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Commissioner Of Income Tax, Delhi-Iv Vs. DLF Universal Ltd.
September, 19th 2017
+                   ITA 440/2009
COMMISSIONER OF INCOME TAX, DELHI-IV                ..... Appellant
                  Through: Mr. Sanjay Kumar & Mr. Rahul,
                  Chaudhary, Standing Counsel for the Revenue


DLF UNIVERSAL LTD.                                         ..... Respondent
                          Through: Mr. Ajay Vohra, Senior Advocate with
                          Ms. Kavita Jha & Ms. Roopali Gupta, Advocates


       %                        05.09.2017

Dr. S. Muralidhar, J.:
1. This is an appeal by the Revenue against the order dated 6th June 2008
passed by the Income Tax Appellate Tribunal (`ITAT') in ITA No.
1848/Del./2000 & ITA No.1803/Del./2000 for the Assessment Year (`AY')

2. While admitting this appeal by order dated 30th November, 2011, this
Court framed following questions of law:
       "1. Whether the Income Tax Appellate Tribunal was correct in law in
        setting aside the Commissioner of Income Tax (Appeals) order
       wherein it was held that the method of accounting followed by the
       assessee in past and accepted in earlier assessment years is such that
       correct income cannot be properly detected from the accounts and the
       Assessing Officer was justified in invoking the provisions of First
       Proviso to Section 145(1) of the Income Tax Act, 1961?

ITA No.440/2009                                                    Page 1 of 6
       2. Whether the Income Tax Appellate Tribunal was correct in law in
       deletion addition made by assessing officer on account of sale price in
       respect of constructed/built up properties?

       3. Whether the Assessing Officer and the Commissioner of Income
       Tax (Appeals) were correct in law in re-working the cost of land at
       the average purchase price of land in Qutub Enclave Complex now
       known as DLF city by dividing the end of the year by saleable area
       including lands earmarked for schools, hospitals, clubs and other
       community building, in each phase?

       4. Whether the Income Tax Appellate Tribunal was correct in law
       deleting the addition of Rs.4,92,27,360/- made by the Assessing
       Officer on account of contribution to the Shelter Fund?

       5. Whether Commissioner of Income Tax (Appeals) erred in law in
       directing the Assessing Officer to assess the rent receipts form DLF
       Centre which also includes air conditioning charges as `Income from
       House Property?"

3. As far as Question Nos. 1, 2 and 3 above are concerned, they stand
answered in the negative, i.e. in favour of the Assessee and against the
Revenue by the decision dated 21st December 2016 passed by this Court in
the Assessee's own case in ITA Nos. 159/2010 and 326/2010 for AY 1994-

4. As far as Question No. 5 is concerned, it stands answered in favour of the
Assessee by the order dated 18th May 2017 passed by this Court in ITA No.
407/2009 which is the Assessee's own case for AY 1997-98.

ITA No.440/2009                                                     Page 2 of 6
5. As far as Question No. 4 is concerned, the facts relevant to this question
are that the Assessee had to pay to the Land and Building Department of the
Government of Delhi a certain sum as a part of the contribution to the
Shelter Fund, failing which, the land was to be acquired under the Urban
Land Ceiling and Regulation Act, 1976 (`ULCRA'). That the land was held
as stock-in-trade of the Assessee was not in dispute. However, the AO was
of the view that no activity was done on the land during the year in question
and, therefore, the expenditure incurred in protecting the land from the
acquisition under the ULCRA should be treated as capital expenditure and
not as revenue expenditure. It was held that the amount should be capitalised
in stock-in-trade. Disallowing the expenditure towards contribution to the
Government Shelter Fund, the AO added it back to the total income of the

6. After the CIT (A) affirmed the above order, the Assessee went in appeal
before the ITAT. In the impugned order, the ITAT observed that the
expenditure incurred was not to acquire additional area of land or to improve
the title on the land already acquired. The cost was incurred to defend the
title over the land already acquired. In that view of the matter, the
Assessee's explanation was accepted and the addition was deleted.

7. Learned counsel for the Revenue has placed considerable reliance on the
decision of the Bombay High Court in Sandvik Asia Ltd. v. Deputy
Commissioner of Income-Tax [2015] 378 ITR 114 (Bom) in support of the
plea that contribution to the fund of the Government to avoid acquisition
under the ULCRA should be considered to be a capital expenditure and not a

ITA No.440/2009                                                     Page 3 of 6
revenue expenditure.

8. On the other hand, Mr. Ajay Vohra, learned Senior Counsel appearing for
the Assessee, states that the said decision distinguished the earlier decision
of the same High Court in CST v. Brihan Maharashtra Sugar Syndicate
Ltd. [1987] 165 ITR 275 (Bom). The facts of the latter case were similar to
the case in hand in as much as the land that was the subject matter of
acquisition under the ULCRA was held as stock-in-trade. Mr. Vohra further
placed reliance on the decision of the Supreme Court in Empire Jute Co.
Ltd. v. CIT [1980] 124 ITR 1 (SC).

9. The facts in Sandvik Asia (supra) show that the land which was subject
matter of the ULCRA was the same land on which the factory of the
Assessee was situated. Unlike the Assessee in the present case, the Assessee
in that case was not in the real estate business. The question of the Assessee,
in that case, holding land as stock-in-trade did not arise. The Bombay High
Court held on those facts that that the decision in Empire Jute Co. (supra)
would have no application since the payment was made in the capital field
"and does not in any manner affect the day to day running of the appellant's
business." It was held that, for protecting the land from acquisition, the
Assessee there was "getting rid of defective title or a threat to litigation". It
was held "threat to a certain acquisition would on a higher footing than a
threat to litigation".

10. In the considered view of the Court, the facts of the present case are
closer to the facts in Brihan Maharashtra Sugar Syndicate Ltd. (supra).
There, the land was held for sugar cultivation so as to carry on business of

ITA No.440/2009                                                       Page 4 of 6
manufacture of sugar. In those circumstances, the expenditure incurred to
protect the land from being acquired under the ULCRA was held to be a
revenue expenditure. In Empire Jute Co. (supra), the Supreme Court
explained the governing principle as under:-
       "4. Now, an expenditure incurred by an assessee can qualify for
       deduction Under Section 10(2)(xv) only if it is incurred wholly
       and exclusively for the purpose of his business, but even if it
       fulfils this requirement, it is not enough; it must further be of
       revenue as distinguished from capital nature. Here, in the
       present case, it was not contended on behalf of the Revenue that
       the sum of Rs. 2,03,255/- was not laid out wholly and
       exclusively for the purpose of the assessee's business but the
       only argument was, and this argument found favour with the
       High Court, that it represented capital expenditure and was
       hence not deductible Under Section 10(2)(xv). The sole
       question which therefore arises for determination in the appeal
       is - whether the sum of Rs. 2,03,255/- paid by the assessee
       represented capital expenditure or revenue expenditure. (...)


       10. When dealing with cases of this kind where the question is
       whether expenditure incurred by an assessee is capital or
       revenue expenditure. it is necessary to bear in mind what
       Dixon, J. said in Hallstrorm's Property Limited v. Federal
       Commissioner of Taxation 72 C.L.R. 634 "What is an outgoing
       of capital and what is an outgoing on account of revenue
       depends on what the expenditure is calculated to effect from a
       practical and business point of view rather than upon the justice
       classification of the legal rights, if any, secured, employed or
       exhausted in the process." The question must be viewed in the
       larger context of business necessity or expediency. If the
       outgoing expenditure is so related to the carrying on or the
       conduct of the business that it may be regarded as an integral
       part of the profit-earning process and not for acquisition of an
       asset or a right of a permanent character, the possession of

ITA No.440/2009                                                     Page 5 of 6
       which is a condition of the carrying on of the business, the
       expenditure may be regarded as revenue expenditure. (...)"

11. In the present case, the fact that the Assessee is holding land in question
as stock in trade is not in dispute. The expenditure incurred by it for
protecting the land from acquisition in the circumstances should be held to
be revenue expenditure. In the circumstances, the Court finds no error
committed by the ITAT in coming to the conclusion that the expenditure
incurred by the Assessee on account of contribution to the Shelter Fund
should be allowed as business expenditure. Question No.4 is accordingly
answered in the affirmative i.e. in favour of the Assessee and against the

12. ITA No. 440 of 2009 is accordingly disposed of.

                                                      S. MURALIDHAR, J.

                                                 PRATHIBA M. SINGH, J.
SEPTEMBER 05, 2017

ITA No.440/2009                                                      Page 6 of 6
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