TaxTMI 
TaxTMI 
2017 (9) TMI 718
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....t of Rs. 35,00,000 paid during the year to the land owner, for using the land for mining. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing deduction of Rs. 35,00,000 u/s 37(1) of Income Tax Act, 1961. 2. In the facts and circumstances of the case and in law ld. CIT(A) erred, in confirming the action of the ld. AO, in making disallowance of Revenue Expenditure of Rs. 18,00,000 u/s 35(2AB) of Income Tax Act, 1961. The action of ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing deduction of the said expenditure of Rs. 18,00,000." 2. At the outset, ld. AR submitted that he does not wish to press ground No. 1a and 2 of the assessee's appeal. Hence the same are dismissed as not pressed. 3. In ground No. 1b, the assessee has challenged the action of ld. CIT(A) in disallowing compensation amount paid to the land owner for using the land for mining under section 37(1) of the Act. 4. Briefly stated the facts of the case are that the assessee company has shown assets worth Rs. 1,96,77,243/- in its financial statements including ....
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....ng the soap stone. The appellant had in the past also made such payments to other persons for getting possession of the land in order to do the mining in the area. All the amount paid in earlier years amounting to Rs. 1,61,77,243/- was shown by the appellant as addition to land and no depreciation or any other deduction in respect of such payments were claimed by the appellant. However, in the A.Y 2013-14 (the assessment year under appeal), the appellant has claimed depreciation of Rs. 44,81,811/- u/s 32 on the ground that the amount paid by the appellant was intangible asset as defined under Clause (b) of Explanation 3 of section 32. For ready reference the explanation 3 is reproduced hereunder: "(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Thus, it can be seen that intangible asset has been defined in the Act as being, know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature. I am of the considered view that by making the payment of Rs. 35 lac to Shri Ranga for getting the possession of the land falli....
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.... mineral or group of associated minerals referred to in sub-section (2) or of any rights in or over such site; (ii) on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or (iii) of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, shall not be deemed to be expenditure incurred by the assessee for any of the purposes specified in sub-section (2)." A plain reading of clause (i) of Sub-section 3 of section 35E makes it clear that any expenditure on acquisition of the site of source of any mineral or group of associated mineral or of any rights in or over such sight is not admissible as deduction. Therefore, in view of the specific provisions of section 35E, the claim of the appellant that it should be allowed the entire amount of 35 lac as deduction is found to be not acceptable. Hence, the additional ground of appeal raised by the appellant is hereby dismissed." 6. During the course of hearing, ld. AR submitted that Assessee Company has a huge mining area allotted by the Government of Rajasthan on lease for a ....
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....the issue is squarely covered in favour of the assessee company by the recent decision of the Hon'ble Jurisdictional High Court. When compensation is paid to land owners for mining on their piece of land, such compensation has been held by the Hon'ble Rajasthan High Court, in the case of Rajasthan State Mines and Minerals Ltd (Appeal No. 651/2009 dated 30.05.2017) to be of revenue in nature. The Hon'ble High Court dismissed the contention of the department that by paying such compensation, assessee acquired benefits of enduring nature and thus should be treated as capital expenditure. In this case, Hon'ble Rajasthan High Court adjudicated the below mentioned question of law, on appeal filed by the department:- "...whether on the facts and circumstances of the case, the Tribunal was justified in holding the compensation of Rs. 17,72,915 paid to landowners for acquiring mineral from land, as revenue expenditure, ignoring the provisions of section 37(1) of the Act, 1961, and inspite of the fact that the assessee by virtue of said expenditure has acquired benefits of enduring nature and were thus, not allowable as revenue expenditure?... "....In view of the above, the iss....
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....e of the lease agreement entered with Government of Rajasthan. Such expenditure did not result into the assessee company acquiring any site for mining nor did it get any additional right to use such site. Assessee company already had the right to extract minerals and to do mining on the said land. Applicability of Section 35E is driven by sub-section (2) of Section 35, which includes, in its scope, expenditure incurred by any assessee at any time during the year of commercial production and any one or more of the four years immediately preceding that year. Thus, Section 35E is applicable for expenditure incurred during the five year period ending with the year of commencement of commercial production, i.e. the previous year in which, as a result of any operation relating to prospecting commercial production of any one or more of specified minerals or associated minerals, commences. Whereas, in the case at hand, the assessee company entered into a lease agreement with the Government of Rajasthan for the purpose of mining in the year 2000. The assessee company had already started its commercial production. Thus, section 35E is not applicable on the compensation paid for....
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.... further find that such expenditure was held to be allowable even during the asset. yr. 1980-81 while giving direction under s. 144B of the Act i.e., after the introduction of provision of s. 35E. Further, the learned counsel for the assessee has produced by way of example the computation for the asst. yr. 1987-88 where similar expenditure was claimed and allowed. In these circumstances, we are of the view that the expenditure for removal of overburden would not fall under s. 35E of the IT Act and thus, we quash the revisionary order passed by the CIT under s. 263 of the IT Act..." 15. It was submitted that the ld. CIT(A) nowhere distinguished any of the judgments relied before his and in a summary manner, rejected the plea of the assessee company. Even if the said expenditure is considered to be included in sub-section (3) of section 35E, the same would be outside the purview of the said section in accordance with sub-section (2) of section 35E and thus would automatically get covered under section 37(1). 16. It was submitted that Section 37 is a residuary provision. It provides for the deduction of all expenditure wholly and exclusively laid out or expended for the purposes of ....
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....al of restrictions on borrowing facilitated the day-to- day trading operation of the company, the expenditure was on income account. The House of Lords considered the test laid down by Lord Cave L.C. in British Insulated E Helsby Cables Ltd.'s case (supra) and held that the payments made by the company, were for the purpose of removing of disability of the company trading operation which prejudiced its operation. This was achieved without acquisition of any tangible or intangible asset or without creation of any new branch of trading activity. From a commercial and business point of view nothing in the nature of additional fixed capital was thereby achieved. The Court pointed out that there is a sharp distinction between the removal of a disability on one hand payment for which is a revenue payment, and the bringing into existence of an advantage, payment for which may be a capital payment. Since, in the case before the Court, the company had made payments for removal of disabilities which confined their business under the out of date Charter of 1773, the expenditure was on revenue account. In Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, this Court held that expenditure made by an....
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....b-section (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth of the amount of such expenditure. (2) The expenditure referred to in sub-section (1) is that incurred by the assessee after the date specified in that sub-section at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals : Provided that there shall be excluded from such expenditure any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure. (3) Any expenditure- (i) on the acquisition of the site of the source of any mineral or group....
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....ns out to be infructuous or abortive. Where the expenditure on prospecting for, or development of, the specified minerals is wholly or partly met directly or indirectly by any other person or authority, the amortisation will be admissible only in respect of the balance, if any, of such expenditure. Further, where any property or rights are brought into existence as a result of the expenditure and the assessee realises any sale, salvage, compensation or insurance moneys in respect of such property or rights, the amount so realised will be set off against the expenditure and only the balance, if any, will be eligible for amortisation. 51. The following categories of expenditure are specifically excluded from the expenditure eligible for amortisation under section 35E : 1. Expenditure on the acquisition of the site of the source of any of the specified minerals or groups of associated minerals or of any rights in or over such site. 2. Expenditure on the acquisition of the deposits of any of the specified minerals or groups of associated minerals or of any rights in or over such deposits. 3. Expenditure of a capital nature in respect of any building, machinery, plant or furniture f....
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.... consideration has been incurred much after the start of the commercial production and hence, the second condition is not satisfied and in the process, the provisions of section 35E are not applicable in the instant case. As we have stated above, for applicability of section 35E, both the nature and period of incurrence of the expenditure are relevant. In the instant case, it is not in dispute that the year under consideration is not the year when the commercial production has started. The assessee has entered into lease agreement with the Government of Rajasthan way back in the year 2000 and thereafter, it has started commercial production and reported revenues to tax. In view of the same, given that the expenditure under consideration has been incurred much after the start of the commercial production, one of the conditions for invoking section 35E are not satisfied. We therefore need not examine the second condition regarding nature of the expenditure as the same would be purely academic in nature. The provisions of section 35E are therefore not applicable in the instant case. Therefore, the applicability of provisions of section 37(1) cannot be excluded merely on ac....
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....ade to the Railway authorities the assessee did not acquire any fresh right to any mineral nor he acquired any capital asset instead the payment was made by it for shifting the railway station and track which operated as hindrance and obstruction to the business of mining in a profitable manner. The assessee had already paid tender money, licence fee and other charges for securing the right of mining in respect of the entire area of 4.27 square miles including the right to mining under the Railway Area. In considering the cases of mining business the nature of the lease, the purpose for which expenditure is made, its relation to the carrying on of the business in a profitable manner should be considered. In the instant case, existence of railway station, yard and buildings on the surface of the demised land operated as an obstruction to the assessee's business of mining. The Railway authorities agreed to shift the Railway establishment to facilitate the assessee to carry on his business in a profitable manner and for that purpose the assessee paid a sum of Rs. 3 lakhs towards the cost of shifting the Railway construction. The payment made by the assessee was for removal of dis....
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....the Land owner, chain of events documented by Tehsildaar, letter written by Land Owner to Tehsildaar surrendering the land, report of Tehsildaar for verification of facts and evidence that the land surrendered by Mr. Ranga was mutated in the name of the Government of Rajasthan in the revenue records. It has been contended that all these documents were submitted before the ld CIT(A). In our view, these are relevant documents which have been brought on record by the assessee company to determine the exact nature of transaction and amount paid by the assessee company to the land owner. The ld CIT(A) has recorded a finding that during the previous year relevant to A.Y 2013-14, the appellant paid Rs. 35 lac to Shri Ranga who was having in his possession, a piece of land (Khasra No. 53, Araji No. 157, Rakba 3 bigha & 8 biswa), as this piece of land was part of the total area allotted by the government to the appellant for mining the soap stone. The appellant had in the past also made such payments to other persons for getting possession of the land in order to do the mining in the area. The said finding of the ld CIT(A) remain uncontroverted before us.....