L. Narasimha Reddy, J.

This reference is at the instance of the Revenue. The respondent is an assessee and she undertakes the activity of construction of buildings, giving them on lease and other allied activities.

Certain extent of land owned by the Young Men’s Christian Association at Secunderabad was taken on lease by the respondent. In terms of the agreement between the parties, construction was made and buildings were given on lease. The expenditure incurred for construction as well as the income derived from the buildings constituted the subject matter of assessment for various years under the Income Tax Act (for short ‘the Act’). While for some years, the income derived from the buildings so constructed was treated as the one from business, for others the Assessing Authority treated it as the one from house property. Similarly, the claim of the respondent that the expenditure incurred for construction of the building must be treated as the revenue expenditure, was not accepted and it was treated as capital expenditure.

The orders passed by the Assessing Authority were appealed against, and ultimately, the matter landed before the Income Tax Appellate Tribunal, Hyderabad Bench “B” (for short ‘the Tribunal’) as I.T.A.Nos.602 and 606 of 1993. The Tribunal agreed with the contention of the respondent herein and allowed the appeals.

The Department filed applications under Section 256 of the Income Tax Act, 1961 (for short ‘the Act’) before the Tribunal with a request to refer certain questions covering the subject matter; to this Court. After hearing both the parties, the Tribunal passed an order, dated 17.07.1995, referring the following questions to this Court.

R.A.Nos.545 to 549/Hyd/1994:

1. Whether, on the facts and circumstances of the case, the I.T.A.T. is correct in law in holding that the entire expenditure incurred by the assessee on the construction of the building on the leasehold land is a revenue expenditure?

2. Whether, on the factsand in the circumstances of the case, the I.T.A.T. is correct in law in holding that the provisions of Section 32 (1A) of the Act will not apply to the present case?

R.A.Nos.550 to 554/Hyd/1994:

1. Whether, on the factsand in the circumstances of the case, the I.T.A.T. is correct in law in holding that the rents received by the assessee from the building constructed on the leasehold land is assessable under the head ‘business’ and not under the head ‘property’?

2. Whether, on the factsand in the circumstances of the case, the I.T.A.T. is correct in law in holding that the assessee has never been the owner of the superstructure (building), which was constructed by the assessee on the leasehold land?

For the sake of convenience, we refer to the questions as “Question Nos. 1, 2,3 and 4”.

Sri S.R. Ashok, learned Senior Standing Counsel for the Income Tax Department, submits that the respondent herself incurred the expenditure for construction of the building and acquired the rights, akin to ownership vis-à-vis the premises and the expenditure incurred therefor deserves to be treated as ‘capital expenditure’. He contends that the view taken by the Tribunal in its order of adjudication referable to Question No.1 is correct and the reference to it is not necessary. As regards Question No.2, learned Senior Standing Counsel submits that there is an inherent contradiction, inasmuch as the very basis for claiming the benefit under Section 32 (1A) of the Act is on the premise that what is incurred as ‘capital expenditure’ and the same does not go with Question No.1. According to the learned Senior Counsel, the respondent is not entitled for the benefit under Section 32 (1A) of the Act.

Coming to Question No.3, learned Senior Standing Counsel submits that though the respondent may have taken the land on lease, she constructed the building with her own funds and leased the constructed premises, to the exclusion of the lessor and in that view of the matter, she deserves to be treated as