S PREMALATA Vs. DEPUTY COMMISSIONER OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
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R.P. Garg, Accountant Member -
(1.) THESE appeals by the assessee and the cross-objections of the Revenue are directed against the order of the Commissioner of Income-tax (Appeals)-III, Hyderabad dated 18-2-1993.
(2.) In assessee's appeals, the dispute is against the disallowance of expenditure incurred on construction of the building on the leasehold land.
Facts of the case are that the Young Men's Christian Association of Hyderabad, hereinafter referred to as 'the YMCA' owned land and premises at 9-1-38, Sardar Patel Road, Secunderabad. For the development of its property, for the promotion of its programmes and activities and to achieve its objects by putting up a building complex in the said premises as per the building plan approved and sanctioned by the Municipal Corporation of Hyderabad, it was in search of a developer. It sought for a developer to take up the building activity at the North East corner of the said premises facing Sardar Patel Road, Secunderabad as per the approved plan annexed, admeasuring 240' x 67' comprising an area of 16,080 sq. ft. equivalent to 1,494 sq. meters. Assessee offered to take up the said development programme and agreed, as per the agreement dated 9-9-1984 for the following :-
(1) to take the premises on lease for 25 years (9+9+7) on an yearly rent fixed therein; and
(2) to construct at own cost a building as per approved sanction plan.
The ownership of the constructed building is to belong to the owner of the land brick-by-brick. Clause 6 of the agreement in this regard reads as under :
6. The entire building and the structure that will be constructed by the Lessee with all the fittings, fixtures, equipment, water connections, taps, drainage lines, therein including the Lifts, transformers, if any, not belonging to the sub-tenants or occupants therein shall be the property of the Lessor at all points of time and the Lessee shall have no right whatsoever on the said building except the lessee shall have the right to lease out the said premises. The lessee shall have the right to lease out the premises or portions of such premises that have been completely constructed and made fit for occupancy to persons or concerns and collect the rents from them for herself subject to the restrictions mentioned hereunder. The lessee shall not be entitled for any reimbursement of the amounts spent by her for the same.
The consideration to the assessee was that she has got the right to sublease the constructed premises during the period of lease. The total cost of construction and the rents received during the years under consideration are as follows :-
The total constructed area on the ground floor was 12,240 sq. ft.; typical floor 13,056 sq. ft., second floor 1,305 sq. ft. and basement 5,500 sq. ft. Apart from the construction cost, assessee had also incurred certain other routine expenditure including the lease rent paid to the YMCA.
(3.) IN the first year, viz. assessment year 1986-87, the Assessing Officer assessed the rent as business income and allowed only 1/25th of the cost of construction incurred in that year and 1/24th of the cost of construction incurred by the assessee in the earlier year, as expenditure, besides travelling and other over-head expenditure. However, in the subsequent years, the Assessing Officer assessed the rental income under the head 'property' and disallowed the entire cost on the ground that it was capital in nature, giving rise to enduring benefit.;
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