1. In this case at the instance of the assessee the following three questions have been referred to us for our opinion by the Tribunal :
'1. Whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the land acquired by the Municipal Corporation and the land sold by the assessee to Natraj Co-op. Housing Society Ltd., and Anilkumar Kashibhai Patel and others was non-agricultural in character
2. Whether the Tribunal was right in holding that betterment charges of Rs. 60,390 paid by the assessee to the Ahmedabad Municipal Corporation could not be considered to cost of improvement within the meaning of section 48(ii) of the I.T. Act, 1961
3. Whether the Tribunal erred is not allowing deduction of betterment charges of Rs. 60,390 as claimed by the assessee ?'
2. At the commencement of the hearing of this reference, Mr. K. C. Patel, the learned counsel for the assessee, stated that the assessee was not pressing questions Nos. 1 and 3 and the only question No. 2. The facts leading to this reference are as follows :
We are concerned with the assessment years 1967-68 and 1968-69, the previous years being the calendar years 1966 and 1967, respectively. The assessee owned a plot of land bearing survey No. 118 of Kocharab and final Plot No. 314 of the Ahmedabad Town Planning Scheme No. 20 admeasuring 5 acres 27 gunthas, i.e., 27,467 sq. yds. Out of the said land the Municipal Corporation of Ahmedabad acquired 5,507 sq. yds. of land on July 28, 1966, and the assessee received Rs. 38,549 by way of compensation. By an agreement for sale dated April 5, 1966, the assessee agreed to sell 21,960 sq. yds. of land out of the said land to one Venus Land Development Corporation, a partnership firm. Thereafter, in pursuance of the said agreement, by a sale deed dated November 8, 1966, the assessee sold 8,574 sq. yds. of land for Rs. 2,91,516 to Natraj Co-operative Housing Society Ltd., and partners of M/s. Venus Land Development Corporation joined as confirming parties to the sale deed. In pursuance of the aforesaid agreement for sale, the assessee further sold 9,920 sq. yds. of land to Anilkumar Kashibhai Patel and others for Rs. 3,37,484 on January 24, 1967. The ITO sought to tax capital gains arising out of the acquisition of the land by the Ahmedabad Municipal Corporation and sale in favour of Anilkumar Kashibhai Patel and others was concerned, the ITO sought to tax capital gains arising out of the said sale in the assessment year 1968-69. The assessee, however, contended that he was not liable to pay tax on the capital gains inasmuch as the aforesaid land sold by him was agricultural land. As regards the computation of capital gains the assessee contended land. As regards the computation of capital gains the assessee contended that the value of the land as on January 1, 1954, was Rs. 15 per sq. yd. instead of Rs. 10 per sq. yd. as held by the ITO. He further claimed that the betterment levy paid by him to the Ahmedabad Municipal Corporation be added to the value of the land as on January 1, 1954, or the cost of the land for the purpose of computation of capital gains. This contention was based on the provisions of s. 48(ii) of the I.T. Act, 1961.
3. The ITO rejected the assessee's contention regarding betterment levy paid by him to the Ahmedabad Municipal Corporation. The AAC, in appeal, held that the said levy has to be added to the value of the land as on January 1, 1954, for the purpose of computation of capital gains. Against this part of the decision of the AAC, the revenue preferred an appeal to the Income-tax Appellate Tribunal and the appeal against other parts of the order passed by the AAC was preferred by the assessee. Both regards the betterment charges of Rs. 60,390 the Tribunal rejected the assessee's contention that payment of such charges could be considered as expenditure connected with transfer under s. 48(ii) of the Act. The Tribunal further held that such charge also does not fall within the meaning of 'cost of improvement' defined under s. 55(1)(b) of the Act. It, therefore, rejected the assessee's contention that in any case the assessee's case was covered by s. 48(ii) of the Act, so far as the levy s concerned.
4. Question No. 2 which now survives for our consideration relates to the betterment charges of Rs. 60,390 paid by the assessee to the Ahmedabad Municipal Corporation under the provisions of the relevant Town Planning Act and the question is whether the amount should be considered to be the cost of improvement within the meaning of s. 48(ii) of the I.T. Act, 1961. Section 48(ii) of the Act provides that the income chargeable under the head 'capital gains' shall be computed by deduction from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely, the cost of acquisition of the capital asset and the cost of any improvement thereto. Under s. 55(1)(b) of the Act, special meaning of 'cost of improvement' for the purpose of ss. 48, 49 and 50 has been laid down by the Legislature and it has been provided that the 'cost of any improvement' in relation to a capital asset in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub-s. (1) of s. 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head 'Interest on securities', 'Income from house property', 'Profits and gains of business or profession' or 'Income from other sources' and the expression 'improvement' shall be construed accordingly.
5. In Addl. CIT v. Rohit Mills Ltd. 0043/1975 : 104ITR132(Guj) , a Division Bench of this High Court considered the question of payment of betterment charges to a local authority in connection with a scheme framed under the Town Planning Act. There the assessee made a contribution towards the betterment charges assessed on lands in his possession under a Town Planning Act. Contribution was calculated in proportion to the increased potential value estimated to accrue to the lands as a result of the town planning scheme. The Town Planning Act laid down that the contribution could be recovered by distress and sale of goods of a defaulter. The amount of contribution recovered from the assessee in installments was claimed by him under s. 37. The Division Bench held that the betterment charges were levied against the increased potential value of the lands covered by the scheme and not against the running business of the assessee. The increment in value of land contemplated by the Town Planning Act was real. The assessee gained an enduring advantage by paying the amount and the fact that the payment was under a statutory obligation and not because the assessee desired it was immaterial. Even if it were taken that the payment was made to prevent distress sale and to protect the business set up, the expenditure was on capital account and not an expenditure for producing profits in the conduct of business. The installment of contribution paid under the Town Planning Act was not deductible under s. 37.
6. In view of this decision in Rohit Mill's case 0043/1975 : 104ITR132(Guj) , it is obvious that the betterment charges paid by the assessee were levied against the increased potential value of the lands covered by the scheme and the increment in value of land contemplated by the Town Planning Act was real. The assessee gained an enduring advantage by paying this amount of Rs. 60,390. Thus, what the assessee spent by way of betterment charges was certainly for the improvement of the land. The Supreme Court has pointed out in State of Gujarat v. Shantilal Mangaldas. : 3SCR341 , that the person whose property gets improved in value pays in the shape of betterment charges for all improvements which the town planning scheme entitles. Under these circumstances, it is obvious that the expenditure in the shape of betterment charges paid under the town planning scheme for acquiring an enduring benefit are in the nature of capital expenditure and go to improve the value of the land; hence, they would fall under s. 48(ii) of the I.T. Act. Under these circumstances, the Tribunal was not right in holding that the betterment charges of Rs. 60,390 paid by the assessee to the Ahmedabad Municipal Corporation could not be considered to be cost of improvement within the meaning of s. 48(ii) of the I.T. Act, 1961. Question No. 2 is, therefore, answered in the negative, i.e., in favour of the assessee and against the revenue. There will be no order as to costs of this reference.