# JAMMl' & KASHMIR & HIMACHAL PRADESH, PATIALA v. M/S. ALPS THEATRE, PATIALA

- **Citation:** [1967] 3 S.C.R. 181
- **Court:** Supreme Court of India
- **Decided:** 1967-03-15
- **Case number:** Civil Appeal No. 26 of 1966
- **Bench:** J. C. Shah, S. M. S!Kri, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jamml-kashmir-himachal-pradesh-patiala-v-m-s-alps-theatre-patiala-4193
- **Pages:** 5

## Headnote

Indian /ncome·tax Act, 1922 (II of 1922), s. 10(2) (4)-Depreciation
-If land included.
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 s. · 10(2), does not include tho site because there cannot be any question of destruction of the site. (183 El
The word used in s. 10(2) (vi) is "depreciation" and "depreciation"
means
11a decrease in value of property through wear, deterioration, or
obsolescence, and allowance made for this in book-keeping, accounting
etc." In that sense land cannot depreciate. (183 HJ
By r. 8 of the Indian Income-tax Rules the rate of depreciation is furnJ
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-El
The whole object of s. 10 is to arrive at the assessable income of a
building after allowing necessary expenditure and deductions. If depre-
~iation on land was allowed it would give a wrong picture of the true
mcome. (184 F-G]
Corporation of the City of Victoria and Bishop of Vancouver Island.
[1921] 2 A.C 384, distinguished.

## Text

A
COMMISSIONER OF INCOME-TAX, PUNJAB
B
c
D
E
G
H
JAMMl' & KASHMIR & HIMACHAL PRADESH, PATIALA
v.
M/S. ALPS THEATRE, PATIALA
March 15, 1967
[J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.)
Indian /ncome·tax Act, 1922 (II of 1922), s. 10(2) (4)-Depreciation
-If land included.
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 s. · 10(2), does not include tho site because there cannot be any question of destruction of the site. (183 El
The word used in s. 10(2) (vi) is "depreciation" and "depreciation"
means
11a decrease in value of property through wear, deterioration, or
obsolescence, and allowance made for this in book-keeping, accounting
etc." In that sense land cannot depreciate. (183 HJ
By r. 8 of the Indian Income-tax Rules the rate of depreciation is furnJ
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-El
The whole object of s. 10 is to arrive at the assessable income of a
building after allowing necessary expenditure and deductions. If depre-
~iation on land was allowed it would give a wrong picture of the true
mcome. (184 F-G]
Corporation of the City of Victoria and Bishop of Vancouver Island.
[1921] 2 A.C 384, distinguished.
CIVIL APPELLATE JURISDICTION:
Civil 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.
S. K. Mitra, Gopa/ Singh, S. P. Nayyar and R. N. Sachthey,
for the appellant.
Veda Vvasa and B. N. Kirpal, for the respondent.
The Judgment of the Court was delivered by
SiRri J. At the instance of the Commissioner of Income T~x,
the App~llatc Tribunal, Delhi Bench "C", referred the following
question :
. .
"Whether the cost of land is entitled to depre~iatton
under the ,chedule to the Income-tax Act alongw1th the
cost of the building standing thereon?"
182
SUPREME COURT REPORTS
[ 196 7] 3 S.C.R.
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 deprecia·
.tion 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
lnoome Tax Officer, by his order dated February 22, 1959, recomputed the depreciation, excluding cost of land. The assessee appealed 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 beeli 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., obierved that in Section 10(2)(vi)
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 build:ng for purposes of depre-
. ciation 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
10(2) (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 10." He further felt that at :my rate two equal·
Jy plausible interpretations are possible and the one in favour of
!he asscssee should be adopted.
·
A
B
c
D
E
F
G
H
' ,,
B
c
D
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F
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c.1.T. v. ALPS THEATRE (Sikr1', J.)
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 interpretation of.s. 10(2)(vi), 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
I 0(2) 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 s.
I 0(2) deal with allowances in respect of buildings, machinery,
plant or furniture.
The word "building" must have the same
meaning in all these cla11ses. Sub-Clause (iv) runs as under :
"in respect of insurance against risk of damage or
destruction of buildings, machinery, plant, furniture,
stocks or stores, used for the purposes of the busin.css,
profession 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 assessce, a sum equivalent. ... as may in any case 01· 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-els. (iv) and
184
SUPREME COURT REPORTS
[1967] 3 S.C.R.
(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
1. Buildings -
(I) First class substantial buildings of
selected materials .. .
(2) Second class buildings of less substantial construction . ..
(3) Third class buildings of constr•ction inferior to that of second class
'buildings, but not including purely
tempocary erections.
(4) Purely temporary erections such as
wooden structutes.
Rate percentage
Remarks
2·5 roouble these numbers
) will be taken for fac5 I tory buildings, exclud-
~ ing offices, godowns,
7 · 5 lofticers' and employees'
quarters.
No rate is prescribed:
renewals will be allowed
as revenue expenditure.
A
c
The rate of depreciation is fixi;d _on the nature of the structure. If
D
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 structiires, no rate of depreciation is prescribed and instead renewals are allowed as revenue expenditure. But if the contention of the respondent is right, some
E
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
s. 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 Blshop 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 s. 10(2)(vi). In this case
th~ ~rivy Coun?il ha~ to construe s. 197{ 1) of the Municipal Act,
Bnllsh _Columbia, which exempted from municipal rates and taxes
(1) [1921] 2 A.C. 384.
F
G
H
·
B
c.1.T. v. ALPS THBATRB (Sikri, /.)
!SS
"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
no order as to costs.
Y. P.
Appeal allowed.
I.4SupCI/67-13
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