & Development Officer also does not improve the case of the revenue. This letter was only for the purpose of getting the clarification in regard to the expansion of the building and it has nothing to do with the purpose of shifting from the rented premises to its own building.
7. Now we will look to the decision of the Supreme Court in Sitalpur Sugar's case (supra) This case dealt with shifting expenses. The assessee carried on business of manufacturing sugar in its factory situated at Sitalpur. That place suffered from the ravages of floods and good quality sugarcane was not available. With a view to improving its business, the assessee shifted its factory to Garaul and in the process of dismantling the building and machinery, it incurred substantial expenditure. This expenditure was claimed as deduction, but the Supreme Court disallowed it by holding that the expenditure was not incurred for the purpose of carrying on the concern but was incurred in setting up the concern with a greater advantage for the trade than it had in its previous set up. Further, it was held that the expenditure was not incurred in earning profits but was incurred for putting its factory, that is, its capital, in a better shape so that it might produce larger profits when worked. The expenditure incurred in dismantling and refitting the existing plant at a better site produced an advantage which enabled the trade to prosper and which could be expected to last for ever and was, therefore, capital expenditure. In our opinion, the aforesaid decision has no application to the facts of the present case. The finding of fact on the basis of which the judgment proceeded was that the assessee wanted to shift a better place for getting more advantage. It was not as if there was a threat of closure of the business for some reason or other. In the case before us, however, the position is entirely different. The assessee was forced with the situation wherein it would be completed out of gear if it had to vacate the rented premises. It had no other alter native but to vacate the premises. The vacation of the rented premises was rather by force and it was not a voluntary vacation of the premises. No better advantage was contemplated. The existing plant and machinery were shifted to carry on the same business and to continue the same activity. The shifting in this case in effect, for the purpose of continuing the same business as usual. As already indicated, in the process the assessee will be benefited by getting more accommodation to relieve the congestion which it was facing in the rented premises. But that does not affect the nature of the claim at all nor the real purposes which prompted the assessee to shift the building.
We may end this part of the case by adding a small passage from the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v.CIT  124 ITR 1: ...There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test.
What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. (p. 2)** ** ** When dealing with cases of this kind where the question is whether expenditure incurred by an assessee is capital or revenue expenditure, it is necessary to bear in mind what Dixon J. said in Hailstorm's Property Ltd. v. Federal Commissioner of Taxation 72 CLR 634 : 'What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process.' The question must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure.... (p. 13) We, accordingly, hold that the expenditure in this case is allowable as revenue expenditure.
8. The next ground of appeal relates to disallowance of provision of gratuity amounting to Rs. 10,55,400 in respect of non-journalist employees. Admittedly the assessee did not comply with the provisions of Section 40A(7) of the Income-tax Act, 1961 ('the Act'). It had also not set up any gratuity fund in respect of its non-journalist employees. The Gratuity Act is applicable for the employees whose salary is up to Rs. 1,000, but the assessee in accordance with the agreement with its Employees' Union decided to pay gratuity to all its non-journalist employees irrespective of their salaries. The ITO as well as the Commissioner (Appeals) disallowed the claim.
9. Mr. Vaish, the learned counsel for the assessee, admitted that the provisions of Section 40A(7) were not complied with. But, however, he sought to submit the claim on different principle that the gratuity is based on actuarial valuation and the liability should be allowed in view of the mercantile system of accounting followed by the assessee.
We are, however, unable to agree with this submission. When the statute provides conditions for allowing gratuity and if the assessee wants to claim the same, it can get the benefit only if the conditions are fulfilled. There is also the contention on behalf of the assessee that the assessee had not made the provision but had only made a claim. But this point also has to be negatived in view of the decision of the Special Bench in the case of Soft Beverages (P.) Ltd. v. ITO  1 SOT 311 (Mad. - Trib.). The claim is, accordingly, rejected.
10 to 13. [These paras are not reproduced here as they involve minor issues].
IT Appeal No. 2193 (Delhi) of 1981 - Assessment year 1974-75 (Revenue's appeal) 14. The first item of dispute in this appeal relates to claim of collection charges allowed by the Commissioner (Appeals) as against the disallowance made by the ITO. The facts dealing with this claim may be stated in a nutshell. We have already seen that the assessee constructed its own building with several floors. It decided to sell 6th to 12th floors to Orient Investment (P.) Ltd. In fact, the assessee received a sum of Rs. 5 lakhs as earnest money. The deal, however, could not be gone into because the Government has to approve the transfer. Pending finalisation of the transfer, the assessee wanted to have the tenants in the different floors and for that purpose Orient Investment (P.) Ltd. came forward to help the assessee. It was also felt that since Orient Investment (P.) Ltd. would ultimately become the owner, it was better that they would get the tenants for occupation of the available space in the 6th to 12th floors. This arrangement was actually approved by the Board of Directors of the assessee in its meeting held in 5-5-1973. This is what it has been resolved: The General Manager placed before the Board letter dated 4-5-1973, received from Orient Investment Private Limited to whom the company has agreed to assign 6th to 12th floors of the company's building at 18-20, Kasturba Gandhi Marg, New Delhi fuggesting that (1) pending execution of the assignment, the floors may be given on licence basis to parties introduced by them on the terms and conditions acceptable to the company, (2) payment of 25 paise per square foot per month to them out of licence fees which may be received by the company and (3) licence will be transferred to them/their nominees on execution of the assignment in their favour or in favour of their nominees.
The matter was considered and it was resolved that pending assignment, as an interim arrangement, 6th to 12th floors be given on licence to parties introduced by Orient Investment Private Limited on such terms and conditions as may be decided by the General Manager and that Orient Investment Private Limited be paid 25 paise (twenty-five paise) per square foot per month out of the licence fee received by the company provided that the licence fee (excluding the service charges @ 80 paise per square foot) is not less than Rs. 3.60 per sq. ft. If any part of the floors are not given on licence basis up to 31-7-1973, the company will be free to give the same on licence basis to any party. The licence will be transferred to Orient Investment Private Limited/their nominees on the execution of the assignment deed.
Accordingly, Orient Investment (P.) Ltd. arranged the tenants for occupying the vacant space in the building belonging to the assessee in accordance with the terms agreed to between the parties which have been recorded in the Board's resolution. The assessee paid the amount agreed, to Orient Investment (P.) Ltd. in the assessment year 1974-75, it amounted to Rs. 1,63,968. The assessee claimed these amounts as collection charges under Section 24(1)(viii) of the Act. The ITO disallowed the same for the assessment year 1974-75 by holding that the amount paid cannot be allowed as deduction under Section 24(1)(viii).
It may be mentioned here that for the assessment year 1975-76, the IAC who made the assessment allowed the claim. However, the assessment proceedings were reopened for that year on the ground that the allowances were wrongly made. Be that as it may, coming to the assessment year 1974-75 since the claim was disallowed by the ITO, the assessee came up in appeal before the Commissioner (Appeals). On the thorough examination of the matter, the Commissioner (Appeals) agreed with the contentions of the assessee and directed that the amount claimed by the assessee be allowed as collection charges. He found that the amount was paid with the following objects: (i) secure tenancies at over Rs. 3/25 per sq. ft. (net), against Rs. 3 per sq. ft. it secured directly, (ii) obtain the maximum amount of advance rent generally adjustable later over a period and 15. It is contended by Mr. Nagrajan, the learned departmental representative, that the main object of payment of commission is only to secure tenants which can be called brokerage and, therefore, the assessee is not entitled to the claim towards collection charges. He strongly relied on the fact that Orient Investment (P.) Ltd. was engaged for the purposes of securing tenants and whatever has been paid to them cannot be treated as collection charges. On the other hand, Mr.
Vaish, the learned counsel for the assessee, supported the order of the Commissioner (Appeals) on this point and argued that on the facts found by the Commissioner (Appeals), the only conclusion possible is that the amount paid to Orient Investment (P.) Ltd. is towards collection charges. He has reiterated the arguments advanced before the Commissioner (Appeals).
16. In our opinion, the order of the Commissioner (Appeals) is unassailable. Undoubtedly, the assessee did not make any claim towards brokerage which is normal practice in Delhi. It appears that 71/2 days rent is payable as brokerage. For the assessment year under appeal, the brokerage would come to Rs. 88,575. This is the normal and usual brokerage for securing tenants. On the other hand, the assessee claimed Rs. 95,811 as special commission agreed to be paid. There is no dispute that if the assessee had paid the normal and usual brokerage it would be allowed. The dispute is, however, raised because the assessee calls it special commission and claims the same as collection charges. We are unable to see the logic behind the reasoning of the ITO. The assessee ensured that Orient Investment (P.) Ltd. will be responsible for the collection of the rents from the tenants. It should not be forgotten here that ultimately according to the understanding between the parties, Orient Investment (P.) Ltd. would become the owner and the tenants would be its tenants and, therefore, it is all the more necessary that the tenants are inducted with the knowledge and assistance of Orient Investment (P.) Ltd. It is also quite natural that the assessee would not take the risk of inducting the tenants who are not known to the assessee and thereby running the risk of not being able to realise the rent. Therefore, the responsibility of not only securing the tenants was on Orient Investment (P.) Ltd. but also for the collection of rent. That Orient Investment (P.) Ltd. is also responsible for the collection of rent is evidenced from the correspondence on record between the assessee, various tenants and Orient Investment (P.) Ltd. In a letter addressed by Orient Investment (P.) Ltd. to Assistant Director of Inspection (Intelligence), Income-tax Department dated 6-9-1979 when some independent enquiries were made by the department at Calcutta, Orient Investment (P.) Ltd. mentioned as follows : Incidentally, it may be mentioned as stated to you in course of our discussions that this company rendered valuable services in arranging tenants/ licensees for Hindustan Times Building and the service charges/commission/brokerage was quite reasonable and in no way excessive in view of the services rendered by us. Moreover, we were also responsible for timely and proper payment of rent by lessees/licensees. We also got favourable terms for Hindustan Times Ltd. in regard to area for which the rent was to be calculated such as covered area and carpet area.
It is thus clear that Orient Investment (P.) Ltd. was not only responsible for securing tenants but also for the prompt and proper collection of rents. There is also incentive fixed according to the terms of the agreement between the parties. If a tenant is secured with a rent of more than Rs. 3.60 per square foot, then only the commission is payable. The commission is reduced if the rent is less. It has also been brought on record that the normal rent which the assessee was able to get is Rs. 3 per square foot. It is, therefore, clear that the services of Orient Investment (P.) Ltd. were obtained not only for securing tenants, which might be existing only in the beginning but also for the proper, regular and prompt collection of rents. So far as this year is concerned, in either view of the matter the assessee would be entitled to the amount claimed. As already indicated if only brokerage was claimed, it was normal allowance. The difference between the normal or usual brokerage and the amount actually claimed is negligible and the balance would definitely be eligible for deduction under collection charges because of the services agreed to be rendered by Orient Investment (P.) Ltd. There can, therefore, be no doubt that the assessee's claim is fully justified. Thus, for the reasons given by us above and for the reasons given by the Commissioner (Appeals) the claim has been rightly made by the assessee.
17. The next ground relates to inclusion of a sum of Rs. 8,64,000. To understand the basis of this amount, it is necessary to state the facts in detail. We may point out that the Commissioner (Appeals) has given all the facts very clearly, but it is better that we repeat those facts here. The assessee purchased a building bearing No. 2/3, Salisbury Court, Fleet Street, London in February 1947. One Mr. W.H. Martin was a tenant in the building at the time of purchase. He was the assessee's London office representative. Even after the purchase by the assessee, Mr. Martin continued to occupy the same in the capacity of the assessee's London office representative. No amount was specifically paid for getting the tenancy right for the portion occupied by Mr.
Martin. The assessee sold the property on 17-2-1973 to Salisbury Square Investment Trust Ltd. (SSITL). The sale was subject to the condition that Mr. Martin would continue to occupy the portion which was occupied by him earlier as a monthly tenant. He was actually paying 25 per month which was being reimbursed by the assessee to him since he was representing the assessee at London. The right of Mr. Martin to continue as a tenant was protected by conveyance deed executed on 1-2-1973 in favour of SSITL. However, Mr. Martin agreed to vacate the premises and SSITL agreed to pay a sum of 24,000 as compensation. On 1-2-1973 this is what SSITL wrote to Mr. W.H. Martin : In consideration of your vacating your office premises and the Exchange of Contracts for the sale and purchase of the above property, today, we agree that we will pay to you, as soon as you vacate your present premises, the sum of 24,000 (twenty-four thousand pounds) as a contribution towards your rent for five years on the alternative accommodation which you will be occupying, comprising 600 sq. ft. on the fifth floor of the London International Press Centre, Shoe Lane, E.C.4.
We will pay a further sum of 24,000 (twenty-four thousand pounds) as an agreed contribution towards rents and outgoings, such sum to be paid five years after the first payment.
In accordance with the aforesaid terms, the SSITL paid a sum of Rs. 4,32,000 equivalent to 24,000. The assessee credited this amount in the profit and loss account for the year ended 31-3-1974, i.e., for the assessment year 1974-75, with the description 'compensation for termination of tenancy in 'London office'. The second instalment of Rs. 4,32,000 became payable after five years of July 1973 and that was also received in July 1978 and similarly credited the amount in the profit and loss account.
While returning the income for the year under appeal, the assessee deducted the sum of Rs. 4,32,000 on the ground that it is not taxable being a capital receipt, The ITO rejected this claim. He also added another sum of Rs. 4,32,000 being the second instalment receivable. (It was received in July 1978). Thus, he added a sum of Rs. 8,64,000.
18. The Commissioner (Appeals) deleted the entire addition for the detailed reasons given by him in his order and this is challenged in appeal by the revenue.
19. Mr. Nagrajan for the revenue contended that from the evidence on record it is clear that the assessee saved expenditure and savings of expenditure would also mean that the amount in question is includible.
He has also pointed out that what the assessee received is by way of reimbursement of the expenditure incurred. He has particularly referred to Section 30, read with Section 43, of the Act. What he means is that the assessee would have been liable to pay the amount to Mr. Martin and to that extent there is saving, because SSITL paid the money. He has also raised a point that the assessee not only received the amount but also claimed deduction in respect of the payment of rent by Mr. Martin.
In other words, the assessee would have reimbursed the amount of rent payable by Mr. Martin relating to his own accommodation elsewhere.
On the other hand, Mr. Vaish for the assessee relied on the order of the Commissioner (Appeals) and he pointed out that whatever compensation paid was not for reimbursement of the rent but it was only a measure of compensation. His point was that though the SSITL mentioned that it would compensate the rent to the extent of 24,000 for a period of five years, in substance it is not reimbursement from the expenditure but it was only used as of measure of 'compensation'.
20. Before we deal with the rival submissions, it must be mentioned here that the assessee raised a contention before the Commissioner (Appeals) that the amount actually belonged to Mr. Martin in his capacity as tenant in the property and the assessee has no right to receive the same. The contention was refuted. In fact, Mr. Vaish did not dispute the finding recorded by the Commissioner (Appeals) in this behalf. We, therefore, proceed on the premises that the amount was paid or payable to the assessee by SSITL. The question, however, is whether it is capital receipt or a revenue receipt.
21. There is lot of force in the submissions made on behalf of the assessee and which have been accepted by the Commissioner (Appeals).
The compensation paid by SSITL is not really reimbursement of the actual expenditure incurred. It is only by way of measure that the compensation is determined. In all cases where tenancy right is terminated, such will be the position.'Some measure has to be found for determining the amount of compensation. The compensation is always expressed in terms that may lead one to infer that there is reimbursement of a part of the expenditure, but it is really not so. It is a compensation paid in lumpsum for termination of tenancy right. It may be that the tenant has to pay more rent or less rent, but it has no relevance at all. The amount of compensation is fixed by a lumpsum amount.
22. The compensation paid is for parting with a capital asset.
Undoubtedly, tenancy right is a capital asset and, therefore, the compensation so received cannot be treated as revenue receipt at all.
It is also not the case of the revenue that the assessee is carrying on any business in tenancy right. The Commissioner (Appeals) discussed various case laws but they are not directly on the point. One thing, however, is clear that the tenancy right, unless it is a part of the business dealings of an assessee, is a capital asset and if the same is parted with and the amount is received, the amount represents capital receipt only and can never be revenue receipt. We are unable to appreciate the argument of Mr. Nagrajan based on Section 30 of the Act we are also not able to find relevancy in regard to the argument based on the presumption that the assessee would have claimed the rent paid by Mr. Martin as a deduction. This aspect has nothing to do with the dispute in question. If the assessee has got any double benefit in any manner, it is for the revenue to rectify the error, if any and that point does not arise in the appeal at all. The ground taken by the revenue is, therefore, rejected.
23 & 24. [These paras are not reproduced here as they involve minor issues]. IT Appeal No. 2194 (Delhi) of 1981 - Assessment year 1975-76 (Revenue's appeal's): 25. The second ground relates to claim of depreciation on additional charges amounting to Rs. 34,96,516 in respect of the multi-storeyed building constructed by the assessee about which we have already discussed in our order. The assessee purchased an existing residential building in plot No. 18-20, Kasturba Gandhi Margin 1961. Since the assessee wanted to use it for commercial purposes, it had paid additional premium of what is called commercialisation charges of Rs. 3,65,875 to the Land Development Officer, Government of India on 27-1-1962. The then existing built-up area on the plot was 51,198 sq.
ft. On 10-1-1962, the Land Development Officer wrote to the General Manager of Hindustan Times Ltd. as follows: The additional charges communicated to you in this office Letter No. A 110.4/148(54-55)/61 dated 20-12-1961 are for the change of purpose of the existing covered area of the existing storeys. In case the existing building is demolished and reconstructed no additional payment will be made for the existing number of storeys with the existing coverage on each of them. Additional ground rent will be charged for any extra coverage either on the existing storeys or with additional storeys (in addition to the additional charges already communicated).
2. For letting out the premises or any portion thereof to outsiders, further additional premium and additional ground rent will have to be paid.
3. The Curzon Road area is leased for a specific purpose and any change in the user will be permitted only on payment of additional charges.
In addition to the commercialisation charges, the assessee also paid extra ground rent for the land. A formal agreement was executed on 29-10-1962 indicating the above terms. In the year 1965-66 the original building was demolished and the assessee constructed a new multi-storeyed building, the name of which is 'Hindustan Times House'.
The construction was completed sometime in 1973. The assessee paid additional premium for commercialisation charges to the extent of Rs. 34,96,560 to the Land Development Officer in February 1973 for obtaining permission for using the newly constructed multi-storeyed building for commercial purposes. Evidently, this was paid because the assessee had got more built-up area in excess of the original built-up area of 51,198 sq. ft. An Indenture was executed between the President of India on one side and the assessee on the other on 5-3-1973. Clause (1) reads as under: 1. In pursuance of the said agreement and in consideration of the sum of Rs. 36,96,516 (Rupees thirty six lakhs, ninety six thousand and five hundred sixteen only) paid by the lessee to the lessor as additional premium before the execution of these presents (the receipt thereof the lessor doth hereby admit and acknowledge) and of the additional ground rent reserved and of the covenants on the part of the lessee contained in the Principal Indenture, Supplement Indenture and herein, the lessor doth hereby grant his consent to the lessee using the multi-storeyed building under erection and construction on a part of the demised premises according to the plans sanctioned by New Delhi Municipal Committee vide its Resolution No. 30 dated 20-1-1967, save and except the built-up area of 51,198 square feet in the said multi-storeyed building only for the purpose mentioned in the Supplemental Indenture.
In addition to the commercialisation charges, the assessee had also to pay extra ground rent of Rs. 1,84,826 as per Clause (2) of the Indenture.
The assessee added the amount of Rs. 36,96,516 to the cost of the building constructed by it and claimed depreciation on the same.
Depreciation was duly allowed for the assessment years 1973-74 and 1974-75. Strangely enough, however, for the assessment year under appeal, i.e., 1975-76, the ITO did not allow depreciation. According to the I AC, the amount does not relate to the cost of the building but it relates to the cost of the land. In coming to the conclusion, the revenue relied on the letter dated 12-7-1979 written by the Land Development Officer to the Assistant Director of Inspection, Income-tax Department. They have also sought to press their case on the opinion given by the Law Ministry, but the Commissioner (Appeals) considering the arguments advanced by the assessee which are based on some case laws held that the amount should go to increase the cost of building and the assessee would be entitled to depreciation on the total amount.
The revenue is aggrieved and, therefore, assailing the order of the Commissioner (Appeals) on the following grounds: 1. That the Government was not interested at all in the building but since it is the owner of the land, whatever charges are imposed, called by any name, would relate to the land and it cannot relate to the building. The argument proceeds on the premises that the Government is the absolute owner of the land and the assessee is only a lessee and the Government has nothing to do with the building as such and whatever it charges this is in respect of the land which is given by way of lease.
2. That the agreement entered into between Land Development Officer on one hand and the assessee on the other clearly shows that the commercialisation charges were paid for the use of the land.
3. That the subsequent clarification given by the Land Development Officer further strengthened the case of the assessee that the amount paid was in respect of the land only.
On the other hand, the contentions raised on behalf of the assessee are that so far as commercial use of the plot was concerned, it was already granted when the original building was existed. It is only because the assessee is having more built-up area that the additional commercial charges are payable, the land being the same, according to the assessee, whatever is paid is only for the exploitation of the land for better and proper use and that use is by putting up more built-up area on the land already existing and, therefore, can never be in relation to the land, whatever the premium payable in respect of the land was paid and the commercialisation charges were paid originally. There cannot be further commercialisation once it was already commercialised.
It is also argued that the substance of the matter is more relevant in determining the issue like this.
26. Having considered the matter carefully, we have no hesitation in upholding the view taken by the Commissioner (Appeals). It is well settled that whenever an expenditure is to be considered for the purpose of allowing the same, it is the substance of the matter that counts. Here what is that the assessee has incurred Originally the land was existing which is a leasehold land. There was a residential building. This was changed and the same was put up to commercial use.
At that stage, the assessee was having covered area of 51,198 sq. ft.
Since the assessee wanted to convert the house from residential to commercial, it had to pay the premium or commercialisation charges.
Commercial use already came into existence when the assessee paid the premium. There cannot be commercialisation for the second time. For the first time it might be that the amount paid can be co-related to the land. In other words, the cost of the land is augmented to the extent of commercialisation charges. But subsequent payment for commercialisation charges cannot relate to the land at all. There is no increase in the land area. On the other hand, there was additional construction after the old building was demolished to the extent of 3,45,144 sq. ft. It is, therefore, very evident that what the-assessee has paid as premium or commercialisation charges is not rent in respect of the land. The amount of premium was charged because the assessee wanted to put more built-up area. In other words, the assessee was permitted to construct more storeys on the same floor area. It is for the better exploitation of the land by having a multi-storeyed building that the assessee was asked to pay the premium. It has no co-relation with the rent payable for the land at all. It may be pointed out that the assessee is also paying additional ground rent of a very substantial amount in view of the better use the land is put to by having multi-storeyed building. We are unable to see how the commercialisation charges cannot be treated as part of the cost of building. The building had been put up and it could be put up only because of the amount payable by the assessee to the lessor. It has a direct nexus to the cost of the building. It has no connection or nexus to the cost of the land.
27. The agreement dated 5-3-1973 also shows that the charges are paid because the lessor agreed to the lessee using the multi-storeyed building. It is nowhere found that the amount is payable for the land.
No doubt, some confusion has been created because of the letter of the Land Development Officer dated 12-7-1979. This letter stated: The said premium is an additional levy to the cost of land which was commercialised on 31-1-1979 and not to the cost of super-structure with which this office is not concerned. No doubt by constructing the permissible coverage, additional covered space for business use have become available to M/s Hindustan Times.
But this matter was clarified later on by the letter dated 18-11-1980 wherein it was mentioned: (i) The question of payment of a sum of Rs. 36,96,516 as additional premium would not have arisen if the lessee had not constructed additional space of 3,45,144 sq. ft for office purposes; (ii) It is confirmed that no additional land was made available by this office for the said construction but the said sum of Rs. 36,95,516 was on account of additional levy to the cost of land of the existing plot for its intensive end more remunerative use. Had the Hindustan Times proposed lesser additional construction for use as office in the plan sanctioned by NDMC on 20-1-1967 the additional premium and additional ground rent would naturally have been less.
Evidently the original letter was written under a misconception of the facts. The correct position was appreciated in the subsequent letter.
Moreover, the question whether the amount paid by the assessee relates to the cost of the land or the building does not depend upon the opinion expressed by either party. It depends upon the facts of the case and the evidence on record. Similarly, the opinion expressed by the Law Ministry is of no avail specially in view of what we have stated above.
Thus, for the reasons given by us, we agree with the conclusion arrived at by the Commissioner (Appeals) and reject the ground taken by the revenue.
29. In the result, the appeal filed by the assessee for the assessment year 1974-75 is partly allowed and that of for 1975-76 is allowed, whereas, the appeals preferred by the revenue fail and are hereby dismissed.