JUDGMENT
Mrs. Sujata Manohar, J.
1. The assessee is a company engaged in manufacturing and selling carbon dioxide in gaseous as well as in solid state. The assessee has a lease hold interest for a period of 99 years in a very large plot of land. By a board resolution dated July 23, 1959, the assessee resolved to demise a portion of this land admeasuring 1,653 sq. yds. for a term of 12 years to one Messrs. Bhor Industries Limited on the following terms :-
(i) The ground rent was to be computed at the rate of Re. 1 per sq. yd. ;
(ii) The licensee was required to construct a pucca one-storeyed building in accordance with the plans and specifications previously approved by the assessee at a cost of not less than rupees two lakhs;
(iii) The licensee was entitled to use and enjoy such building free of any rent or compensation, but the licensee was required at its own cost to maintain and keep the building in tenantable repairs;
(iv) The licensee was also required to pay all municipal and other taxes which may be levied in respect of this construction;
(v) On the expiry of the lease by efflux of time or otherwise, the licensee was required to deliver vacant possession of the land with all structures put up by the licensee to the assessee and all such structures shall be the property of the assessee;
(vi) If, before the expiry of the term of 12 years, the licensee agrees to take from the assessee a fresh lease for such term and at such rent and on such condition as the assessee, at its discretion, thinks fit, the licensee was entitled, in lieu of vacating the premises and delivering possession thereof, to continue to occupy the said land with all the structures thereon, upon the terms so agreed.
2. Pursuant to this resolution, the assessee delivered possession of the land to the licensee. The licensee thereafter put up a factory building of ground floor and one upper floor on the land at a cost of Rs. 3,60,103.25. After the construction was complete, a regular agreement evidencing the arrangement was executed by the parties on August 28, 1962. The agreement was later modified by another agreement of April 23, 1965.
3. On September 30, 1971, the period of the licence expired and, in pursuance of the terms of the agreement, the building that the licensee had constructed on the land became vested in the assessee. The written down value of the building on that date was Rs. 2,14,784. Subsequently, a fresh agreement was executed between the parties by which the land with the building was rented out by the assessee to the same licensee, but on a monthly rent of Rs. 4,000 with effect from October 1, 1971.
4. In the return filed for the year, the assessee accounted for the sum of Rs. 24,000 received by it as rent for the six months from October 1, 1971, to March 31, 1972. With regard to the written down value of the building which became vested in the assessee without payment of any compensation, the assessee claimed that it was a capital receipt. The Income-tax Officer, however, held that the written down value of the property received by the assessee was a revenue receipt taxable in his hands as such.
5. In appeal against the decision of the Income-tax Officer, the Appeal late Assistant Commissioner confirmed the order of the Income-tax Officer in this regard. In appeal before the Tribunal, the Tribunal said that the written down value of the building in question which became vested in the assessee on October 1, 1971, would have been taxable as a revenue receipt only if it could have been considered as in the nature of deferred rent. The Tribunal held on the facts that there was nothing on record to indicate that, at the time when the terms of the licence were agreed upon, the land in question could have fetched by way of rent anything more than the rate of Re. 1 per sq. yd. The Tribunal also noted the terms of the licence which, at the option of the licensee, could have been of a long duration. The Tribunal also noted that, although under the agreement, the licensee was under no obligation to spend anything over rupees two lakhs on the building, the licensee had spent more than rupees three lakhs for the construction of the building, thus indicating that the parties had in mind the continuance of the licence in favour of the licensee even after the expiry of the period of 12 years and, hence, the licensee had constructed the building suitable for his purposes by spending more than what the licensee was obliged to spend under the agreement.
6. The Tribunal relied upon the ratio of a decision of the Division Bench of this High Court in the case of CIT v. Elphinstone Dye Works (P.) Ltd. [1971] 82 ITR 634, in support of its conclusion that the written down value of the building represented only the premium that had been agreed upon by the licensee to be paid to the assessee under the terms of the licence agreement. The same was not a revenue receipt. The Tribunal, therefore, deleted the addition made on that account by the Income-tax Officer.
7. From this finding of the Tribunal, the following two questions have been referred to us at the instance of the Department :
“(1) Whether, on the facts and in the circumstances of the case, and having particular regard to the fact that the Tribunal itself had noticed that clause C of the agreement entered into between the assessee-company and Bhor Industries Ltd., on February 11, 1972, had recorded that, for a period of 12 years commencing on October 1, 1959, the assessee had been receiving a nominal compensation of Rs. 1,653 per annum from the latter, the Tribunal had material before it on the basis of which it could hold that there was nothing brought on record by the Revenue that showed that, at the time the assessee-company demised its land to Bhor Industries Ltd., on a leave-and-licence basis, the land could have possibly obtained by way of rent anything more than Re. 1 per sq. yard or that the said licence fee was not in the nature of a ‘reduced rent’ or that the written down value of the building that became vested in the assessee-company on the expiration of the period of licence did not represent the deferred rent for the period for which the agreement between the two said parties was in force ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the written down value of the building which became vested in the assessee on October 1, 1971, in accordance with the terms of the agreement dated August 28, 1962, entered into by it with Messrs. Bhor Industries Ltd., was not in the nature of a revenue receipt and was not assessable as such for the assessment year 1972-73 ?”
8. Before the Tribunal, the assessee had sought leave to raise an additional ground that, in arriving at its total income, the surtax paid by the assessee should also be allowed as a deduction. The assessee had not made its claim either before the Income-tax Officer or before the Appellate Assistant Commissioner. The Tribunal held that the new ground was not one arising from the order of the Appellate Assistant Commissioner and, hence, it had no jurisdiction to consider the point. It, therefore, did not permit the assessee to raise the additional ground. From this finding of the Tribunal, the following question has been referred to us at the instance of the assessee :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not allowing the assessee to raise the additional ground and not deciding whether the assessee was entitled to deduction of the surtax payable by them under the Companies (Profits) Surtax Act, 1964, in determining their income under the Income-tax Act, 1961 ?”
9. In respect of the two questions which are before us at the instance of the Department, the Tribunal, in its order, has given a finding that Department has not produced any evidence to show that the rent of Re. 1 per sq. yd. was in the nature of a reduced rent or to establish that the written down value of the building which was to vest in the assessee at the end of the licence period represented deferred rent for the period for which the agreement was in force.
10. In the case of CIT v. Elphinstone Dye Works (P.) Ltd. [1971] 82 ITR 634, a Division Bench of this court considered an agreement which was very similar to the agreement which is before us. In that case, the assessee-company which carried on the business of dye works leased out a plot of land to weaving mills company at a rent of Rs. 100 per month for a term of five years, with an option to continue for another five years. Under the agreement, the mill was required to construct on the land a building for a weaving mill at a cost of not less than rupees fifty thousand and on the determination of the tenancy, the mills had to yield the building and to demise the land to the assessee. The mills in fact constructed a building at a cost of Rs. 1,30,000. At the end of ten years, the assessee received back the building and made a credit entry in its capital account for rupees seventy thousand being the cost of construction less depreciation. The Court said that the value of the building was exempt from inclusion in the total income at it was a capital receipt. The business of the assessee-company was to carry on dye works and not to deal in immovable properties. The Revenue had not produced any evidence to show that the lease was at a reduced rate or that the building which was acquired at the expiry of the term of the lease represented a deferred rent. The court also took note of the fact that the lessee in fact expended much more than what it was required to, under the terms of the agreement, for the construction of the building. The court held that the sum of Rs. 77,870, which was held to be the value of the building in the hands of the assessee was not a revenue receipt in the hands of the assessee. This ratio directly applies to the present case also.
11. In a subsequent case of Hemchand Amarchand v. CIT [1974] 95 ITR 411, another Division Bench of this court has followed the above judgment in the case of an assessee which had entered into a somewhat similar agreement in respect of its lands. In this case also, the assessee had let out a piece of land for a term of six years, on receiving rupees two thousand, on condition that the lessee need pay no rent during the term, but had to construct a shop on the land at a cost of not less than rupees four thousand. On the expiry of the term, the structure with all its fitting should belonging to the assessee was not a revenue receipt for reasons similar to the ones set out in the case of CIT v. Elphinstone Dye Works (P.) Ltd. [1971] 82 ITR 634 (Bom).
12. Dr. Balasubramaniam sought to distinguish these judgments by pointing out that, in those cases, the assessee had not carried on the business of letting out the land. Dr. Balasubramaniam submitted that, in the present case, the assessee carried on the business of letting out its land. The only fact in support of his argument which is pointed out by Dr. Balasubramaniam is the fact that, in the memorandum of association of the assessee-company, clause 9 (i) which, inter alia, sets out objects of the company states that the company can let out land and buildings of the company not immediately required for the purposes of the business of the company. In this connection, the Tribunal has rightly pointed out that this clause in the memorandum of association does not indicate that the assessee is engaged in the business of letting out lands. All that the sub-clause does is to authorise the company to let out the land which it may not immediately require for the purpose of its business. The Tribunal has held that the assessee was not engaged in the business of letting out lands. The assessee was engaged only in the business of manufacturing and sales of carbonic gas in its gaseous and solid state. There is, therefore, no reason why we should depart from the ratio laid down by the Division Benches of the High Court in the above two cases. The value of the building coming to the assessee is a receipt of a capital nature and not of a revenue nature.
13. In the premises, both the questions are answered in the affirmative and in favour of the assessee.
14. In respect of the question raised at the instance of the assessee, it is an accepted position that, in view of a decision of the Full Bench of this court to which one of us (Mrs. Sujata Manohar J.), was a party, delivered by Mrs. Sujata Manohar, B. N. Deshmukh and B. N. Srikrishna JJ. dated April 30, 1992, in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351, in Income-tax Reference No. 481 of 1976, along with other references, this question must be answered in the affirmative and in favour of the assessee.
15. The question are answered accordingly.
16. No order as to costs.