G. N. Ray, J. - (1.) This appeal arises out of a Certificate granted by the High Court of Gujarat against its judgment dated 9/ 10 March, 1977 in Income-tax Reference No. 197 of 1976. The appellant - Arvind Mills Ltd. is a Company incorporated under the Companies Act and running a textile mill. For the assessment year 1972-73 for which previous year is the calendar year, a total income was assessed by the Income-tax Officer on 24th January, 1973 at Rupees 1,30,92,040 / -. The appellant claimed a deduction of Rupees 2,02,907/- being the contribution made by the assessee towards the cost of Town Planning Scheme under S. 66 of the Bombay Town Planning Act, 1954. The aforesaid payment made by the assessee was described as betterment charges. The Income-tax Officer disallowed the claim for deduction by his Order dated 25th January, 1974. The appellant preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner by his order dated 19th September, 1974 held inter alia that the expenditure in question was a revenue expenditure but since the assessee had paid the betterment charges in ten equal instalments with interest, instead of payment in lump of the entire amount of Rupees 2,02,907/-, a sum of Rs. 14,434/- only since paid by the assessee by way of instalment in the year of assessment should be deducted from income. The contention of the assiessee that since the method of accounting of the assessee was mercantile, the entire amount of Rs. 2,02,907 / - should be deducted and not the yearly instalment of Rupees 14,434/ -, was not accepted. The assessee thereafter preferred a Cross Appeal against the order of the Appellate Assistant Commissioner before the Income-tax Tribunal in I.T.A. No. 133 (AHD)/74-75. The Tribunal held inter alia that the betterment charge was not revenue expenditure. Hence no deduction on account of the betterment charge was allowable. The Tribunal, however, did not interfere with the deduction of Rs. 14,434/- since allowed by the Appellate Assistant Commissioner.
(2.) At the instance of the assessee, the following question of law was referred by the Tribunal to the High Court of Gujarat: "Whether on the facts and circumstances of the case, the Tribunal was justified in. disallowing the betterment charges." By the impugned judgment the High Court of Gujarat relying on the decision of the said High Court in the case of Addl. Commr. of Income-tax, Gujarat v. Rohit Mills Ltd., reported in (1976) 104 ITR-132 decided the question against the appellant-assessee but on an oral application, the High Court granted a Certificate to the appellant under S. 261 of the Income-tax Act, 1961.
(3.) Mr. Salve, learned counsel appearing for the appellant-assessee has contended that the betterment charge payable under the Bombay Town Planning Act was a compulsory payment and the decision to effect improvement on the lands within the Town Planning Scheme did not depend upon the volition of the owner of the land. It was immaterial whether the assessee was interested or not for the alleged improvement of the land under the Scheme but the assessee was under an obligation to make the payment of betterment charges imposed under the Bombay Town Planning Scheme. Mr. Salve has contended that the Scheme prepared under the Bombay Town Planning Act becomes final on publication of the Scheme under S. 51 and the effect of the final Scheme has been provided under S. 53 of the said Act. S. 54 provides for the cost of the Scheme and S. 55 provides for the calculation of the improvement. Mr. Salve has contended that if various provisions of the Bombay Town Planning Act are referred to, it will be quite apparent that the betterment charge is nothing but a statutory exaction and in its reality such betterment charge partakes the character of imposition of levy. Mr. Salve has strongly relied on the decision of the Madras High Court in the case of Dollar Company v. Commr. of Income-tax (1986) 161 ITR 455. The assessee-Dollar Company had to make payment towards the betterment contribution for the lands owned by the Company coming within the Madras Town Planning Scheme. The assessee-Company claimed deduction of the above payment on the footing that such payment was a revenue expenditure. The Income-tax Officer, however, disallowed the claim by holding that such payment was in the nature of capital expenditure. Such decision of the Income-tax Officer was affirmed by the Appellate Assistant Commissioner and also by the Income-tax Appellate Tribunal. On a reference, the Madras High Court held inter alia that on a reading of the various provisions of the Madras Town Planning Act, it was evident that the betterment contribution was a compulsory levy made by the Corporation and the precondition for such levy was that consequent upon making any Town Planning Scheme, the value of the property in the Scheme has increased or is likely to increase. Hence the payment of betterment contribution did not result in any increase in the value of the property but because of the increase in the value of the property as a result of the making of the Town Planning Scheme, the owner of the property was required to make a contribution which was called a betterment contribution. Since there was no direct nexus between the expenditure incurred by the Corporation and the increase in the value of the property, the expenditure incurred by the assessee for payment of betterment charge must be held to be revenue expenditure. It has been further held by the Madras High Court that commercially considered, the expenditure which has been so incurred for facilities such as roads, drainage facility etc., for the enjoyment of the property would be laid out wholly and exclusively for purposes of the business and the payment of the betterment contribution was in the nature of a payment for such facility and only its computation was on the basis of appreciation in value. It was held that consequently the expenditure incurred byway of the bettrment contribution could not be called as an expenditure of a capital nature and, therefore, such payment was deductible from the income of the assessee.;