ivil Appeal No 1996 of 1990
From the Judgment and Order dated 149
1989 of the Delhi High Court in Civil Writ No 2038 of 1988
TS Krishnamurthy Ayer TVSN Chari and CV Rao for the Appellants
Ashok Grover and VN Kaura for the Respondents
The Judgment of the Court was delivered by SAWANT J
This appeal raises some questions which are important both for the Delhi Administration as well as for their lessees of land
Shortly stated the questions in volved are a what constitutes an application for permis sion to convert the user of the land b from which date the conversion charges are leviable and c from which date interest is chargeable on the conversion charges 2
The land involved in the present ease is at 20 Barakhamba Road New Delhi and admeasures about 0956 acre
It was leased by 304 the Governor General in Council to one Smt
Rama Bai on November 17 1931
The regular lease deed was drawn up in 1938
It was a perpetual lease given on a premium of Rs8000 at the annual rent of Rs400
Rama Bai con structed a residential building on the land
On May 20 1938 Smt
Rama Bai assigned the lease in favour of Smt
Leelawati who died on November 6 1969
The interest in the lease devolved on respondents 1 4 and one Hans Raj Gupta and their names were mutated in the record of rights as is evidenced by the Government Memo of November 21 1977
Hans Raj Gupta died on July 31 1985
Respondents 5 11 are his heirs and legal representatives
It appears that Hans Raj Gupta had left a will
It is the subject matter of probate proceedings in Suit No 62 of 1985 which is being contested
If the will is probated then share of the late Hans Raj Gupta will devolve upon respondents 6 9 otherwise it will devolve on all his heirs viz respondents 5 11
For the purpose of the questions to be answered in this appeal we are not much concerned with the revolution of property after the death of late Hans Raj Gupta
In September 1962 the Delhi Development Authority prepared a Master Plan for Delhi under Section 7 of the Delhi Development Act 1957 hereinafter referred to as the Act
Before the names of respondents 1 4 and the late Hans Raj Gupta were mutated in the property register on November 21 1977 a letter was written on April 25 1977 by one of the lessees to be precise by the first respondent through an advocate to the Land  Development Officer which read as follows  
My client Shri Dev Raj Gupta son of late Smt
Leela Gupta proposes to construct a multi storeyed building on the above mentioned plot
Please let me know the charges if any payable for conversion of the land use from residen tial to commercial for constructing a multi storeyed commer cial building on the said plot after demolishing the exist ing bungalow constructed on the above said plot
Your early response in the matter shall highly be appreciated
Thanking you We do not have on record reply if any sent to this letter
But it 305 appears that there was some letter of the same date viz April 25 1977 addressed by the heirs and executors of the estate of late Smt
Leelawati Gupta Co Shri Prem Shankar Advocate ie the very same advocate who had written the letter earlier alluded to on behalf of the first respondent and a reply was given by the office of the Land  Develop ment Officer on July 29 1977 to this letter of the heirs and executors etc stating therein that their letter was receiving attention
What that letter was has not come on record
The only development thereafter was as stated earlier the Government Memo of November 21 1977 communi cating that the names of respondents 1 4 and of the late Hans Raj Gupta were mutated in the property register against the leased land
It may be mentioned here that this Govern ment Memo was addressed to the late Hans Raj Gupta and respondents 1 4 care of the said Advocate Shri Prem Shan kar
We are informed at the Bar that the request for such mutation was made on October 12 1972 on the basis of a partition deed of December 15 1970 after the death of Smt
Leelawati on November 26 1969
What is important to note from the developments so far as tar as the issues involved in this appeal are concerned is that no application for conversion of the land was made on behalf of the lessees of the land
On February 15 1978 the late Hans Raj Gupta for himself and Dev Raj Gupta and others wrote a letter to the Land  Development Officer stating therein as follows Under the Master Plan and the Zonal Plan the above plot now residential can be developed for the construction of a Commercial building
Please let me know your terms in respect thereof together with commercialisation charges that will have to be paid by us
The plans have already been submitted to the NDMC after their approval by the Urban Land Art Commis sioner
Yours faithfully S d Hans Raj Gupta for Hans Raj Gupta Dev Raj Gupta and Others 306 We have then on record a letter dated March 1 1980 by the Assistant Settlement Commissioner to the lessees as follows SShri Hans Raj Gupta Dev Raj Gupta Prem Raj Gupta Pardeep Kumar Gupta Co Shri Hans Raj Gupta 3 Ratendon Road New Delhi
Sub Premises situated on Plot No 5 Block No 205 known as 20 Barakhamba Road New Delhi
Dear Sir I am to say that the applications in respect of the above mentioned premises received so far from different persons some of them are not co lessees to intimate con version charges for the construction of Multi stroyed Commercial building and your intention to sell the property to Ms Central Investment P Ltd and the United Towers India Pvt Ltd but rejection of the same by he
Compe tent authority under Urban Ceiling  Regulation Act 1976 have created some doubts about that ownership
It has there fore been decided that a fresh application for the permis sion to construct the Multi storeyed Building duly signed by all the co lessees be asked for
You arc therefore requested to make an application in the prescribed proforma for the permission to construct the Multi storeyed Commercial building duly signed by all the co lessees
Yours faithfully Sd Encl
As above
RL Gupta Asstt
Settlement Commissioner
On June 3 1980 a reminder was sent by the Government to the late Hans Raj Gupta and respondents 1 4 which reads as follows   
I am to refer to this Office Letter No LI 92055 307 80197 dated 131980 on the above subject and to say that no reply thereto has to far been
sic In case no reply is received from you within 15 days from the said date of receipt on this letter then it will be presumed that you are not interested for the permis sion to construct the multi storeyed Commercial Building and the case will be treated as closed    To this reminder the late Hans Raj Gupta replied that the letter of March 1 1980 sent by the Government appeared to have been lost in transit and did not reach their hands and requested for a duplicate of the same to enable them to take necessary steps
The Government by its letter of August 11 1980 sent a copy of its letter of March 1 1980 and along with it also sent to the late Hans Raj Gupta and others a show cause notice dated May 31 1980 which had also been received back by the Government undelivered
Thereaf ter on February 27 1981 the late Hans Raj Gupta and one Raj Kumar Gupta as a constituted Attorney for respondents 1 4 sent an application in the prescribed form
In the accompanying letter of the same date if was mentioned that the application was sent with reference to the Land  Devel opment Officer s letter dated March 1 1980 and the discus sions held in his office on February 9 1981 for permission to construct a multi storeyed building
All that is neces sary for us to note from the contents of the application form is firstly that it was mentioned there against the relevant query that the plan for constructing commercial building was sanctioned on January 21 1981 by the New Delhi Municipal Committee and that exemption application under Section 201 of the Urban Land Ceiling  Regulation Act 1976 was being processed
On January 12 1984 the Govern ment intimated to the parties that with reference to their letter of February 27 1981 seeking permission for construc tion of multi storeyed commercial building the lessor ie the Government was willing to consider their said request provided they were willing to comply with the terms and conditions mentioned therein full in advance
The terms and conditions mentioned in this communication included among other things the payment of additional premium of Rs17731548 in jumpsum and payment of interest on the additional premium at 10 per cent per annum from 27th May 1981 to 14th July 1983 being Rs378434955 and from 15th July 1983 to the date of payment at Rs 14776290 per month
The other terms and conditions imposed by the said letter are not in dispute and therefore they need not be reproduced here
308 6
On receipt of this letter the late Hans Raj Gupta and other lessees made a representation on March 31 1984 to the Works  Housing Minister of the Government of India requesting reconsideration of the terms and conditions imposed in the Government s letter of permission of January 12 1984
It appears that thereafter there was a correspond ence between the parties which finally culminated in the Government s letter of June 12 1987 which virtually reject ed the representations of the lessees
Further representa tions were made thereafter for reconsideration of the terms and conditions offered by the Government for conversion of the use of the leased land but it appears that they were not replied to
The result was that the lessees approached the High Court by a writ petition challenging the appellant s letter dated June 12 1987 reiterating the terms and condi tions which were intimated earlier by the letter of January 12 1984
The main challenge in the petition was to the base year for the calculation of the charges for conversion of the land from the residential to the commercial purpose
It was the contention of the petitioners that since they had applied to the respondents for permission to convert the user on February 15 1978 they were liable to pay charges calculated with reference to the said date and not as the respondents had done with reference to May 251981
Their second contention was that for the same reason no charges for the misuse of the land could be levied after February 15 1978 and their third contention was that no interest could be charged on the alleged additional premium which was calculated by taking into consideration May 25 1981 as the base date
The High Court accepted all the said three con tentions by holding that the date with reference to which the conversion charges had to be calculated was February 15 1978 when according to the court the respondents had duly applied for conversion of the user
The High Court also held that in fact there was no need to make any such application for conversion after September 1962 when the Master Plan was prepared by the Delhi Development Authority declaring the region in which the leased land was situate as a commercial zone
According to the court there was an automatic and statutory conversion of the use of the land from residential to commercial purpose and hence there was no question of either payment of conversion charges or the misuse charges
In this view of the matter the court held that the demand which had been made by the appellants for conversion charges calculated on the basis of the rate prevalent in April 1981 instead of the rate prevalent on February 15 1978 was not in accordance with law and the respondents were not obliged to make the payment pursuant to an invalid demand
The High Court therefore quashed the 309 demand for conversion charges contained in the appellants letters dated January 12 1984 and June 12 1987 and direct ed the appellants to recompute the additional premium and other charges within a period of six months in accordance with law and in accordance with the observations made by it
It is this decision which is challenged in this appeal
While narrating the facts we have referred to the alleged application made by the respondents or on their behalf on April 25 1977 and February 15 1978
Since the respondents do not contend that their alleged application of April 25 1977 was an application for conversion of the user of the land it is not necessary for us to deal with the same
However since it is contended vehemently on their behalf that the application of February 15 1978 was a proper application for conversion of the user of the land and the High Court has also accepted it as such it is necessary to deal with the same
The contents of the said application have been reproducted above
In the first in stance this application was sent by the late Hans Raj Gupta for himself and for Dev Raj Gupta and others
The late Hans Raj Gupta did not sign it for Dev Raj Gupta and others as the holder of the power of attorney from them
Nor did he make clear who the said others were
The lessees of the property at that time were Dev Raj Gupta Prem Raj Gupta and Pradeep Kumar Gupta in addition to the late Hans Raj Gupta
Neither the said letter was signed by Dev Raj Gupta Prem Raj Gupta and Pradeep Kumar Gupta nor was it stated any where in the letter that they had authorised the late Hans Raj Gupta to seek permission on their behalf
As far as the contents of the letter are concerned they are self explanatory
All that the late Hans Raj Gupta wanted to know from the Land and Development Officer were the terms and conditions for the construction of a commercial building on the land and the charges that would have to be paid for the same
This can hardly be called an application for permission to con struct a commercial building on the land
It is no more than an enquiry
We are therefore unable to appreciate the contention that this letter constituted an application for permission to use the land for commercial purposes
It is for this reason that we are unable to agree with the High Court s finding that this letter was an application for the conversion of the user of the land
It is immaterial in this connection whether any regular form of application was prepared and was available for use at the relevant time
Even assuming that such a form was prescribed for the first time on June 15 1978 the letter of February 15 1978 could hardly be described as an application signed by the lessees meaning thereby all the lessees for permission to convert the user of the land
310 The absence of a prescribed from does not made the letter the required application
The least that is expected in an application for the purpose is a request by all the lesseess to permit the change of the user of the land showing readi ness and willingness to abide by the terms and conditions for such conversion of the user
The letter in question on the other hand did nothing more than make an enquiry sug gesting that the application for the change of the would be made after the terms and conditions including the charges for the same are known
We are therefore satisfied that the letter of February 15 1978 was not an application made for the change of the user of the land
It is for this very reason that we are of the view that it was for the first time on February 27 1981 that a proper application was made for the purpose
As has been pointed out hereinabove after the letter of February 15 1978 addressed by the late Hans Raj Gupta and others to the authority we have on record only the letter of March 1 1980 addressed by the authority to Hans Raj Gupta and others pointing out that applications in respect of the land were received by him from different persons some of whom were not even co lessees to intimate conversion charges for the construction of multi storeyed commercial building
The letter also referred to their intention to sell the property to Ms Central Investment Private Limited and the United Towers India Private Limited
The authority also referred to the reflection of the same by the competent authority under the Urban Land Ceiling and Regulation Act 1976 stated that the same had created some doubts about the ownership of the land
It was therefore necessary accord ing to the authority that a fresh application for the per mission to construct the multi storeyed building duly signed by all the co lessees in the prescribed form should be sent
It is obvious from this letter that there was some correspondence between the parties between February 15 1978 and March 1 1980 which has not come on record
The letter of March 1 1980 is obviously not a reply sent by the au thority to the late Hans Raj Gupta s letter of February 15 1978 for the latter does not refer to the construction of a multi storeyed building or the intended sale of the property to a third party
The letter is also addressed not to the late Hans Raj Gupta and Dev Rai Gupta and others but to the late Hans Raj Gupta Dev Raj Gupta Prem Raj Gupta and Pradeep Kumar Gupta
It is also clear from the authority s letter that different persons were seeking permission for change of the user of the land and some of them were not even the co lessees of the land
The situation which ob tained till March 1 1980 was therefore that there was no firm application by the authorised person or persons for conversion of the user of the land and it 311 is for this reason that the authority had asked the lessees to send the application in the prescribed form duly signed by all the co lessees
There was no reply to this letter of March 1 1980 and hence a reminder was sent by the authority on June 3 1980 warning the lessees that in case no reply was received from them within 15 days the matter would be treated as closed
It is pursuant to this reminder that on February 27 1981 a letter accompanied by an application in the prescribed form was sent and both the letter as well as the prescribed form were duly signed for the first time by all the co lessees
The contents of the accompanying letter make it clear that even the lessees treated this application as the first duly made application for the purpose
It may also be mentioned here that as has been stated in the application the plans for the construction of the commer cial building were sanctioned only on January 21 1981 and theexemption application made to the competent authority under Section 20 1 of the Act was even then still under process
It is in response to this application that the sanction was given by the authority on January 12 1984 to convert the user of the land
We are in the circumstances of the view that it was only on February 27 1981 that an application for the change of the user of the land was made by or on behalf of the respondent lessees of the land
There is no explanation given by the appellants as to why the application made by the respondents of February 27 1981 was not replied to till January 12 1984
Hence in the absence of anything else on records it will have to be held that the date with reference to which conversion charges have to be counted is 27th February 1981
The authority has calculated additional premium with reference to May 27 1981 on the footing that the outer limit for granting permission was three months from the date of the receipt of the application
There is no justification for the authority to hold thus for they are expected to process the application as early as possible and not to wait till the end of three months
Unless there are valid reasons for them to do so or the delay is caused on account of an omission or commission on the part of the applicants it is not proper to take the end of the three months as the date with reference to which the conversion charges should be calculated
We are however informed that in the present case it makes no difference whether the charges are calculated with reference to 27th February 1981 or May 27 1981
Hence the difference in dates in immaterial for our purpose
312 11
The High Court is further not right in holding that there was an automatic or a statutory conversion of the user of the land because in the Master Plan the land in question fell in the area reserved for commercial use
The High Court failed to appreciate that the charge of user of the land permitted by the Plan was only enabling in nature
It lifted the restriction which was otherwise there for using the land for commercial purpose
The land has to be used as per the agreement between the contracting parties and no change of the user can be made contrary to the agreement even if the Plan permits such user
The Plan helps the parties to change the user if the parties mutually agree to do so
It does not permit the occupant to change the user unilaterally
It is not therefore correct to say that no permission of the landlord was reeded to change the user of the land
In the view we have taken we direct that the addi tional premium should be calculated by the appellants on the basis of the rate which was prevalent as on February 27 1981 which is the date of the application made for the change of the user
The interest should be charged on such additional premium wef 12th April 1984 since a period of three months from the date of notice viz January 12 1984 was available to the respondent lessees to make the payment of the additional premium
Taking into consideration the facts and circumstances of the present case the appellants should be given the facility to make the payment in three equal annual installments and the interest should be charged on such deferred payment at not more than 14 per cent per annum
The respondent lessees would however not be enti tled to convert the present user of the land into the com mercial user until and unless the last of the amount of the additional premium together with the interest thereon is paid
The respondents will further be liable to pay the misuse charges mentioned at items 6 and 7 of the notice of 1211984 till 12th April 1984 from which date they would be paying the conversion charges as above
The appellants will give the respondents the facility to pay the rest of the amounts ie the amounts other than the conversion charges in twenty four monthly installments with interest at no more than 10 per cent annum
The decision of the High Court is set aside and the appeal is allowed accordingly with no order as to costs
GN Appeal al lowed


Summary:
The appellant assessee carried on the business of mining gypsum
The predecessor in interest of the assessee acquired a lease from the Maharaja of one of the erstwhile princely State on September 29 1948 for mining of gypsum for a period of 20 years over an area of 427 square miles in the State
The lease was liable to be renewed after the expiry of 20 years
By a deed of assignment dated December 11 1948 the rights under the lease were assigned to the assessee company in which the State Government owned 45 shares
The assessee entered into an agreement with a Government of India Public Undertaking for the supply of gypsum of minimum of 835 quality
Under the lease the assessee was conferred the liberties and powers to enter upon the entire leased land and to search for win work get raise convert and carry away the gypsum for its own benefits in the most economic convenient and beneficial manner and to treat the same by calcination and other processes
The lease agreement consisted of several parts and each part contained several clauses
Clause 3 of part Iii prescribed restrictions on mining operation within 100 yards from any railway reser voir canal or other public works
This clause had been incorporated in the lease to protect the railway track and railway station which was situated within the area demised to the lessee
The assessee exclusively carried on the mining of gypsum in the entire area demised to it
The Railway Authorities extended the railway area by laying down fresh track pro viding for railway siding and further constructed quarters in the leased area without the permission of the assessee
The assessee company filed a civil suit for ejecting the railways from the encroached area but it failed in the suit
314 As the assessee company on research and survey found that under the railway area a high quality of gypsum was available which was required as raw material by the Public Sector Company all the parties Public Sector Company the Railway Board and the assessee company negotiated the matter the Railway Board agreeing to shift the railway station track and yards to an alternative area offered by the assessee the parties equally bearing the cost of the shifting
Under the aforesaid agreement the assessee company paid a sum of Rs3 lakhs as its share towards the cost of shift ing of the Railway Station and other constructions and claimed deduction of the said sum for the assessment year 1964 65
The Income Tax Officer rejected the assessee s claim on the ground that it was a capital expenditure
The order was confirmed on appeal by the Appellate Assistant Commissioner
On appeal by the assessee the Income Tax Appellate Tribunal held that the payment of Rs3 lakhs by the assessee company was not a capital expenditure but a revenue expend iture
The Tribunal referred the question to the High Court under section 256 of the Income Tax Act 1961 on an appli cation by the revenue which held that since on payment of Rs3 lakhs to the Railways the assessee acquired a new asset which was attributable to capital of enduring nature the sum of Rs3 lakhs was a capital expenditure and it could not be a revenue expenditure
In the appeal to this Court on the question whether the payment of Rs3 lakhs to the Northern Railway was a revenue expenditure and was a deduction allowable under the Income Tax Act 1961
Allowing the appeal this Court HELD 1a Where the assessee has an existing right to carry on a business any expenditure made by it during the course of business for the purpose of removal of any re striction or obstruction or disability would be on revenue account provided the expenditure does not acquire any capital asset
326A b Payments made for removal of restriction obstruc tion or disability may result in acquiring benefits to the business but that by itself would not acquire any capital asset
326B Gotan Lime Syndicate vs CIT Rajasthan  Delhi  MA Jabbar vs CIT Andhra Pradesh Hyderabad 1968 315 2 SCR 413 and Commissioner of Inland Revenue vs Carron Company 1966 69 45 Tax Cases 18 referred
Empire Jute Company vs C I T   affirmed
In the instant case the assessee have been granted mining lease in respect of 427 square miles under which he had right to sink dig drive quarry and extract mineral ie the gypsum and in that process he had right to dig the surface of the entire area leased out to him
The payment of Rs3 lakhs was not made by the assessee for the grant of permission to carry on mining operations within the railway area instead the payment was made towards the cost of removing the construction which obstructed the mining opera tions
On the payment made to the Railway Authorities the assessee did not acquire any fresh right to any mineral nor he acquired any capital asset instead the payment was made by it for shifting the Railway Station and track which operated as hindrance and obstruction to the business of mining in a profitable manner
326C E 2
There may be circumstances where expenditure even if incurred for obtaining advantage of enduring benefit would not amount to acquisition of asset
The facts of each case have to be borne in mind in considering the question having regard to the nature of business its requirement and the nature of the advantage in commercial sense
326F G 3a The test for considering the expenditure for the purposes of bringing into existence an asset or an advantage for the enduring benefit of a trade is not always true and conclusive
327B 3b In considering the cases of mining business the nature of the lease the purpose for which expenditure is made its relation to the carrying on of the business in a profitable manner should be considered
326H In the instant case existence of Railway Station yard and buildings on the surface of the demised land operated as an obstruction to the assessee s business of mining
The Railway Authorities agreed to shift the Railway establish ment to facilitate the assessee to carry on his business in a profitable manner and for that purpose the assessee paid a sum of Rs3 lakhs
The payment made by the assessee was for removal of disability and obstacle and it did not bring into existence any advantage of an enduring nature
There was therefore
no acquisition of any capital asset
326H 327A 316 British Insulated and Helsby
Cables Ltd vs Atherton  explained
Assam Bengal Cement Co Ltd vs The Commissioner of Income Tax West Bengal  referred to
RB Seth Moolchand Suganchand vs Commissioner of Income Tax New Delhi  distinguished
The Tribunal rightly allowed the expenditure on revenue account
The High Court failed to appreciate the true nature of the expenditure
It committed an error in interfering with the findings recorded by the Income Tax Appellate Tribunal
327B C