Appeal No 26 of 1966
Appeal from the judgment and order dated October 28 1964 of the Punjab High Court in I T Reference No 28 of 1962
section K Mitra Gopal Singh section P Nayyar and R N Sachthey
for the appellant
Veda Vyasa and B N Kirpal for the respondent
The Judgment of the Court was delivered by Sikri J
At the instance of the Commissioner of Income Tax the Appellate Tribunal Delhi Bench C referred the following question Whether the cost of land is entitled to depreciation under the schedule to the Income tax Act alongwith the cost of the building standing thereon 182 This question arose out of the following facts  The respon dent Ms Alps Theatre hereinafter referred to as the assessee carries on business as exhibitor of films
The Income Tax Officer initiated proceedings under section 341b of the Indian Income Tax Act 1922 on the ground that in the original assessment depreciation was allowed on the entire cost of Rs 85091  shown as cost of the building which included Rs 12000 as cost of land
The Income Tax Officer by his order dated February 22 1959 recomputed the depreciation excluding cost of land
The assessee ap pealed to the Appellate Assistant Commissioner
The Appellate Assistant Commissioner upheld the order of the Income Tax Officer
The assessee then appealed to the Appellate Tribunal which accepted the appeal
In accepting the appeal it observed as follows  You cannot conceive of a building without the land beneath it
It is not possible to conceive of a building without a bottom
What Section 10 2 vi of the Act says is that depreciation will be allowed on the building
The word building itself connotes the land upon which something has been constructed
It was therefore wrong on the part of the authorities below to exclude the value of the land upon which some construction was made
The true meaning of the word building  means the land upon which some construction has been made
The two must necessarily go together
 The High Court answered the question referred to it against the Department
Mahajan J observed that in Section 102vi of the Income Tax Act a building is placed at par with machinery and furniture and is treated as a unit and therefore for the purposes of depreciation a building cannot be split up into building material and land
He further observed that if the Legislature wanted to exclude land from the building for purposes of depreciation it could have said so
He then added  Moreover depreciation is allowed on the capital
The capital here is a unit building
If later on it is sold and it fetches more than its written down value the surplus is liable to tax see in this connection Section 102 vii proviso He felt that the crux of the matter is that the building is treated as a unit for purposes of depreciation or repair and there is no warrant in the Act which would permit us to split the unit for the purposes of section IO He further felt that at any rate two equally plausible interpretations are possible and the one in favour of the assessee should be adopted
183 Dua J in a concurring judgment felt that the question was not free from difficulty but he answered the question in favour of the assessee on the ground that much could be said for both points of view and the view in support of the assessee s submission had found favour with the Tribunal which had not been shown to be clearly erroneous
The answer to the question depends upon the true interpreta tion of section 102vi and in particular whether the word building occurring in it includes land
Section 10 deals with the profits and gains derived from any business profession or vocation
Section 102 provides that such profits or gains shall be computed after making certain allowances
The object of giving these allowances is to determine the assessable income
The first three allowances consist of allowance for rent paid for the business premises allowance for capital repairs and allowance for interest in respect of capital borrowed
Sub clauses iv v vi vi a and vii of section 102 deal with allowances in respect of buildings machinery plant or furniture
The word building must have the same meaning in all these clauses
Sub clause iv runs as under  in respect of insurance against risk of damage or destruction of buildings machinery plant furniturestocks or stores used for the purpose of the businessprofession or vocation the amount of any premium paid
 Building here clearly it seems to us does not include the site because there cannot be any question of destruction of the site
Clause v reads   in respect of current repairs to such buildings machinery plant or furniture the amount paid on account thereof
 This again cannot include the site
Then we come to sub cl
vi the relevant portion of which reads as under  in respect of depreciation of such buildings machinery plant or furniture being the property of the assessee a sum equivalent  as may in any case or class of cases be prescribed
 It would be noticed that the word used is depreciation and depreciation means  a decrease in value of property through wear deterioration or obsolescence the allowance made for this in book keeping accounting etc Webster s New World Dictionary 
In that sense land cannot depreciate
The other words to notice are such buildings
We have noticed that in sub cls
iv and 184 v building clearly means structures and does not include site
That this is the proper meaning is also borne out by r 8 of the Indian Income Tax Rules 1922
Rule 8 has a schedule and as far as buildings are concerned it reads as under  Class of asset Rate per Remarks centage 1Buildings 1 First class substantial buildings of materials 25 Double these numbers 2Scond class building will be taken for factory of less substantial con 5 buildings excluding struction officesgodownsofficer s 3Third class building 75 and employees quarters
of construction infeior to that of second class buildingbut not inclu ding purely temporory erection
4 Purely temporary No rate is prescribed erection such as wooden renewals will be allowed structure
as revenue expenditure
The rate of depreciation is fixed on the nature of the structure
If it is a first class substantial building the rate is less
In other words first class building would depreciate at a much less rate than a second class building
It would be noticed that for purely temporary erections such as wooden structures no rate of depreciation is prescribed and instead renewals are allowed as revenue ex penditure
But if the contention of the respondent is right some rate for depreciation should have been prescribed for land under the temporary structures
Further it would be difficult to appreciate why the land under a third class building should depreciate three times quicker than land under a first class building
One other consideration is important
The whole object of section 10 is lo arrive at the assessable income of a business after allowing necessary expenditure and deductions
Depreciation is allowable as a deduction both according to accountancy principles and according to the Indian Income Tax Act
Why  Because otherwise one would not have a true picture of the real income of the business
But land does not depreciate and if depreciation was allowed it would give a wrong picture of the true income
The High Court relied on Corporation of the City of Victoria and Bishop of Vancouver Island but in our view this case is distinguishable and gives no assistance in determining the meaning of the word buildings  in the context of section 102vi
In this case the Privy Council had to construe section 1971 of the Municipal Act British Columbia which exempted from municipal rates and taxes 1 1912 1 2 AC 384
185 every building set apart and in use for the public worship of God The Privy Council held that the above exemption applied to the land upon which a building of the description mentioned above was erected as well as to the fabric
The Privy Council was not concerned with the question of depreciation but with the question of exemption from Municipal rates
In the result the appeal succeeds the judgment of the High Court set aside and the question referred is answered in the negative and against the assessee
In the circumstances there will be YP Appeal allowed


Summary:
The Revenue authorities did not allow depreciation on the cost of land alongwith the cost of building standing thereon
The Appellate Tribunal accepted the assessee s appeal and the High Court answered the question in favour of the assessee
In appeal to this Court by the Revenue HELD The appeal must be allowed
Building under section 102 does not include the site because there cannot be any question of destruction of the site
183 E The word used in section 102vi is depreciation and depreciation means a decrease in value of property through wear deter oration or obsolescence and allowance made for this in book keeping accountings etc In that sense land cannot depreciate
183 H By r 8 of the Indian Income tax Rules the rate of depreciation is fixed on the nature of the structure
It would be difficult to appreciate why the depreciation of land would be dependant on the class of structures
184 D E The whole object of section 10 is to arrive at the assessable income of a building after allowing necessary expenditure and deductions
If depreciation on land was allowed it would give a wrong picture of the true income
184 F G Corporation of the City of Victoria and Bishop of Vancover  distinguished