2017 (12) TMI 1784 - AT - Income Tax

Tribunal rules on capital vs. revenue expenditure for mining rights acquisition and Keyman Policy premium.

Asst. Commissioner of Income-tax, Circle-1, Bellary Versus Shri K.R. Kaviraj

The tribunal allowed the appeals filed by the revenue and dismissed the cross objections filed by the assessee. The main issues revolved around the nature ... Nature of expenditure - acquiring mining rights - capital or revenue expenditure - assessee made lump sum payment for the purpose of acquiring mining rights from the Government of Karnataka - HELD THAT:- In the light of the judgment of Aditya Minerals Pvt. Ltd. [1999 (9) TMI 2 - SUPREME COURT] the impugned payment made for acquiring mining rights is capital expenditure and cannot be allowed as revenue expenditure. The reliance placed by the ld.CIT(A) on the coordinate bench decision of Tribunal in the case of P.Abubakar [2010 (1) TMI 1235 - ITAT BANGALORE] and the decision of the Hon’ble jurisdictional High Court in the case M/s.Ramgad Minerals & Minings Pvt. Ltd.,[2012 (1) TMI 313 - KARNATAKA HIGH COURT] is misplaced in the light of the decision of the larger bench decision of the Hon’ble Supreme Court in the case of Aditya Minerals Pvt. Ltd [1998 (2) TMI 8 - SUPREME COURT] Then an issue may arise as to whether this expenditure can be allowed on a staggering basis spread over lease period as revenue expenditure in the light of the decision of the Hon’ble Supreme Court in the case of Madras Industrial Corporation [1997 (4) TMI 5 - SUPREME COURT] Needless to mention that if the payment is capital in nature, expenditure cannot be allowed on staggered basis. Even for the purpose of spreading over period of lease, it is essential that the expenditure should be in the nature of revenue expenditure. Thus, grounds of appeal of the revenue are allowed. Premium paid for Keyman Insurance disallowed - HELD THAT: - It is held to be allowable by the decision of the Hon’ble Delhi High Court in the case of B.N.Exports[2010 (3) TMI 186 - BOMBAY HIGH COURT]and also by the CBDT circular No.726 dated 18/2/1998, but the same is allowable only in the year in which premium was paid. In the present case, admittedly, premium was paid in the earlier years and the question of allowing it as deduction in the subsequent year does not arise as the liability of the expenditure had not crystallized during the year under consideration. Therefore, grounds of cross objections of the assessee are dismissed. Issues:- Appeal by revenue and cross objections by assessee against orders of CIT(A) for assessment years 2008-09 to 2012-13.- Whether consideration paid for acquiring mining rights is capital or revenue expenditure.- Whether expenditure on acquiring mining rights can be allowed on a staggering basis.- Challenge to addition of advance lease rental debited to P&L Account.- Disallowance of premium paid for Keyman Policy as revenue expenditure.Issue 1: Appeal and Cross ObjectionsThe judgment pertains to appeals by the revenue and cross objections by the assessee against orders of the CIT(A) for assessment years 2008-09 to 2012-13. The common issues involved in these appeals and cross objections are addressed collectively for convenience.Issue 2: Nature of Expenditure for Acquiring Mining RightsThe main issue revolves around whether the consideration paid for acquiring mining rights should be treated as capital or revenue expenditure. The respondent-assessee made a lump sum payment for acquiring mining rights, and the revenue contended that this payment is capital in nature. The tribunal referred to various legal precedents, including the decision of the Hon'ble Supreme Court in Aditya Minerals Pvt. Ltd., establishing that such payments for acquiring mining rights constitute capital expenditure. The tribunal dismissed the appeal by the revenue on this ground.Issue 3: Staggering Basis for ExpenditureThe judgment also addresses the question of whether the expenditure on acquiring mining rights can be allowed on a staggering basis spread over the lease period. Citing the decision of the Hon'ble Supreme Court in Madras Industrial Corporation, the tribunal emphasized that if the payment is capital in nature, it cannot be allowed on a staggered basis. The expenditure must qualify as revenue expenditure to be spread over the period of the lease.Issue 4: Addition of Advance Lease RentalThe revenue challenged the addition of advance lease rental debited to the P&L Account. The tribunal found in favor of the revenue on this issue, aligning with its decision in a similar case. Consequently, the grounds of appeal raised by the revenue for the relevant assessment years were allowed.Issue 5: Disallowance of Premium for Keyman PolicyRegarding the disallowance of premium paid for a Keyman Policy as revenue expenditure, the tribunal upheld the decision to dismiss the grounds of cross objections filed by the assessee. The premium paid for Keyman Insurance was deemed allowable only in the year it was paid, and as the liability did not crystallize during the relevant assessment year, the deduction was not permitted.In conclusion, the tribunal allowed the appeals filed by the revenue and dismissed the cross objections filed by the assessee, addressing various legal and factual aspects related to the nature of expenditures and deductions in the context of mining rights acquisition and premium payments for insurance policies.