INCOME TAX ACT, 1961

--Capital or revenue expenditure--Expenditure incurred to redeem debentures Redemption of deep discount bonds--Expenditure incurred on redemption of deep discount bonds would be treated as revenue expenditure.

Income Tax Act, 1961, Section 32(1)

INCOME TAX ACT, 1961

--Depreciation Ownership Lease of land for 30 years--Where assessee-company is lessee of land for 30 years period it is to be treated as owner of the land on which assessee has constructed road (bridge). The depreciation represents the diminution in value of a capital asset when applied to the parties of making profit or gain. The object is to get the true picture of the real income of the business. The respondent-assessee is engaged in the business of constructing roads and bridges. Under the concession-agreement the land is provided on lease initially for a period of 30 years which can be extended. The respondent-assessee company is a special purpose vehicle, engaged in the business of building, infrastructure/roads to generate revenues by collecting tolls to meet the cost of constructions and to earn profits. The construction of road on the leased land is the capital asset of the company, which remains under its ownership for the concession period. The respondent-assessee exercises its full ownership rights on the road which include charging of tolls which is ordinarily a sovereign function. The operation, maintenance and use of the road during the concession period is with the respondent-assessee. It has been given exclusive rights to regulate the use of the Noida-Bridge. The road is not simply a road laid out on the land. It includes all allied constructions, which includes the bridge site. The control of the land identified as constituting the bridge site is in complete and uninterrupted possession and use of the respondent-company. It has powers to determine, demand, collect, retain and appropriate fees from the users of the bridge and also has the power to restrict the use of the bridge to motorised vehicles, bicycle and pedestrians, and to debar animal driven vehicles, cycle rickshaw and cattle. [Para 22] With the insertion of the Explanation-I to section 32 with effect from 1-4-1998 there is no doubt that where the assessee is the lessee of the building in which he carries on business which is not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee of any structure or doing of any work in or in relation to by way of renovation, extension or for improvement to the building, then the provisions of the Income Tax Act, will apply as if the said structure or work is a building owned by the assessee. Explanation-I to section 32 may apply to renovation or extension or improvement to the building; the object is to extend the application of depreciation, if such buildings which are not owned by the assessee but in which the assessee holds a lease or other right of occupancy. The present case stands on a better footing, in which the land is held on lease and the road as capital asset has been built on it with exclusive ownership of the road, and the bridge in the assessee-company for the concession period, and which also includes the right to collect tolls and to regulate use of the bridge. Section 32 would, therefore, apply for the purpose of providing depreciation to be worked out in accordance with the law. For removal of doubts, the legislature has provided that the building includes roads in Note (1) to Appendix-I providing for the table of rates at which the depreciation is admissible. [Para 25]