Case: Commissioner Of Income-Tax, Punjab Jammu &amp; Kashmir Vs. M/S. Alps Theatre, Patiala

2. This question arose out of the following facts: The respondent, M/s. Alps Theatre, hereinafter referred to as the assessee, carries on business as exhibitor of films. The Income-tax Officer initiated proceedings under S. .34 (1) (b) of the Indian Income-tax Act, 1922, on the ground that in the original assessment depreciation was allowed on the entire cost of Rs. 85 091 shown as cost of the building which included Rs. 12,000 as cost of land. The Income-tax Officer, by his order dated February 22 1959, recomputed I the depreciation, excluding cost of land. The assessee appealed 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."3. The High Court answered the question referred to it against the Department, Mahajan, J., observed, that in S. 10 (2) (vi) of the Income-tax Act, a building is placed at per 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 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 S. 10 (2) (vii) proviso.")He felt that"the crux of tilt matter is that the building is treated as a unit for purposes of depreciation of repair and there is no warrant in the Act which would permit us to split the unit for the purposes of section 10.      He further felt that at any rate two equally plausible interpretations are possible and the one in favour of the assessee should be adopted.      4. 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 assessees submission had found favour with the. Tribunal which had not been shown to be clearly erroneous.

Reasoning: 5. The answer to the question depends upon the true interpretation of S. 10 (2) (Vi)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 expenditure. But if the contention of the respondent is right, some rate for depreciation should have been prescribed for land under the temporary v 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 building7. One other consideration is important The whole object of S. 10 is to arrive at the assessable income of a business after allowing necessary expenditure and deductions8. 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 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 income9. The High Court relied on Corporation of the City of Victoria v. Bishop of Vancouver Island, (1921) 2 AC 384: (AIR1921 PC 240), but in our view this case is distinguishable and gives no assistance in determining the meaning of the word "buildings in the context of S. 10 (2) (vi). In this case the Privy Council had to construe Section 197 (1) of the Municipal Act, British Columbia which exempted form municipal rates and taxes "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.