DOLLAR COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee carries on the business of manufacture and sale of pharmaceutical products. Its factory is admittedly situated on a piece of land of an extent of 7 grounds 310 sq. ft. which is covered by Tondiarpet, III Area, Town Planning Scheme. THE Corporation of Madras made a demand on the assessee for payment of betterment contribution commonly called betterment tax of Rs. 2,406.09, Rs. 3,208.13 and Rs. 4,010-10 for the years 1969-70, 1970-71 and 1971-72 respectively. THE contribution was demanded at the rate of 7.5 per cent. on the difference between the value of the land as fixed by the Arbitrator, namely, Rs. 1,500 per ground and the market value taken for the above-mentioned three years, namely, Rs. 6,000, Rs. 7,500 and Rs. 9,000 per ground, respectively. On the assessee disputing the quantum of demand, the Corporation agreed to receive a lump sum payment of Rs. 7,984.67 on the basis of a flat rate of Rs. 1,120 per ground. This amount was accordingly paid to the Corporation of Madras on July 23, 1975.

(2.) IN the assessment proceedings for the assessment year 1975-76, the assessee claimed an amount of Rs. 7,985 as deductible being payment of betterment tax in respect of the land on which its factory was situated on the basis that the liability had accrued during the relevant previous year. The INcome-tax Officer disallowed the deduction holding that the expenditure was of capital nature.

(3.) IN order to decide whether the payment of betterment charges is of the nature of capital expenditure, it will be necessary to refer to the provisions of sections 23, 24 and 25 of the Madras Town Planning Act, 1920. The power to levy betterment contribution is given to the Municipal Corporation by section 23 of the said Act. That section provides that where by the making of any town planning scheme, the value of any property has increased or is likely to increase, the municipal council shall, subject to certain conditions, be entitled to recover from the owner of such property an annual betterment contribution for such term of years and at such uniform percentage of the increase in value not exceeding ten per centum as may be fixed in the scheme. Section 23, therefore, shows that the power of the Corporation to levy betterment contribution is dependent upon either the increase in value of any property or if the value of the property is likely to increase, by the making of any Town Planning