T.U.MEHTA, J. - (1.) IN all these five matters, the question which is referred to us by the Tribunal is as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in finding that the payment of the betterment charges to the Ahmedabad Municipal Corporation under the provisions of the Town Planning Act, 1954, made by the assessee was allowable as a deduction under S. 37 of the IT Act, 1961 ?"
(2.) FOR the sake of convenience, we shall refer to the facts of only one case, which is covered by Reference No. 9/74, and which relates to the assessee, Rohit Mills Ltd., Ahmedabad. In that case, the year of assessment with which we are concerned is 1962 63. The question relates to the admissibility or otherwise of the payment which is made by the assessee under S. 66 of the Bombay Town Planning Act, 1954, which is hereinafter referred to as "the Act" as contribution towards the costs of town planning scheme. The facts of the case show that under the Bombay Town Planning Act, 1915, the Government declared its intention on 1st October, 1949, to make a scheme within the limits of Ahmedabad Municipal Corporation. The scheme deals with the area covered by the village Khokhra Mehmedabad, a part of which is located within the limits of Ahmedabad Municipal Corporation. The draft scheme under the Act was sanctioned by the Government on 26th October, 1949. Before the scheme could be finalised, the present Act, which is the Bombay Town Planning Act of 1954, replaced the Act of 1915. According to S. 66 of the Act, the cost of the scheme is required to be met wholly or in part by a contribution to be levied by the local authority on each plot included in the final scheme calculated in proportion to the "increment" which is estimated to accrue in respect of such plot by the Town Planning Officer. Pursuant to the provisions of this S. 66, the contribution which the assessee was required to pay came to Rs. 82,788. This amount was to be paid in 10 yearly instalments. For the accounting period in question, the assessee is found to have paid one such instalment of Rs. 8,278. This payment of contribution made as per provisions of S. 66 of the Act is known as "betterment charges". The case of this as well as other assessees of other references is that such charges made under S. 66 of the Act, amount to revenue expenditure incurred wholly and exclusively for the purpose of running their business and are, therefore, allowable as proper deductions under S. 37 of the IT Act, 1961, while the contention of the Revenue is that such charges being levied on the basis of the estimated increment in the value of the land covered by the town planning scheme have nothing to do with the business of the assessees and should, therefore, be treated as purely capital expenditure and hence are not allowable as proper deductions under S. 37 of the IT Act. As the assessee failed before the Departmental authorities, they approached the Tribunal, which relying upon the decision given by the Supreme Court in Lakshmiji Sugar Mills Co. P. Ltd. vs. CIT (1971) 82 ITR 376 (SC), took the view that the expenditure in question was of revenue nature and hence admissible under s. 37. Being aggrieved by this decision of the Tribunal, the Revenue has preferred these references, in which the above quoted question is referred to us for our opinion. Before touching the arguments advanced by the learned advocates of the parties, it would be necessary to consider the relevant provisions of the Bombay Town Planning Act, 1954, with a view to understand the real nature of the contribution, which is known as "betterment charges". The Act is designed to see that the concerned local authority prepares a development plan for the entire area within its jurisdiction, and its object is "to ensure that town planning schemes are made in a proper manner and their execution is made effective" (vide preamble). Two important features of the Act are : (1) the preparation of development plan ; and (2) making and finalisation of the Town Planning Scheme. Chapter II of the Act contains provisions regarding the development plan while Chapters III, IV and VI contain provisions regarding making and finalisation of Town Planning Schemes. Reference to S. 25 of the Act shows what particulars should be included in every draft scheme and reference to S. 18 shows for what matters a Town Planning Scheme may make provisions. The wide sweep of development which these sections contemplate bears out the great potential advantages which the land covered by the scheme is likely to acquire on its finalisation. In State of Gujarat vs. Shantilal Mangaldas AIR 1969 SC 634, the Supreme Court had an occasion to consider the scheme of various provisions of the Act, which are relevant for our purpose in these references. Shah J., speaking for the Court, has summarised the developmental impact of the Scheme in the following words in para 12 of the reported judgment : "In making a Town Planning Scheme the lands of all persons covered by the scheme are treated as if they are put in a pool. The Town Planning Officer then proceeds to reconstitute the plots for residential buildings and to reserve lands for public purposes. Reconstituted plots are allotted to the landholders. The reconstituted plots having regard to the exigencies of the scheme need not be of the same dimensions as the original land. Their shape and size may be altered and even the site of the reconstituted plot allotted to an owner may be shifted. The Town Planning Officer may lay out new roads, divert or close existing roads, reserve lands for recreation grounds, schools, markets, green belts and similar public purposes, and provide for drainage, lighting, water supply, filling up or reclamation of low lying swamp or unhealthy areas or levelling up of land so that the total area included in the scheme may conduce to the health and well being of the residents. Since the Town Planning Scheme is intended to improve the sanitary conditions prevailing in a locality, the owners of plots are required to maintain land open around their buildings. The object of the scheme being to provide amenities for the benefit of the residents generally, the area in the occupation of the individual holders of land is generally reduced, for they have to contribute out of their plots, areas which are required for maintaining the services beneficial to the community." It is thus obvious that the enforcement of a town planning scheme in a particular area greatly contributes to the development of that area and that the moment a particular scheme is finalised with regard to a particular area, the land comprised in that area acquires a good deal of potentiality in its market value.
(3.) THE legal effect of a scheme finalised under the provisions of the Act is set out as under in s. 53 : "On the day on which the final scheme comes into force (a) all lands required by the local authority shall, unless it is otherwise determined in such scheme, vest absolutely in the local authority free from all encumbrances ; (b) all rights in the original plots which have been reconstituted shall determine and the reconstituted plots shall become subject to the rights settled by the Town Planning Officer." Clause (b) of this section makes it amply clear that ownership and other rights in the original plots, which have been reconstituted, come to an end on the date on which the final scheme is put into force and new rights as settled by the Town Planning Officer come into being. The provisions of this section thus emphasise that what is touched by the final scheme is the rights over realty. ;