Hari Om Maratha, J.M., J
1. This appeal of the revenue, for the assessment year 1999-2000, assails the finding of the learned Commissioner (Appeals), dated 6-8-2008, in
holding that the cost of acquisition of development rights will be in the nature of revenue expenditure and not in the nature of cost of acquisition of any
other capital asset, vide his order dated 6-8-2008.
2. The facts apropos the issue are that the Assessee-company is engaged primarily in the business of real estate development. The Assessee-
company filed return of income on 31-12-1999 for the assessment year 1999-2000 admitting total loss of Rs. 9,01,383. Initially the return was
processed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act"" for short), but subsequently the assessing officer
took action under Section 147 read with Section 148 of the Act. The asses-see had claimed a sum of Rs. 41,51,175 under the head ""cost of acquisition
of development rights"". The assessing officer proposed to disallow this claim but to allow depreciation by treating it as an acquisition of an intangible
asset. The Assessee objected to this proposal stating that after construction the flats were sold to various parties at variant prices agreed between the
Assessee and the vendees. So, according to the Assessee, the expenditure incurred for acquisition of the development rights for the said property
would take the character of stock-in-trade and constitute only a trading asset in so far as the Assessee is concerned and they do not constitute any
fixed assets in the hands of the Assessee. It was also stated that the amount paid for acquiring the development rights of the property were disclosed
in the accounts of the Assessee under the head ""Current assets, loans and advances--Work-in-progress"". So the Assessee disputed treating the
trading assets as intangible assets ranking for depreciation at 25 per cent, for income-tax purposes. But the assessing officer did not agree and after
referring to various decisions, has treated this asset as an intangible asset, only eligible for depreciation. However, this decision was reversed by the
learned Commissioner (Appeals) after holding that the Assessee has not acquired any commercial right because in view of the language of Section
32(1)(ii) of the Act, the phrase ""commercial rights"" will take its colour from the words used in this section which are know-how, patents, trade marks,
licences which are acquired as fixed assets of intangible nature, etc. It was observed that the development rights acquired by the Assessee are so
intrinsically linked to the stock-in-trade in the form of built-up space in the Assessees business and such development rights also get extinguished when
the built-up space is sold by the Assessee-company. So, he held the expenditure in question as revenue as against cost of acquisition of any other
capital asset as held by the assessing officer. Now the revenue is aggrieved.
3. We have heard the rival submissions and have carefully gone through the record. In so far as the facts of this case are concerned, there is no
dispute between the parties. The learned departmental representative has tried to elaborate the grounds raised in the appeal but the learned authorised
representative has further fortified the reasonings given by the learned Commissioner (Appeals) by advancing further arguments. After considering
the rival submissions, we find that a property is either corporeal or incorporeal. Corporeal property is the right of ownership in material things ;
incorporeal property is any other proprietary right in rem. The incorporeal property is itself of two kinds--(i) jura in re aliena or with no commercial
encumbrances like leases, mortgages, etc., and (ii) jura in re propria over immaterial things like patents, copyrights and trade marks. The owner of a
material object is he who owns a right to the aggregate of its uses. He who has merely a special and definitely limited right of use like right to the use
of it, such as a right of way, etc., is not an owner of the thing but can be treated merely as an encumbrancer of it. An owner of a property is entitled
to all those uses of it which are not specifically excluded by law. The Commercial rights acquired by the Assessee are not of fixed assets. The
Assessee-company is in the business of real estate development wherein after acquisition of development rights, construction of building is undertaken
and such built-up space is sold to different buyers at the negotiated price. After the entire built-up area is sold, the rights acquired by the Assessee-
company come to an end. So, it is not a continuing intangible asset capable of being exploited for any further business operations of the Assessee-
company. In the decisions relied on by the assessing officer, the facts are entirely different. In those cases, the commercial rights acquired by the
Assessees were not the subject-matter of space and no part of those commercial rights were ever extinguished during the course of trading operations
carried on by those Assessees. The development rights do not take their colour from the terms used in Section 32(1) (ii) as has been stated above.
The development rights are intrinsically linked with the stock-in-trade in the form of built-up area in the Assessees business which get extinguished
when the built-up space is sold by the Assessee-company. Therefore, in our opinion also, the cost of acquisition of development rights are in the nature
of revenue expenditure and not cost of acquisition of any other capital asset. Therefore, we cannot accept the grounds of this appeal.
4. In the result, the appeal of the revenue stands dismissed.
5. The order pronounced in the open court on 23-4-2010.
