THE COMMISSIONER OF INCOME TAX, DELHI vs. M/S HINDUSTAN TIMES LTD. NEW DELHI

CIVIL APPEAL No. 1225/1990Supreme Court[1998] 3 S.C.R. 19706 May 1998Bench: 2 JudgesAuthor: SUJATA V. MANOHAR, M. JAGANNADHA RAO4 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s Hindustan Times Ltd., purchased an existing residential building in 1961 and intended to use it for commercial purposes. They paid commercialisation charges and additional ground rent. The original building was demolished, and a new multi-storeyed building was constructed, completed around 1973. Under an indenture dated March 5, 1973, the assessee paid Rs. 36,96,516 to the President of India for the right to use the new multi-storeyed building, which had an area exceeding the original built-up area, for commercial purposes. The assessee added this sum to the cost of the building and claimed depreciation. The Commissioner (Appeals) and the Tribunal allowed the claim. The Revenue appealed to the High Court, which upheld the Tribunal's decision. The Revenue has now appealed to the Supreme Court against the High Court's order for assessment years 1973-74, 1974-75, and 1977-78 to 1980-81.

What did the Supreme Court hold?

The Supreme Court held that the view taken by the High Court was correct. The amount of Rs. 36,96,516 was includible in the cost of the building for claiming depreciation. The Court reasoned that the payment was made for the additional space constructed for office purposes, representing the cost incurred by the assessee in putting up the business asset, i.e., the building. The High Court had correctly noted that the land's commercial use was already converted in 1962, and the payment in 1973 was for the additional construction. The Court distinguished the case from Commissioner of Income-tax, Punjab, Jammu & Kashmir and Himachal Pradesh v. Alps Theatre, (1967) 65 ITR 377, stating that the present issue was about whether the amount should be included in the cost of the building, not the distinction between the cost of land and building in general. The appeals were dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal (ITAT) was justified in law in upholding the order of the Commissioner of Income Tax (Appeals) (CIT(A)) directing that the assessee was entitled to add a sum of Rs. 36,96,516 to the cost of the building and claim depreciation thereon? (Question of law and mixed fact and law, concerning Section 32(1) of the Income Tax Act, 1961). Assessee's Contention: The sum of Rs. 36,96,516 was paid for the commercial use of the additional area constructed as part of the multi-storeyed building, and therefore, it correctly forms part of the cost of the building for depreciation purposes. Revenue's Contention: The amount of Rs. 36,96,516 was paid for the commercial use of the land and should be added to the cost of the land, not the building, making it ineligible for depreciation. The Revenue relied on the decision in Commissioner of Income-tax, Punjab, Jammu & Kashmir and Himachal Pradesh v. Alps Theatre, (1967) 65 ITR 377.

Which sections of the Income-tax Act were involved?

Section 32(1),Section 256(2)

AI-generated summary — verify with the full judgment below

-..., " ~ ' THE COMMISSIONER OF INCOME TAX, DELHI v. M/S HINDUSTAN TIMES LTD. NEW DELHI MAY 6, 1998 [MRS. SUJATA V. MANOHAR AND M. JAGANNADHA RAO, JJ.] Income Tax Act, I961 : Sections 32(1) and 256 (2).

Income Tax-Depreciation-Purchase of existing residential building hy assessee-Wanted to use that building for commercial purposes-Assessee paid commercialisation charges in addition to ground rent-Original building demolished and a new multi-storeyed building constructed by assessee- Assessee paid Rs. 36,96,516 for using the multi-storeyed building for commercial purposes containing an area in excess of original built up , area-Assesse added this amount to the cost of building constructed by it and claimed depreciation on the same-Claim allowed by Commissioner (Appeals) as well as by the Tribunal-View upheld by High Court on the ground that the sum of Rs, 36,96,516 has been laid out by the assessee in order to construct the additional space for office purposes-The payment has. been made for construction of a business asset and forms a part of the cost incurred by the assessee in putting up that building-Appeal by Revenue- Held the view taken by the High Court wa

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