Mining lease renewal stamp duty treated as revenue expenditure and allowed as business deduction

Stamp duty paid for renewal of a mining lease was treated as revenue expenditure deductible under section 37 because the renewal clause in the original lease deed gave only a contractual right to seek renewal, and the payment was made in exercising that right rather than to acquire any new asset or enduring advantage. The expenditure was linked to the carrying on of the business and was tested on business necessity and expediency, with departmental guidance on deduction of legal expenses for lease renewal also supporting the allowance.

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Issues: Whether stamp duty paid for renewal of a mining lease constituted revenue expenditure deductible under section 37 of the Income-tax Act, 1961, or capital expenditure.

Analysis: The renewal clause in the original lease deed conferred a right to seek renewal, and the expenditure was incurred only in exercising that contractual right. The expenditure was held to be connected with the carrying on of the business and not for acquiring any new asset or a right of permanent character. The business necessity and expediency test applied, and the departmental circular regarding deduction of legal expenses for renewal of lease also supported the allowance.

Conclusion: The stamp duty paid for renewal of the mining lease was revenue expenditure and was allowable as a deduction.

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