Dr. B.P Saraf, J.:— By this reference made at the instance of the Revenue, the Income-tax Appellate Tribunal, Bombay Bench “A”, Bombay, has referred the following three questions of law to this court for opinion:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to a deduction under section 80J of the Income-tax Act, 1961, on the basis of its average capital and also on the footing that none of its debts or liabilities were to be deducted from the gross value of its assets?
2. Whether, on the facts and in the circumstances of the case, the premium paid on the leasehold lands was includible in the cost of the building constructed thereon for allowance of depreciation to the assessee for the accounting, period relevant to the assessment year 1974-75?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that deduction under section 35(1)(iv) and depreciation allowed under section 32 in relation to a capital asset are not of the same nature in the context of the provisions of section 32(1)(iv) and (v) of the Income-tax Act and that the provisions do not bar the allowance or depreciation on such assets so long as they continue to be used for scientific research?”
2. So far as questions Nos. 1 and 3 are concerned, counsel for the parties are agreed that both these questions are covered by the decision of the Supreme Court in favour of the Revenue and the same may be answered accordingly. Question No. 1 is covered by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India, [1985] 152 ITR 308.
3. Following the same, it is answered in the negative and in favour of the Revenue. Question No. 3 is covered by the decision of the Supreme Court in Escorts Ltd. v. Union of India, [1993] 199 ITR 43. Following the same, it is also answered in the negative and in favour of the Revenue.
4. The only question that survives for our consideration is question No. 2. The controversy therein pertains to the inclusion of premium paid by the assessee on the leasehold land in the cost of the building constructed thereon for the purpose of allowance of depreciation under section 32 of the Act. The Tribunal has held that the premium paid for the leasehold land forms part of the cost of structures constructed thereon and allowed depreciation thereon. The Revenue challenges this finding of the Tribunal.
5. Dr. Balasubramaniam, learned counsel for the Revenue, submits that the Tribunal committed a manifest error of law in allowing depreciation on the premium paid for the leasehold land. According to counsel, depreciation is allowable under section 32 of the Act only in respect of buildings and not in respect of the land and buildings. He also submits that the value of the land cannot be included in the value of the buildings or the structures built thereon. Reliance is placed in support of this contention on the decision of the Supreme Court in CIT v. Alps Theatre, [1967] 65 ITR 377.
6. We have considered the above submission. Section 32 of the Act which deals with depreciation provides for depreciation only in respect of “buildings, machinery, plant or furniture” owned by the assessee and on no other assets. Premium paid for the leasehold land, in effect, is the price for the purchase of the term secured by the lease. The question that falls for determination is whether depreciation is allowable under section 32 of the Act on the cost of the land on which the building is erected. This question, in our opinion, is no more res integra in view of the decision of the Supreme Court in CIT v. Alps Theatre, [1967] 65 ITR 377. The controversy before the Supreme Court in the above case was whether the word “building” occurring in section 10(2)(vi) of the Indian Income-tax Act, 1922 (corresponding to section 32 of the present Act), includes land. The Supreme Court categorically said that “building” clearly means structures and does not include site. It was, therefore, held that depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922, was not allowable on the cost of the land on which a building is erected but was allowable only on the cost of superstructure. The ratio of the above decision will apply proprio vigore to premium paid by the assessee for leasehold land which has been held to be capital expenditure.
7. In the instant case, the assessee claimed allowance by way of depreciation on the amount of premium paid by it for the leasehold land. Obviously, no such depreciation can be granted in respect of such premium because it is not includible in the cost of the superstructures constructed thereon.
8. In view of the above, we are of the clear opinion that the Tribunal was not right in holding that the premium paid on the leasehold land was includible in the cost of the building constructed thereon for allowance of depreciation to the assessee under section 32 of the Act. Question No. 2 is accordingly answered in the negative and in favour of the Revenue.
9. In the result, all the three questions referred to us by the Tribunal in this case are answered in the negative and in favour of the Revenue.
10. In the facts and circumstances of the case, there shall be no order as to costs