Madras High Court
M/S.Hinduja Foundries Ltd vs The Assistant Commissioner Of Income ... on 10 October, 2025
2025:MHC:2347
TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 19.09.2025
Pronounced on : 10.10.2025
CORAM
THE HONOURABLE MR. MANINDRA MOHAN SHRIVASTAVA,
CHIEF JUSTICE
AND
THE HONOURABLE MR.JUSTICE G.ARUL MURUGAN
TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 & 803 of 2018
TCA Nos.794 & 795 of 2016
M/s.Hinduja Foundries Ltd.,
(formerly Known as M/s.Ennore Foundries Ltd.,)
Kathivakkam High Road, Ennore,
Chennai - 600 057.
PAN: AAACE1078K .. Appellant
Vs
The Assistant Commissioner of Income Tax,
Corporate Circle - 2,
Chennai - 600 034. .. Respondent
Common Prayer : Appeals under Section 260A of the Income Tax Act,
1961 against the common order dated 19.02.2016 passed in ITA
Nos.1592 & 1593/Mds/2015 on the file of Income Tax Appellate
Tribunal 'A' Bench, Chennai.
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
TCA Nos.798, 800 to 803 of 2018
M/s.Hinduja Foundries Ltd.,
(merged with M/s.Ashok Leyland Limited) Kathivakkam High Road,
Ennore,
Chennai - 600 057.
PAN: AAACA4651L .. Appellant
Vs
The Deputy Commissioner of Income Tax,
Large Tax Payer Unit - 2,
Chennai - 600 034.
(Presently Deputy Commissioner of Income Tax
Company Circle 2(2)
Chennai - 600 034.) .. Respondent
Common Prayer : Appeals under Section 260A of the Income Tax Act,
1961 against the common order dated 08.03.2018 passed in ITA
Nos.1974, 1975, 1976, 1977 & 1978/CHNY/2017 on the file of Income
Tax Appellate Tribunal 'A' Bench, Chennai.
For Appellant : Mr.R.Vijayaraghavan
[in all TCAs] for M/s.Subbaraya Aiyar
Padmanabhan Ramamani
For Respondent : Mrs.V.Pushpa
[in all TCAs] Senior Standing Counsel
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
COMMON JUDGMENT
(Judgment of the Court was delivered by G.Arul Murugan, J.)
These Tax Appeals are preferred by the Assessee under Section
260A of the Income Tax Act, 1961 (hereinafter referred to as “the
Act”) challenging the two common orders of the Income Tax Appellate
Tribunal, ‘A’ Bench, Chennai (hereinafter referred to as “Tribunal”)
dated 19.02.2016 and 08.03.2018, confirming the two common orders
of CIT(A) dated 13.02.2015 and 31.05.2017 pertaining to the
assessment years (AY) 2006-2007 to 2014-2015.
2. Tax Appeals in TCA Nos.794 and 795 of 2016 have been
admitted, by order dated 22.11.2016, framing the following substantial
questions of law:
“(i) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law in holding that the
assessee was not eligible to claim depreciation on sums
paid to SIPCOT for development of common infrastructural
facilities?
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
(ii) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law in holding that the
common infrastructural facilities were not amenities used
for carrying out the business of the Assessee ?
(iii) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in not holding that the
assessee has acquired a commercial right to use the
common infrastructure facilities for the purpose of its
business and hence assessee is entitled to depreciation on
such intangible asset ?
(iv) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law in not holding that, if
the assessee was not eligible to claim depreciation on
sums paid to SIPCOT, the amount was allowable as
revenue expenditure.”
3. Tax Appeals in TCA Nos.798 and 800 to 803 of 2018 have
been admitted, by order dated 14.11.2018, framing the following
substantial questions of law:-
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and 798, 800, 801, 802 and 803 of 2018
“Common questions in all the appeals :
(i) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law in holding that the
assessee was not eligible to claim depreciation on sums
paid to SIPCOT for development of common infrastructural
facilities?
(ii) Whether, on the facts and in the circumstance of the
case, the Tribunal was right in law in holding that the
common infrastructural facilities were not amenities used
for carrying out the business of the assessee?
(iii) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in not holding that the
assessee has acquired a commercial right to use the
common infrastructure facilities for the purpose of its
business and hence, the assessee is entitled to
depreciation on such intangible asset?
(iv) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law in not holding that if the
assessee was not eligible to claim depreciation on sums
paid to SIPCOT, the amount was allowable as revenue
expenditure deductible in the year, in which, it was
incurred? And
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and 798, 800, 801, 802 and 803 of 2018
(v) Without prejudice to the above, whether the Tribunal
ought to have allowed the alternate contention that 5% of
the amount paid for the year in as much as under Clause
14(ii) the Sipcot would be deducting 5% of the amount for
every year of occupation?
Additional questions in T.C.A.No.802 of 2018 :
(vi) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law in refusing to entertain
the legal ground raised before it regarding allowability of
right issue expenditure? And
(vii) Whether, on the facts and in the circumstances of the
case, the Tribunal was right in law in not considering the
ground of appeal that expenses of Rs.38,08,416/- incurred
in connection with the issue of rights shares, which did not
go through, hence eligible for deduction as revenue
expenditure under Section 37 of the Act?”
4. Heard Mr.R.Vijayaraghavan, learned counsel for the assessee
and Mrs.V.Pushpa, learned Senior Standing Counsel for the Income
Tax Department.
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
5. The substantial questions of law 1 to 3 in all these appeals are
almost similar, pertaining to the claim of depreciation on the sum paid
to State Industries Promotion Corporation of Tamilnadu Limited
(SIPCOT) for development of infrastructural facilities.
6. The substantial question of law 4 arises in TCA Nos.794 and
795 of 2016 and the substantial question of law 4 along with 5 arises
in TCA Nos.798 and 800 to 803 of 2018, which pertains to the
alternate claim made by the assessee claiming deduction on the sum
paid to SIPCOT as revenue expenditure. The substantial questions of
law 6 and 7 arise only in TCA No.802 of 2018 that pertains to the claim
of deduction as revenue expenditure towards the issue of rights share.
7. During the course of arguments, the learned counsel for the
assessee submitted that in view of the materials placed in the enquiry,
he is not pressing the appeal in respect of the questions of law 6 and
7. In view of the submissions made, the appeal pertaining to
question of law 6 and 7 stands dismissed as not pressed.
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
Substantial questions of law 1 to 3:
8. The assessee had filed the return of income for AY 2008-2009
on 30.09.2008, declaring a total loss of Rs.15,16,36,876/-. The case
was selected for scrutiny and notice under Section 143(2) was issued
on 12.08.2009. The return had been processed under Section 143(1)
on 28.01.2010. The assessee in its return had claimed 10%
depreciation towards a sum of Rs.6.20 crores paid to SIPCOT for
development of infrastructural facilities along with the building, which
had also been carried forward in the subsequent returns.
9. The Assessing Officer (AO) rejected the claim, holding that
the amount paid to SIPCOT is only for the purpose of land
development and the rights obtained by the assessee is only towards
land and therefore, the claim of depreciation is not allowable on
building.
10. In the appeal before the CIT(A), the assessee had also made
an alternate claim to allow the amount of Rs.6.20 crores paid towards
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and 798, 800, 801, 802 and 803 of 2018
development of infrastructure as revenue expenditure. The CIT(A)
dismissed the appeals, confirming the assessment order on the ground
that to become eligible for depreciation in respect of roads and bridges
laid in factory premises on par with factory buildings, the assessee
ought to be the owner, but whereas the assessee had neither
developed such infrastructure nor owned it.
11. Since the land development expenses collected by the
government authority are for the purpose of developing the area as a
whole and not with respect of any individual plot and the same is to be
used by all the industrial undertakings in the area and the assessee is
not the owner either individually or jointly, he is not entitled for
depreciation. Further, the CIT(A) also rejected the alternate claim of
the assessee to allow as revenue expenditure on the ground that the
payment has been made towards development of the land for
establishing the industrial unit and therefore the said expenses shall
form part and parcel of the land costs, which are not allowable as
revenue expenditure.
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
12. In the further appeals by the assessee, the Tribunal in a set
of cases in TCA Nos.794 and 795 of 2016, while rejecting the claim of
depreciation under Section 32 of the Act, had not considered the
alternate claim of the assessee to treat it as revenue expenditure
under Section 37 of the Act. However, in the other set of cases in TCA
Nos.798, 800 to 803 of 2018, the Tribunal, by the common order while
disposing of the appeals rejecting the claim of depreciation following
the earlier order, had also considered the alternate claim to treat it as
revenue expenditure and had rejected the same. Though this alternate
claim has not been dealt with by the Tribunal in TCA Nos.794 and 795
of 2016, in view of the same having been decided by the Tribunal in
the other set of cases, which is considered by this Court in deciding
these substantial questions of law, we do not propose to remand TCA
Nos.794 and 795 of 2016, as the finding and decision to be rendered
on this issue would govern all the cases.
13. The Tribunal had dismissed the appeals holding that to claim
depreciation under Section 32 of the Act, the assessee should be the
owner of the property/asset and the same should be used for the
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and 798, 800, 801, 802 and 803 of 2018
business of assessee. Unless and until the capital asset is used as a
tool for carrying out the business of assessee and the assessee
becomes the owner, he is not eligible for depreciation. Assailing the
common orders, the assessee has preferred the above appeals.
14. Mr.R.Vijayaraghavan, learned counsel for the assessee
argued that a sum of Rs.6.20 crores paid by the assessee is for
development of the infrastructure and the right acquired by the
assessee is an intangible asset and as such, the assessee is entitled to
claim depreciation on the sum paid, as it is a commercial right under
Section 32 of the Act. The commercial right acquired by the assessee
is required to be used to carry on the assessee’s business by putting
up a factory.
15. It is his further contention that as per Section 32(1)(ii) of
the Act, a commercial right may be owned, wholly or partly, by the
assessee and used. The right need not be in exclusivity. When the
assessee has a long lease of 99 years holding the right, he is deemed
to be a part owner and therefore, the assessee is eligible for
depreciation on the commercial right. While so, the authorities and
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and 798, 800, 801, 802 and 803 of 2018
Tribunal had erroneously rejected the claim only on the ground that
the assessee does not own the infrastructure.
16. He further contended that the contribution made is ought to
be treated as part of the building for the purpose of allowing
depreciation. The terms of the lease deed are clear that a sum of
Rs.6.20 crores paid towards development charges will not be treated
as deposit and even in case of premature surrender, the entire amount
will get forfeited at the end of 20th year, i.e. by deducting 5% for every
year and therefore, the claim towards depreciation of the amount paid
is to be allowed.
17. In support of his contentions, the learned counsel relied on
the decision of the Hon’ble Supreme Court in the case of Techno
Shares & Stocks Ltd. Vs. Commissioner of Income Tax reported
in (2010) 327 ITR 323 (SC) and the decision of the Karnataka High
Court in the case of Bangalore International Airport Ltd. Vs.
Deputy Commissioner of Income Tax reported in (2023) 146
taxmann.com 206 (Karnataka).
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
18. Per contra, Mrs.V.Pushpa, learned Senior Standing Counsel
for the revenue vehemently contended that the amount paid by the
assessee towards development charges is nothing but the charges
towards amenities. A separate annual maintenance charge is also paid
for these amenities and further the ownership towards these
developments are retained by the lessor of the assessee. Any
amenities provided for common use of all the plot owners will not be
eligible for depreciation, as the assessee does not own these facilities.
19. It is her further contention that the claim of depreciation by
the assessee towards building was allowed by AO and only since this
payment of Rs.6.20 crores was towards the development of
infrastructure which pertains to the land, it has been rightly
disallowed. The assessee had only claimed exemption towards the
payment made to SIPCOT as development charges and had never
claimed it as an intangible asset.
20. The learned Senior Standing Counsel further by relying on
Section 32(1)(ii) of the Act submitted that the words ‘commercial
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rights of similar nature’ in the provision would only relate to the
commercial rights of similar nature like, patents, copyrights,
trademarks, licences, franchises and cannot be extended to include the
amenities in the layout. Further, when the assessee does not enjoy the
infrastructure absolutely and there are many establishments entitled
to use the infrastructure, the assessee neither fully nor partly owns the
facilities to qualify for an exemption under Section 32(1)(ii) of the Act.
The authorities and the Tribunal had in detail dealt with these issues in
rejecting the claim of depreciation.
21. Heard the rival submissions and considered the materials
available on record.
22. The assessee is engaged in the business of manufacturing
grey iron and aluminium die castings for automobiles etc., and other
marine applications. The assessee had entered into a lease deed dated
10.03.2006 with SIPCOT a State Government undertaking towards the
lease of a plot in the industrial park promoted by the SIPCOT at
Sriperumbudur.
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and 798, 800, 801, 802 and 803 of 2018
23. As per the lease deed, a plot has been allotted to the
assessee on a long term lease of 99 years. As per clause 2 of the lease
deed, the assessee has paid Rs.1.80 crores towards plot deposit and
also a sum of Rs.6.20 crores towards development charges. As per
clause 14 of the lease deed, in the case of resumption of the plot by
the lessor or in the event of surrender, the plot deposit alone shall be
refunded by the lessor and the development charges will be refunded
after forfeiting an amount of 5% per year.
24. Clause 14(ii) of the lease deed reads as follows:-
“14(ii). The plot deposit alone shall be refunded by the
Party of the First Part to the Party of the Second Part on
the expiry of the period of lease and on compliance with all
the terms of the lease. In the event of surrender by the
party of the second part, the plot deposit will be refunded
in full after forfeiting the initial deposit and processing fee
by the party of the first part. The development charges will
be refunded after forfeiting an amount of 5% per year or
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part thereof for the number of years the plot was held by
the party of the second part subject to a minimum
deduction of 15% and no compensation for improvement
of building or other structures erected in the plot shall be
made by the party of the first part.”
25. In view of the terms and conditions of lease deed, the
assessee will be entitled to refund of the plot deposit amount alone
either at the end of the lease period or in case of resumption or
surrender. However, the assessee will not be entitled for refund of
development charges of Rs.6.20 crores paid, but with a 5% deduction
for every year, in case of resumption or surrender. In effect on expiry
of 20th year, no sum would be eligible to be refunded from the
development cost paid.
26. The further conditions of the lease deed would make it clear
that when the plot alone has been conveyed to the assessee on a long
lease, the common areas have been retained with the lessor for being
developed for providing facilities, like roads, street lights, drainage,
etc., for the use of all the other industrial undertakings in common.
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and 798, 800, 801, 802 and 803 of 2018
The lessor has retained the entire ownership, whereas the lessee, like
the assessee, was given a right of enjoyment.
27. The assessee had filed the return by including this Rs.6.20
crores paid to SIPCOT towards development charges as part of the
building and had claimed depreciation as a commercial right under
Section 32 of the Act. The AO disallowed the claim made by the
assessee, as payment made towards common infrastructural facilities
cannot be treated as part of the building and it is an asset forming part
of the land.
28. The CIT(A) had confirmed the assessment holding that the
assessee not being the owner of the development is not eligible to
claim depreciation. Further the development charges have been
collected for developing the area as a whole and it does not pertain to
develop any individual plot. The Tribunal had also rejected the appeal
holding that the amenities are not the tools for carrying out the
business of the assessee. Unless and until the capital asset is used as
a tool for carrying out the business and further only in case the
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and 798, 800, 801, 802 and 803 of 2018
assessee is an owner, he would not be eligible for depreciation. When
the facilities are owned by SIPCOT, the mere contribution for
development of the infrastructure will not make the assessee an
owner.
29. For better understanding, Section 32(1)(ii) of the Act is
extracted here under:-
“32(1)(ii). know-how, patents, copyrights, trade marks,
licences, franchises or any other business or commercial
rights of similar nature, being intangible assets acquired
on or after the 1st day of April, 1998 [not being goodwill of
a business or profession,]
owned, wholly or partly, by the assessee and used for the
purposes of the business or profession, the following
deductions shall be allowed”
30. It is contended by the assessee that the rights acquired by
the assessee on a long-term lease of 99 years by making payments
towards the development charges are intangible assets and the same
would fit in the words 'commercial rights of similar nature' under the
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provision and it amounts to partly owning the rights or partly owning
the assets, which are also used for the business and as such the
amount paid qualifies for depreciation.
31. The revenue, on the other hand contends that the
commercial rights of similar nature has to be read as a whole under
Section 32(1)(ii) of the Act and therefore, the commercial rights of
similar nature would only mean and include the other rights like
patents, copyrights, trademarks, licences etc., and that would not
include rights obtained on amenities to qualify for depreciation. Further
only if the asset is owned in full or in part, the assessee would be
entitled for deduction and any long-term right would not substitute the
position as owner, to make the assessee eligible for claiming
depreciation.
32. We are not in agreement with the submissions made by the
learned counsel for the assessee in respect of the terms 'wholly or
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partly owned'. Section 32(i) of the Act makes it clear that to claim
depreciation, the assessee has to own the intangible asset either
wholly or partly, which are used for the purpose of business or
profession.
33. In view of the provision, the assessee has to be a full owner
or part owner. Even though the assessee had obtained a long-term
right over the infrastructures, the long-term leasehold right cannot
substitute the term 'owner'. The term ‘owner’ implies that a person
owns that particular asset, whereas the long-term right to use does
not in any manner makes the person owner thereon but only allows
that person to use that asset for the specified period. When the
language used in the provision is clear and unambiguous that the
assessee has to own the intangible asset wholly or partly for the
purpose of claiming depreciation, it cannot be read or interpreted in
any other way. In the instant case, the assessee having only the long-
term leasehold right over the infrastructural facilities is not an owner
either wholly or partly owning the intangible asset. Therefore, the
claim of depreciation made by the assessee under Section 32 of the
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Act has been rightly disallowed by the authorities and confirmed by the
Tribunal.
34. In view of the above conclusion, we need not further go into
the issue as to whether the commercial rights of similar nature would
get restricted with the trademarks, licences, franchises etc., or would
also include the rights in infrastructure developments.
35. In the decision relied on by the assessee, in the case of
Techno Shares & Stocks stated supra, the Hon’ble Supreme Court
held that the right of membership is akin to a licence, which would
come within the term 'any other business or commercial right of
similar nature' in terms of Section 32(1)(ii) of the Act and held that
the same qualifies for deduction. Further, in the case of Bangalore
International Airport Ltd. stated supra, it was held that the
expenditure incurred to obtain a legally enforceable agreement can be
capitalised and qualifies towards incurring the leasehold right and is
eligible for depreciation. However the decisions relied on do not
support the facts and circumstances of the present case. The assessee
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does not have any absolute right in the infrastructural developments
for which the payment has been made and the assessee not being a
part or full owner does not qualify for claim of depreciation under
Section 32(1)(ii) of the Act.
36. In view of the above, the substantial questions of law 1
to 3 are answered against the assessee and in favour of the
revenue. The decisions of the Tribunal and the authorities in
disallowing the claim of the assessee of depreciation under
Section 32(1)(ii) of the Act, is confirmed.
Substantial questions of law 4 & 5 :
37. The AO held that the payment made by the assessee was
towards the development of infrastructure, which could only be treated
as part of the land and it cannot form part of the building. The
assessee not being the owner of the infrastructure, it will not form part
of any tangible or intangible assets in his hands. In the appeals made
before the CIT(A), the assessee had also made an alternative plea to
allow the same as revenue expenditure under Section 37 of the Act.
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and 798, 800, 801, 802 and 803 of 2018
38. The CIT(A) while confirming the assessment order in
disallowing the claim of depreciation under Section 32 of the Act had
rejected the alternative plea also on the ground that, in view of clause
14(ii) of the lease deed, the development charges was only a
contingent liability which crystallises only on surrender of plot by the
assessee.
39. In the appeal before the ITAT, the Tribunal had observed
that the Co-ordinate Bench in the case of DCIT Vs. M/s.Addison &
Company Ltd. (ITA No.1744/Mds/2013, dated 06.02.2015), had
allowed the claim towards development charges as the assessee had
booked that sum paid annually as an expenditure pertaining to that
assessment year, which had been treated as a case of amortisation
that was confirmed by the Tribunal. However, the Tribunal held that in
that case, the assessee had booked 5% annually as an expenditure in
his books while preferring the claim, but in the instant case, the
assessee had never charged the development charges in the books nor
made a claim in the return of income. As such, since the assessee had
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not made any claim nor debited in the books of accounts, the alternate
claim was rejected.
40. Mr.R.Vijayaraghavan, learned counsel for the assessee
argued that the finding of the Tribunal that the alternate claim is
rejected because the assessee never charged in its books nor claimed
in the return of income is erroneous and perverse, since there cannot
be a double debit. When the assessee had already claimed it as capital
expenditure and when such a claim is rejected, then the alternate
relief to the assessee is to be granted. In this regard, the learned
counsel relied on the decision of the Division Bench of the Bombay
High Court in the case of CIBA of India Ltd. Vs. Commissioner of
Income Tax reported in (1993) 202 ITR 1 (Bom) for the
proposition that the authorities and the Tribunal would be under duty
to grant the alternate relief, when the relief claimed by the assessee is
rejected for some reason. It is his further contention that the
contributions made towards the development purposes, like roads and
bridges, which are used for the business in which the assessee does
not have a right of ownership, has to be treated as revenue
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expenditure.
41. He further relied on the decision of the Hon’ble Supreme
Court in the case of L.H.Sugar Factory & Oil Mills (P) Ltd. Vs.
Commissioner of Income Tax reported in (1980) 125 ITR 295
(SC) and the decision of the Division Bench of this Court in the case of
Commissioner of Income Tax Vs. Coats Viyella India Ltd.
reported in (2002) 253 ITR 667 (Mad) and contended that the
contributions made by the assessee towards the building of the bridges
and development of roads, which are essential to provide access to the
factory of the assessee, should be treated as revenue expenditure. He
further contended that the revenue expenditure has to be allowed in
the year in which the expenditure was made and in this regard,
learned counsel relied on the decision of the Hon’ble Supreme Court in
the case of Taparia Tools Ltd. Vs. Joint Commissioner of Income-
tax, Nasik reported in (2015) 55 taxmann.com 361 (SC).
42. Per contra, Mrs.V.Pushpa, learned Senior Standing Counsel
for the revenue argued that both the reliefs claimed by the assessee
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and 798, 800, 801, 802 and 803 of 2018
completely stand on different footings. The depreciation claim made by
the assessee is under Section 32 of the Act towards the capital
expenditure, whereas the alternate relief claimed by the assessee is as
a revenue expenditure under Section 37 of the Act, which operates on
different footing all together and cannot be merged.
43. It is her further vehement contention that when the
assessee had not claimed it as a revenue expenditure in its books of
account or in the returns, as found by the Tribunal, the alternate relief
claimed is not maintainable. It is further contended that when the
assessee neither owns the infrastructure development nor has
developed the infrastructure and when several other parties have a
common interest and enjoyment over these facilities and these
facilities remain owned by SIPCOT, for which the assessee pays the
annual amenities charges, the claim made by the assessee is not
sustainable.
44. The learned Counsel distinguished the decisions relied on by
the assessee by contending that in those cases either the
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and 798, 800, 801, 802 and 803 of 2018
constructions have been put up by the assessee or it is in the property
of the assessee. The developments made has no element of business
activity carried on by the assessee.
45. The learned Counsel also relied on the decision of the
Hon’ble Supreme Court in the case of Arvind Mills Ltd. Vs.
Commissioner of Income Tax, Gujarat reported in (1992) 3
Supreme Court Cases 535; the Hon’ble Supreme Court in Brooke
Bond India Ltd. Vs. Commissioner of Income Tax reported in
[1997] 225 ITR 798 (SC); the Hon’ble Supreme Court in Rotork
Controls India (P) Ltd. Vs. Commissioner of Income Tax,
Chennai reported in [2009] 314 ITR 62 (SC), decision of the
Division Bench of this Court in the case of Commissioner of Income
Tax, Madurai Vs. Viswams reported in [2019] 414 ITR 148
(Madras), the decision of the Division Bench of this Court in the case
of Commissioner of Income Tax Vs. K.V.Nellaiappan reported in
[2022] 135 taxmann.com 223 (Madras).
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and 798, 800, 801, 802 and 803 of 2018
46. The aforesaid decisions are mainly relied for the proposition
that the betterment charges paid by the assessee and the expenditure
made towards the renovation leading to enduring benefit cannot be
treated as revenue expenditure.
47. Heard the rival submissions and gave our anxious
consideration and perused the materials available on record.
48. The assessee had paid a sum of Rs.6.20 crores towards
development charges as per the lease deed dated 10.03.2006 which
has been executed with SIPCOT in respect of 99 years long-term lease
for allotment of industrial plot. The assessee had filed the return of
income by claiming depreciation for the sum paid as a commercial
right for the intangible asset under Section 32(1)(ii) of the Act. The
assessee had made the alternate claim before the CIT(A) to treat it as
revenue expenditure.
49. Section 37 of the Act deals with revenue expenditure, which
reads as follows:-
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and 798, 800, 801, 802 and 803 of 2018
“37. (1) Any expenditure (not being expenditure of the
nature described in sections 30 to 36 and not being in the
nature of capital expenditure or personal expenses of the
assessee), laid out or expended wholly and exclusively for
the purposes of the business or profession shall be allowed
in computing the income chargeable under the head
“Profits and gains of business or profession”.
[Explanation 1].—For the removal of doubts, it is
hereby declared that any expenditure incurred by an
assessee for any purpose which is an offence or which is
prohibited by law shall not be deemed to have been
incurred for the purpose of business or profession and no
deduction or allowance shall be made in respect of such
expenditure.]
[Explanation 2.—For the removal of doubts, it is
hereby declared that for the purposes of sub-section (1),
any expenditure incurred by an assessee on the activities
relating to corporate social responsibility referred to in
section 135 of the Companies Act, 2013 (18 of 2013) shall
not be deemed to be an expenditure incurred by the
assessee for the purposes of the business or profession.]
[(2B) Notwithstanding anything contained in sub-
section (1), no allowance shall be made in respect of
expenditure incurred by an assessee on advertisement in
any souvenir, brochure, tract, pamphlet or the like
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and 798, 800, 801, 802 and 803 of 2018
published by a political party.].”
50. As per the terms and conditions of the lease deed, the
assessee had paid a sum of Rs.6.20 crores towards development
charges. The developments include the formation of roads, streets,
lightings, sanitation, drainage, sewerage, etc. The assessee had been
given the right over these infrastructural developments for the use of
industrial plot allotted to the assessee. It is the contention of the
revenue that since these developments had not been undertaken by
the assessee and are also not owned by the assessee and further the
developments made are for business profits, the expenditure made is
to be treated as a capital and cannot be taken as a revenue
expenditure. It is her contention that the amenities are provided for
the beneficial enjoyment and additional facilities of all the industrial
undertakings in common and the same does not form part of the
business operations of the assessee.
51. We are not in agreement with the contention of the revenue.
The development charges found in the agreement could not be
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narrowly considered that it is only towards amenities for beneficial
enjoyment. The infrastructural facilities for which the development
charges have been contributed by the assessee include roads, streets,
water facilities, drainage, etc. The amenities that include parks,
recreation places, canteen etc. are recreational facilities that may or
may not be strictly required for the business purposes of the assessee.
Whereas the infrastructural developments towards roads, streets and
other facilities are basic requirements, without which the assessee will
not be in a position to put up the factory or run the business.
52. The assessee, who had contributed this amount towards the
infrastructural development, though does not own the same and is
also developed by SIPCOT, still the assessee has a right of usage and
without using this right, the assessee will not be in a position to put up
the factory or run the business. The expenditure made by the assessee
is not towards betterment of the business or for any enduring benefit,
but it is a basic requirement without which the business cannot be
established or run. The contributions made by the assessee towards
development charges not being owned by him and there being no
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and 798, 800, 801, 802 and 803 of 2018
capital asset, qualifies for deduction as a revenue expenditure.
53. In this regard, is useful to refer to the case of L.H.Sugar
Factory & Oil Mills (P) Ltd. cited supra, wherein the Hon’ble
Supreme Court has allowed the amount contributed by the assessee
for the purpose of formation of the road, which facilitates the conduct
of business of the assessee as a revenue expenditure. The relevant
portion is extracted hereunder:-
“Now it is clear on the facts of the present case that by
spending the amount of Rs.50,000, the assessee did not
acquire any asset of an enduring nature. The roads which
were constructed around the factory with the help of the
amount of Rs.50,000 contributed by the assessee
belonged to the Government of U.P. and not to the
assessee. Moreover, it was only a part of the cost of
construction of these roads that was contributed by the
assessee, since under the sugarcane development scheme,
one-third of the cost of construction was to be borne by
the Central Government, one–third by the State
Government and only the remaining one-third was to be
divided between the sugarcane factories and sugarcane
growers. These roads were undoubtedly advantageous to
the business of the assessee as they facilitated the
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and 798, 800, 801, 802 and 803 of 2018
transport of sugarcane to the factory and the outflow of
manufactured sugar from the factory to the market
centres. There can be no doubt that the construction of
these roads facilitated the business operations of the
assessee and enabled the management and conduct of the
assessee’s business to be carried on more efficiently and
profitably. It is no doubt true that the advantage secured
for the business of the assessee was of a long duration
inasmuch as it would last so long as the roads continued to
be in motorable condition, but it was not an advantage in
the capital field, because no tangible or intangible asset
was acquired by the assessee nor was there any addition
to or expansion of the profit–making apparatus of the
assessee. The amount of Rs.50,000 was contributed by
the assessee for the purpose of facilitating the conduct of
the business of the assessee and making it more efficient
and profitable and it was clearly an expenditure on
revenue account.”
54. Further the Division Bench of this Court in Commissioner
of Income Tax Vs. Coats Viyella India Ltd. reported in (2002)
253 ITR 667 (Mad) by relying on the decision in the case of
L.H.Sugar Factory & Oil Mills (P) Ltd. cited supra, allowed the
contributions made by the assessee towards construction of the
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bridge, though not owned by him and built by the government is
allowable as a revenue expenditure. The relevant paragraphs are
extracted hereunder for easy reference:-
“3. Here, the bridge is one which is built across the river.
The bridge is not owned by assessee. It is built by the
Government, and the assessee does not acquire any rights
of ownership over the bridge in the short-term or in the
long run by reason of the contribution that it agreed to pay
towards the construction of the bridge. So far as the
assessee is concerned, the payment made is an outgo in
return for which it receives no addition to the value of any
of the assets owned by it. The bridge merely facilitates the
movement of the workmen to gain access to assessee’s
factory and to return home, and also for the movement of
the goods over the bridge. The facts of this case are such
as to bring it within the ratio of decision in the case of
L.H.Sugar Factory & Oil Mills (P) Ltd. vs. CIT (supra).
4. We, therefore, do not see any justification for calling for
a reference. The Tribunal has rightly held that the amount
is to be treated as revenue expenditure. The assessment
year is 1991-92. The Petitions are dismissed.”
55. In the instant case also, the infrastructure developments
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and 798, 800, 801, 802 and 803 of 2018
including the roads, streets, etc., are not owned by the assessee and
is developed by the SIPCOT. The assessee does not acquire any right
of ownership and the payment receives no addition to the value of
assets owned by the assessee. The development merely facilitates the
running of the business of the assessee, which is an essential
requirement without which the business could not be operated. As
such the contributions made by the assessee are eligible to be treated
as a revenue expenditure.
56. The Tribunal had rejected the alternate claim mainly on the
ground that the assessee had neither made the claim as revenue
expenditure in the return of income nor made provision in the books of
accounts. In this regard, as rightly contended by the learned counsel
for the assessee, they cannot make a double debit when the assessee
has already made a claim for this contribution as depreciation under
Section 32 of the Act. When the claim of depreciation under Section 32
of the Act has been rejected, then the alternate claim of the assessee
to treat it as a revenue expenditure, ought to have been considered on
its own merits.
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
57. In the case of CIBA of India Ltd. cited supra, the Division
Bench of the Bombay High Court, by relying on the decision of the
Hon’ble Supreme Court in the case of Commissioner of Income Tax
Vs. Mahalakshmi Textile Mills Ltd. reported in (1967) 66 ITR 710
(SC) held that when the claim of the assessee is rejected for some
reasons, then the alternate claim made by the assessee ought to be
duly considered and granted. The relevant portion is extracted
hereunder:-
“This view of ours gets full support from the decision of
Supreme Court in Commissioner of Income Tax Vs.
Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC),
where, dealing with the scope of the powers of the
Tribunal under s.33(4) of the Indian Income-tax Act,
1922(corresponding to s.254(1) of the present Act), it was
held :
“. . . There is nothing in the Income-tax Act which restricts
the Tribunal to the determination of questions raised
before the departmental authorities. All questions, whether
of law or of fact, which relate to the assessment of the
assessee may be raised before the Tribunal: if for reasons
recorded by the departmental authorities in rejecting a
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contention raised by the assessee, grant of relief to him on
another ground is justified, it would be open to the
departmental authorities and the Tribunal, and indeed they
would be under a duty, to grant that relief. The right of the
assessee to relief is not restricted to the plea raised by
him.” (emphasis supplied)
9. In that view of the matter, we are of the clear opinion
that the Tribunal was not justified in refusing to consider
the alternative submission of the assessee that, in the
event the expenditure in question was held by it to be
capital in nature, suitable directions should be given for
allowing appropriate development rebate and depreciation
as admissible under the law on such amount on the plea
that it was an additional ground raised by the assessee. In
our opinion, it was the duty of the Tribunal, even in the
the absence of an alternative argument of the assessee, to
make such a direction suo motu. We, therefore, answer
the second question in the negative and in favour of the
assessee.”
58. The learned counsel for the assessee further submitted that
the revenue expenditure is to be allowed in the same year in which it
was incurred. As per clause 14(ii) of the lease deed, even though the
assessee is not entitled for refund of Rs.6.20 crores paid towards the
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development charges on the expiry of lease, however in case of
resumption or surrender, this amount would be refunded subject to
5% of depreciation for each year. Therefore, only after the expiry of
20th year, the assessee will not be entitled to the refund.
59. As such, we are not inclined to accept the submission of the
learned counsel for the assessee that the entire amount contributed by
the assessee towards the development charges has to be allowed as
revenue expenditure in the AY during which the same has been paid.
In view of the terms and conditions of the lease, as the entire amount
paid does not get crystallised and the same is refundable to the
assessee after deduction of 5% for each year in case of resumption or
surrender, we are of the considered opinion that the sum paid is to be
amortised and the assessee would be entitled for deduction by
allowing 5% of the contribution made towards the development
charges at the end of each year when amount gets crystallised, which
becomes non-refundable in view of the terms and conditions of the
lease.
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60. With regard to the decisions relied on by the revenue, the
facts in those cases are, either the contributions were made towards
betterment charges for increase in valuation or expenditures leading to
an enduring benefit. But in the instant case, the contributions made
are towards formation of roads and streets, which are basic and
essential requirement for the assessee to put up the business
operations by establishing the factory and continue its business,
without which the business cannot be undertaken and further there is
no addition to value of assets owned the assessee.
61. In such circumstances, these expenses cannot be construed
as betterment charges towards increase in valuation or expenditure
towards an enduring benefit, and therefore the sum paid by the
assessee towards this head is eligible for deduction as revenue
expenditure as indicated above. The deduction of 5% of the sum paid
is to be allowed as revenue expenditure in the ensuing AY, as and
when the 5% gets crystallised at the end of each year. As such the
findings rendered and the decision arrived at by the Tribunal in this
regard is perverse and is liable to be interfered with.
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and 798, 800, 801, 802 and 803 of 2018
62. In view of the above deliberations, the substantial
questions of law 4 and 5 are answered in favour of the
assessee and against the revenue. The decisions of the Tribunal
are set aside and the Tax Appeals are partly allowed to the
extent indicated above. The AO shall give effect to the decision, by
allowing the corresponding deductions as revenue expenditure in each
of the AY.
63. Accordingly, TCA Nos.794 and 795 of 2016 and
TCA.Nos.798, 800, 801, 802 and 803 of 2018 stand partly
allowed. There shall be no order as to costs. Consequently, the
interim applications are also closed.
(MANINDRA MOHAN SHRIVASTAVA, CJ.) (G.ARUL MURUGAN, J.)
10.10.2025
Index : Yes
Neutral Citation : Yes
sri
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and 798, 800, 801, 802 and 803 of 2018
To
1.The Assistant Registrar,
Income Tax Appellate Tribunal,
Chennai.
2.The Assistant Commissioner of Income Tax,
Corporate Circle - 2,
Chennai - 600 034.
3.The Deputy Commissioner of Income Tax,
Large Tax Payer Unit - 2,
Chennai - 600 034.
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TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
THE HON'BLE CHIEF JUSTICE
AND
G.ARUL MURUGAN,J.
sri
Pre-Delivery Common Judgment made in
TCA Nos.794 and 795 of 2016
and 798, 800, 801, 802 and 803 of 2018
10.10.2025
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