TaxTMI 
TaxTMI 
2026 (2) TMI 1486
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and deductibility thereof (if any) under the provisions of the Act. 3. Succinctly stated pertinent facts arising out of the case records are that; 3.1 The assessee is a private limited company engaged in the business of mining & export of iron ore minerals, transport and other allied activities. For the year under consideration the assessee filed its return of income on 28/09/2013 declaring total income of Rs.54,10,05,410/-. The said return of income of the assessee company in first instance without variation was summarily processed by the Revenue u/s 143(1) of the Act. 3.2 Subsequently, vide notice dt. 03/09/2014 issued u/s 143(2) of the Act, the case of the assessee selected for scrutiny and the assessment u/s 143(3) of the Act vide order dt. 28/03/2016 was completed wherein the Ld. AO inter-alia disallowed a sum of Rs.16Crs paid to the Government of Goa in the form of stamp duty towards renewal of mining lease/licence for a period of twenty (20) years which was claimed as revenue expenditure in the year of payment u/s 37(1) r.w.s. 43B of the Act. While disallowing so the Ld. AO treated the stamp duty payment as consideration for acquiring mining rights being a capital ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent year on actual payment basis.' 4. In the course of hearing, the Ld. Counsel Sr Deshpande after reiterating former facts from the records submitted that; since incorporation in the year 1973 the appellant is in mining business and there has been no change in the activities/operations. By 'The Goa and Daman, Diu Mining Concession (Abolition & Declaration as Mining Lease) Act, 1987 ['GDDMC'] the perpetual mining & mining concession was then in force in the union territories including Goa was abolished and the provisions of Central Act 'Mines & Minerals Development & Regulation Act, 1957 ['MMDRA'] made applicable whereby the appellant was granted a long-term lease/licence and thus allowed to extract iron-ore for a period 20 years from 22/11/1987 to 21/11/2007. Upon the expiry of former term, the renewal for a similar period of 20 years commencing from 22/11/2007 was proposed/ordered by GoG vide its letter dt. 21/02/2013 by requiring assessee to pay Rs.16Cr therefore. Pursuant to such order the assessee on 06/03/2013 paid a stamp duty of Rs.16Cr in the fiscal year relevant to assessment year under consideration. Though the payment for renewal was discharged in the year under cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act, and the same is supported by former precedents. 7. Au contraire, placing reliance on cords of decision rendered by the Hon'ble Supreme Court and Hon'ble High Courts, the Ld. DR M Satish argued that grant of mining lease is one form of transfer whereby right or interest attached to immovable property is indirectly transferred. Such right/interest in immovable property per-se is a distinct & separable property falling within ambit capital asset as defined by section 2(14) of the Act. On the other hand, there exist a direct nexus between cost incurred in such indirect transfer and the rights/interest granted/acquired under such mining lease. The cost incurred in acquiring such rights/interest partakes its character from an underlying subject matter of transfer namely capital asset, hence it is a capital expenditure for the purpose of the Act. Such cost being capital in nature & not being a revenue in substance hence not deductible u/s 37(1) of the Act. 8. Backing up the former arguments, the Ld. DR Renga Rajan tried to strengthen the Revenue's case by advancing that, the incorrect nomenclature used in granting the licence to allow/permit the appellant to extract iron-ore mi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ht of settled position of law which were primed to the respective parties for their rebuttal. 11. We note that, the appellant predominantly engaged in business of mining iron-ore minerals in the state of Goa over two categories of lands ['MINE AREA'] viz; (a) pieces of land owned by appellant etc., and (b) pieces of land owned by other private parties which are taken on long-term lease by the appellant. Admittedly, the Central or State Government leased no piece of land to the appellant for the purpose of mining/winning of iron-ore minerals. Though former twin types of lands were in complete possession & at the disposal of appellant, the prospecting of minerals or / and mining of minerals therefrom required a licence/permit which is regulated under the provisions of MMRDA. The mining licence was granted by entering into mining-lease agreement between the GoG and the appellant. The first renewal of mining licence granted to the appellant as solidified that it was expired in the year 2007. 12. The GoG allowed the appellant to continue mining operations that is winning of iron-ore minerals from mining area even after the expiry of mining licence in 2007 without their renewal til....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deductibility as general revenue expenditure in the year of payment u/s 37(1) r.w.s. 43B of the Act. 14. The dispute solely relates to former first payment of Rs.16Crs made to the GoG by the appellant for renewal of mining lease. The appellant claims it as revenue in nature and thus deductible u/s 37(1) of the Act. Per contra, the Revenue refutes the appellant's claim contending it to be a capital expenditure, therefore not allowable u/s 37(1) of the Act. The appellant's claim for deductibility is founded on threefold premises viz; (1) the payment is for lease and is recurring in nature (2) the payment is made in the form of 'stamp duty' akin to legal expenditure and (3) renewal of lease did bring no new capital asset into existence for appellant, that is to say renewal of mining lease cannot be equated with acquisition of capital asset. Without prejudice to above claim, the appellant in its solitary ground of appeals, tendered an alternate claim for consequential depreciation u/s 32 of the Act, if same is held to be capital expenditure. 15. In our mindful understanding, nature & character of mining-lease entered, registered and executed between GoG and the appellant can soli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance with terms & conditions of permit or licence or a mining lease, granted under MMDRA & rules made thereunder. Further we also note that, such licence/permit granted in view of the enabling provisions of section 12A of MMDRA allows the lessee/licensee (i.e., holder of mining-lease) a right to transfer such mining-lease right. 18. This bolstered up clearly that, mining operations i.e., winning of minerals is a lawful right created under the provisions of MA & MMDRA which endows an enduring benefit over a certain period and conveys various rights including right to transfer. Such right is not a commodity to be traded as inventory but an asset capable of generating commodity or stock to be traded for generating regular revenue in the ordinary course of mining business. Therefore this mining/winning right whether granted originally (first time) or by way of renewal subsequently, at all given point of time in our considered view since possessed all the essential attributes of an capital asset including transferability, capable of generating circulating capital i.e., minerals-stock which in turn generated regular revenue for the mining business is uprightly a capital asset within t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Vs CIT' [1966, 59 ITR 718) their Hon'ble Lordships have also categorically held that, the payment does not lose its character as capital payment if the sum was determined to pay was capital in nature. Thus, the nature of sum continues to be character of sum payable/paid irrespective of mode and frequency of payment. 22. In view of aforestated discussion and respectfully following the judicial precedents (supra), we have no hesitation to hold the mining-lease acquired by the appellant through renewal for a period of 20 years effective from 2007 is and continues to be a capital asset in substance in terms of s/s (14) of section 2 of the Act. In result we find no error in actions of both the tax authorities below in construing the renewal of mining-lease in substance as a capital asset as defined by section 2(14) of the Act. B. Stamp Duty, nature & character; 23. Having decided the nature & character of mining-lease including renewal of such mining lease granted by GoG to the appellant under MMDRA as capital asset, next arises as to whether the consideration paid by the appellant for such renewal in the form of 'stamp duty' by any chance alters the aforestated adjudication? ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal asset. We continue to hold so because in fiscal law, 'substance over form' doctrine dictates that the economic reality and true nature of a transaction determine its tax liability/deductibility, rather than its legal form or appearance. 29. A reference can be made to 'Super Poly Fabrics Ltd. Vs CCE, [2008, 217 CTR (SC)] wherein the Hon'ble Supreme Court held that a contract or an agreement has to be read as a whole to understand the purpose and object of the parties agreeing to the laid down terms and conditions. Moreover, if the terms used in the agreement are not conclusive one has to look at the substance of the transaction over form such that it is not always possible that the name given to a transaction would depict the real nature of the transaction to ascertain valid fiscal impact. 30. In view of our former discussion and judicial precedents (supra) and applying the doctrine of 'substance over form', we are of the considered & firm opinion that the appellant's claim that impugned 'stamp duty' is legal expenditure is factually incorrect and without substance, therefore stands rejected. 31. We have given a thoughtful consideration to catena of judicial precedents ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e used for manufacturing of cement, came for consideration in 'Assam Bengal Cement Co. Ltd. Vs CIT' [1955, 27 ITR 34 (SC)], wherein their Hon'ble Lordship vide para 6 held that, consideration had an advantage or benefit for such whole period of lease was an enduring benefit for the benefit of whole of business. The annual recurring payment is immaterial because one had got to look to nature of payment which in its turn was determined by the nature of the asset which assessee acquired. 33. In view of former judicial precedents, it is abundantly clear that the nature & substance of transaction determines the substance of expenditure incurred in conducting such transaction. Inversely, it shall be pertinent to note that in deciding the substance, nature and character of expenditure and its consequential deductibility under the provisions of the Act, neither the form, nor the mode and further nor the frequency (lump-sum or instalment) of such payment is a material factor but the nature and substance alone. 34. The appellant drew our attention to no such decision which could dismantle the Revenue's case and inversely hardly could support the case of the appellant in claiming the co....