JUDGMENT
U.T. Shah J.
1. The Tribunal has sent a consolidated statement of the case in respect of the three years under reference, as some of the issues raised in questions referred to us are common for the years under reference.
2. The assessee is a company and is engaged in chemical industry. The assessment years are 1969-70 to 1971-72 and the relevant previous years are the calendar years 1968, 1969 and 1970, respectively.
3. The issues involved in the first two questions referred to us are interlinked. The questions referred to us read as under:
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing granting of depreciation on the cost of plant and machinery, factory buildings and housing colony buildings as enhanced, respectively, by the sums of Rs. 10,41,016, Rs. 8,23,499 and Rs. 7,31,061 being the expenditure on land development, roads and fencing as allocated by the Tribunal among these three fixed assets, for the assessment years 1969-70, 1970-71 and 1971-72 (R.A. Nos. 1747, 1748 and 1752 and R.A. Nos. 1751, 1750 and 1749)?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing granting of development rebate on the cost of plant and machinery as enhanced by the sum of Rs. 10,41,016 being the expenditure on land development, roads and fencing, allocated to this asset by the Tribunal (out of the total expenditure of Rs. 26,03,576) for the assessment year 1969-70 (R.A. No. 1751/(Bom) of 1976-77)?”
4. The facts leading up to the dispute are summarised by the Tribunal in its order under reference at page 11 as under:
“The assessee, for the purpose of erection of its plant and buildings, had acquired leasehold rights from the Maharashtra Industrial Development Corporation, a large tract of land admeasuring about 360 acres near Kulshet village on Thane-Belapur Road. The site, before it could be fit for the erection of plant and machinery as also housing colony buildings, required clearing, excavation, levelling and drainage, etc. Since the assessee’s plant and machinery and buildings were spread over a large area, it had to make roads for the easy movement of its mobile equipment, trucks, etc. The total expenditure on land development and roads came to Rs. 18,45,387 including Rs. 59,569 in respect of the unbuilt area. To protect the property of the assessee, which covered a wide area and to isolate the housing colony from the surrounding wilderness, the assessee erected fencing enclosing the said property. The fencing comprises a random rubble masonry wall (average 6′ high) on a concrete foundation, surrounded by R.C.C. poles 8′ high. A continuous stretch of wire mesh is running across the R.C.C. poles which are distanced 8′ apart. Three rows of barbed wire run across the angles at the top of the R.C.C. poles. The total expenditure incurred by the assessee on the said fencing was Rs. 8,17,738. Since the land development expenses and expenditure on roads pertained to the plant area, to the buildings in the shape of housing colony as also the unbuilt area it has retained as a part of the leasehold lands for development and so was the position regarding the fencing expenditure (except that it did not extend to the unbuilt area), the assessee in its books had apportioned the aforestated expenditure on land development and roads of Rs. 18,45,387 and the fencing expenditure to plant and machinery, to the housing colony buildings and unbuilt area in the following manner:
————————————————————————
Land develop- Fenching
ment and
roads
------------------------------------------------------------------------
Rs. Rs.
Total cost 18,45,387 8,17,758
Less: Land development cost as part of
the cost of the leasehold land and
development regarding unbuilt area 49,569* -
(*In respect of this amount
depreciation and development rebate --------- ---------
have not been claimed.) 17,85,818 8,17,758
Less: Cost pertaining to housing colony,
debited to housing colony buildings
depreciation rate 2 1/2 per cent. 5,96,634** 1,42,427
--------- ---------
Balance relating to factory area 11,89,184* 6,75,331
Amounts transferred to buildings in
factory area on the basis of area
occupied:
To buildings-depreciation rate 2 1/2
per cent. 72,375 2,84,599
To buildings-depreciation rate 5
per cent. 1,18,563 1,24,233
To buildings-depreciation rate 10
per cent. 71,226 1,52,503
--------- ---------
2,62,164 5,61,335
--------- ---------
Amounts transferred to plant and machinery on the basis of area occupied:
To plant and machinery-depreciation rate 10 per cent. 3,26,330 40,129
To plant and machinery-depreciation rate 15 per cent. 6,00,690 73,867
--------- ---------
9,27,020 1,13,996
--------- ---------
Total as above 11,89,184 6,75,331
--------- ---------
Rs.
*Land development 3,48,438
Roads 8,40,746
---------
11,89,184
=========
**Land Development 95,051
Roads 5,01,583
---------
5,96,634
=========
----------------------------------------------------------------------
5. On the aforesaid facts, the assessee claimed depreciation on the capitalisation of the expenditure incurred in the development of the land for installing its factory. The Income-tax Officer, however, in his assessment order for the assessment year 1969-70 rejected the assessee’s claim on the ground that the expenditure incurred by the assessee was in respect of the land taken on long lease by it and not for installing plant and machinery or constructing buildings thereon. He, therefore, disallowed the assessee’s claim of depreciation to the extent of Rs. 1,99,742 and also development rebate to the extent of Rs. 3,64,338 on the ground that the assessee would not be permitted to enhance the cost of plant and machinery as well as buildings, both factory as well as employees’ colony.
6. In appeal before the Appellate Assistant Commissioner, the assessee once again pressed its claim of depreciation and development rebate on the enhanced cost of assets involved. The Appellate Assistant Commissioner, in his order for the assessment year 1969-70, accepted the assessee’s claim as under:
“3. (v) I have considered the submissions of the appellant’s representative. In my opinion, the entire cost incurred on the land development and roads and fencing is entitled to depreciation because it is part of the factory building. I have no hesitation in holding that the cost incurred on the construction of roads and fencing is the cost of factory building. So far as the expenditure incurred on land development is concerned, this also is cost of the building. This expenditure was incurred for levelling the ground and making it suitable for putting up the factory building. The appellant-company had incurred this expenditure before production started and this expenditure has been capitalised. The expenditure incurred on land development has enhanced the cost of the factory building. The expenditure incurred on land development should not be considered and confused with the cost of land. Depreciation cannot be allowed on the cost of land in view of the Supreme Court judgment in the case of CIT v. Alps Theatre [1967] 65 ITR 377. However, the expenditure incurred on land development is a separate thing as compared to the cost of the land. If the appellant-company had given a turnkey contract to a builder to put up the plant, he would have certainly included the cost of the land development in his bill. In view of all these circumstances, I hold that the expenditure incurred on land development and on the construction of roads and on fencing should be treated as expenditure incurred on the factory building. The Income-tax Officer is directed to allow depreciation on it.”
7. Before the Income-tax Appellate Tribunal (“the Tribunal”), the Revenue strongly urged that the Appellate Assistant Commissioner ought not to have accepted the assessee’s claim of depreciation and development rebate at the enhanced cost of the assets, as the expenses incurred for levelling the land cannot be considered as part of the cost of the assets which are entitled for depreciation under the relevant section of the Act. The assessee, on the other hand, strongly supported the order of the Appellate Assistant Commissioner and justified his action.
8. The Tribunal, more or less, adopted the reasoning of the Appellate Assistant Commissioner and consequently upheld his decision on this issue.
9. It may be mentioned that for the assessment years 1970-71 and 1971-72, the Income-tax Officer as well as the Appellate Assistant Commissioner had followed their respective orders for the assessment year 1969-70. However, the Tribunal has passed a consolidated order wherein, as stated above, it has upheld the decision of the Appellate Assistant Commissioner.
10. Learned counsel for the Revenue strongly urged that the Appellate Assistant Commissioner as well as the Tribunal were not justified in accepting the assessee’s claim for depreciation on the so-called enhanced cost of the assets involved as, according to him, the expenditure incurred on levelling the land had no connection whatsoever with the cost of the assets on which the depreciation is allowable under the relevant provisions of the Act. Learned counsel for the assessee, on the other hand, supported the order of the Appellate Assistant Commissioner which was upheld by the Tribunal by relying on four decisions, two of the Supreme Court and two of the High Courts, viz., in the cases of:
Challapalli Sugars Ltd. v. CIT ;
CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. ;
CIT v. Caltex Oil Refining (I.) Ltd. [1976] 102 ITR 260 (Bom); and
Addl. CIT v. Madras Cements Ltd. [1977] 110 ITR 281 (Mad).
11. We have carefully considered the submissions made by the parties as well as gone through the facts available on record and it is difficult to find any infirmity in the decision of the Appellate Assistant Commissioner which was upheld by the Tribunal. The ratio of the aforesaid four decisions would clearly apply to the facts and circumstances obtaining in the instant case and, accordingly, the assessee would be entitled to depreciation and development rebate at the enhanced cost of the assets involved. It appears to us that the Revenue was very much obsessed by the fact that the expenditure incurred by the assessee was for levelling the vast area of the land which it had taken on long lease. However, it was not disputed on behalf of the Revenue that the expenditure incurred on foundation for fixing the plant and machinery would form part of the cost of plant and machinery and the assessee would be entitled to depreciation thereon. We do not think there is any difference between the expenditure incurred on foundation and levelling the land for the purpose of installing the plant and machinery, factory buildings and housing colony, as was done by the assessee. Since the issue is very clear and fully covered by the ratio laid down in the aforesaid four decisions, we have no hesitation in answering the first two questions in the affirmative, i.e., in favour of the assessee and against the Revenue.
12. The third question referred to us pertains to the assessment year 1969-70 and reads as under:
“3. Whether, on a proper interpretation of the word ‘due’ occurring in rule 19A(3) of the Income-tax Rules and, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provision for taxation made by the assessee-company and standing at Rs. 2,69,000 as on January 1, 1968, could not be considered as a deductible debt within the meaning of the said rule 19A(3) by the Income-tax Officer while computing the relief due to it under section 80J of the Income-tax Act? (R.A. No. 1747).”
13. It is an agreed position that in view of the decision of this court in the case of CIT v. Boots Pure Drug Co. (I.) Ltd. [1993] 203 ITR 979 (Income-tax Reference No. 184 of 1977, dated October 21, 1992), the question referred to us has to be answered in favour of the assessee and against the Revenue. We answer the question accordingly.
14. Question No. 4 relates to all the three years under reference and reads as under:
“4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Income-tax Officer could not grant the assessee-company extra shift allowance on its plant and machinery? (R.A. Nos. 1747, 1748 and 1752).”
15. Here also, both the parties agreed and stated that in view of the decision of this court in the case of CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443, the question has to be answered in favour of the assessee and against the Revenue. The question is answered accordingly.
16. The remaining three questions referred to us read as under:
“5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 50,000 that represented certain legal expenses and stamp fees should be treated as an asset for the purpose of the computation of the assessee-company’s capital within the meaning of section 80J for the assessment year 1969-70? (R.A. No. 1751/(Bom) of 1976-77).
6. Whether, on the facts and in the circumstances of the case, a sum of Rs. 16,972 paid by the assessee-company on account of fluctuations in the rates of exchange in the course of repayment of a loan taken by it from the Export-Import Bank of Washington, was an expenditure or a loss of a revenue nature deductible in the computation of its total income? (R.A. No. 1751/(Bom) of 1976-77).
7. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that a loss of Rs. 30,000 sustained by the assessee-company on account of fluctuations in the rate of exchange, vis-a-vis, the dollar while repaying a loan taken by it was allowable?”
17. We find from the orders of the income-tax authorities as well as from the Tribunal that none of them have bothered to bring proper facts on record. In fact, the Income-tax Officer is completely silent on this issue, while the Appellate Assistant Commissioner and the Tribunal have given certain facts which are not sufficient to help in arriving at a considered opinion on the questions referred to us. It may be mentioned that for the assessment years involved, the assessee had filed its return of income declaring loss of Rs. 6.22 crores, Rs. 1.14 crores, Rs. 41,983. The Income-tax Officer has framed the assessment on loss of Rs. 9.96 crores, Rs. 1.02 crores and Rs. 1.54 crores, respectively. Thus, it would appear that there would not be any significant impact in returning these questions unanswered. Under the circumstances, we decline to answer these questions.
18. In this view of the matter, we make no order as to costs.