THE issue before the Bench is - Whether expenditure incurred for curing defect in title of vacant land to be used for business purpose in future is to be treated as revenue in nature. NO is the answer.
Facts of the case
The assessee is engaged in the business of manufacturing of cutting tools at its factory and along with factory land assessee owned another area of land which was vacant. Pursuant to enactment of Urban Land (Ceiling and Regulation) Act, 1976, the assessee had applied to the Competent Authority for exempting certain area out of the said land u/s 20 of Land ceiling Act. Pending consideration of exemption application, the State Government issued a notification u/s 41 of the Maharashtra Housing & Area Development Act, 1976 for acquiring the concerned land. The assesee had paid an amount of Rs.23.35 lakhs to the State Government and also carried out its obligation under the order for availing the exemption granted u/s 20 of Land ceiling Act. The assessee had claimed payment of Rs.23.35 lakhs to the State Government as the revenue expenditure while arriving at its profit for the A. Y. 1990-91. The AO had held that concerned payment of Rs.23.35 lakhs was in the nature of capital expenditure on the grounds that exempted land was not being used for the purpose of business. The AO had also held that the acquisition would not have had any immediate effect on the carrying on business by assessee and the amount of Rs.23.35 lakhs was paid by the assessee only for perfecting and protecting its title over the exempted land and thus the benefit obtained by making the payment of Rs.23.35 lakhs was a benefit of an enduring nature in respect of the exempted land. The CIT (A) had dismissed appeal by holding that the payment of Rs.23.35 lakh was not revenue expenditure but capital expenditure. On further appeal, the Tribunal upheld the order of CIT(A).
Having heard the parties, the High Court held that,
++ it is clear that neither the Parliament has laid down any tests to distinguish between capital and revenue expenditure nor the Courts have been able to evolve an universal tests to distinguish between the two types of the expenditure. The entire issue whether the expenditure is capital or revenue has to be looked at through the eyes of the businessman incurring the expenditure. This in the context of a commercial perspective. The payment made by assessee was not with a view to protect the property per se but to ensure that the proceedings under ULCA do not result in the entire property being taken over by the State Government, which was otherwise a fait accompli. As a consequence, inter alia, of making a payment of Rs.23.35 lakhs, the assessee received a benefit of enduring nature inasmuch as 10,462 sq. mtr of land came out of the clutches of ULCA and an area of 6767 sq. mtr was available for all times to be used by the assessee including the power to sell of the land along with the structures thereon. In the above facts, the payment of Rs.23.35 lakhs from a businessman's point of view was a payment made to stop/stall the acquisition of land which a businessman was able to foresee. Therefore, the adoption of the entire process of exemption to ensure that the land was available to the assessee for indeterminate period albiet with the constructed hostel, training centre and guest house on the same. The exemption itself only prohibits the assessee from disposing of land in favor of any third party till such time as the construction on the land is complete in terms of the conditions of the exemption. Thereafter, there is no prohibition to transfer the structure along with the land. Thus a right to transfer, unfettered in any manner became available to the assessee after construction of the building on the land. This right was not available to the assessee prior to the grant of the exemption as the disposition was fettered because of the certain acquisition of land as even according to the assessee, vacant land was in excess of the ceiling limit under ULCA. This payment made by the assessee in its nature was different from a payment made to protect the property;
++ it is a settled position that a title was an evidence of ownership to the property. Ownership as such constitutes a bundle of rights over a land or thing i.e. right to possession, right to use and enjoy, right to consume, destroy or transfer and all the above rights are indeterminate in time. The ownership of the exempted land is affected inasmuch as the right to consume and/or transfer the excess vacant land is affected/ fettered by virtue of the enactment of ULCA. Thus, by obtaining exemption from ULCA inter alia on payment of Rs.23.34 lakhs, the fetter / encumbrance/impediment was removed in the ownership of the land. Therefore, the title which was evidence of ownership in the present facts was not complete ownership as the same was fettered by the provisions of ULCA. This removal of a fetter by making payment completes the ownership of the land which was otherwise imperfect and would be reflected in the title on grant of exemption, the title to the exempted land was no longer encumbered by the provisions of ULCA. Therefore, High Court does not accept the assessee's contention that the payment was revenue in nature. This court is of the view that the impugned orders of the authorities have reached a correct finding of fact that the land was not being used for the purposes of the assesses business. It was a vacant land to be exploited in the future. The business of the assessee i.e. of manufacturing of cutting tools continued and the factory land nor its manufacturing activities was affected by the ULCA even remotely. Thus, exemption obtained on payment made was not to protect a running business or business asset of the assessee. In view of the above, High Court saw no reason to disturb the finding of the Tribunal upholding the order of the lower authority that amount of Rs.23.35 lakhs was not an expenditure on revenue account.