M/s. Vijayanagar Minerals Pvt. Ltd., Bellary V. ACIT, Bellary

ITA 1089/BANG/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0634 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-10-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 04-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI; LAKSHMI HANDE PURI
• Keywords: Commercial expediency; Revenue expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH, BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI N.L.KALRA, ACCOUNTANT MEMBER ITA NO.1089(BNG.)/2008 AND ITA NO.243(BNG.)/09 (ASSESSMENT YEARS: 2004-05 & 2005-06) M/S VIJAYANAGAR MINERALS PVT.LTD., J.V.S.L.COMPLEX, VIDYANAGAR, TORANAGALLU,, SANDUR-BELLARY APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, BELLARY RESPONDENT ASSESSEE BY : SHRI S.PARTHASARATHI REVENUE BY : SMT. JACINTA ZIMIK VASHAI AND SMT LAKSHMI HANDEPURI O R D E R PER SHAILENDRA KUMAR YADAV, JM; BOTH THESE APPEALS PERTAIN TO SAME ASSESSEE ON THE S AME ISSUE, SO THEY ARE BEING DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN THE ASSESSMENT YEAR 2004-05, THE AO FOUND THAT THE ASSESSEE HAD PAID PREMIUM TO M/S MYSORE MINERALS LTD., (MML.,) AMOUNTING T O RS.84,58,543/-. THE AO OBSERVED THAT THE PAYMENT RELAT ES TO PAYMENT MADE TOWARDS MINING RIGHTS FOR EXTRACTING ION ORE FROM THE LEASE HOLD LANDS HELD BY THE M/S MML., FOR PAYMENT AGAINST THE SAID LEASEHOLD RIGHTS WAS MADE BA SED ON THE QUANTUM OF PRODUCTION PERIODICALLY, BUT LOOKING TO THE NATU RE AND PURPOSE OF PAYMENT MADE TOWARDS ACQUISITION OF MINING RIGHTS WAS FOUND AS CAPITAL. THEREFORE, THE SAID PAYMENT WAS HELD AS CAPITAL EXPENDITUR E AND ACCORDINGLY THE SAME WAS DISALLOWED. KEEPING IN VIEW THE PROVISIONS OF SECTIO N 37, THE CIT(A) CONFIRMED THE SAME. THE STAND OF THE ASSESSEE IS THAT THE ASSESSEE COMPANY IS HELD AS JOINT VENTURE COMPANY TO EXPORT MINING RIGHTS HE LD BY M/S MML., AND ITA NO.1089 & 243(B)/08/09 2 THE PROCESS OF SUCH PAYMENT IS WITH AN INTENTION TO RAPID LY UPGRADE IN VIEW OF THE INFORMATION TECHNOLOGY ALONG WITH CONVERGENCE OF LEGISLAT ION, ACCOUNTING AD BUSINESS PRACTICES, THEREFORE, IT IS A ROYALTY AS PER THE TAXING STATUTES AND IT IS A REVENUE EXPENDITURE. SECONDLY, IT IS NOT THE ENDURING ADVANTAGE WHICH IS GOING TO DECIDE THE ISSUE BUT IN THE ORDINARY CASE, IT SHOULD BE SEEN AS A CURRENT EXPENDITURE MERELY BECAUSE THE MATERIAL IS PROVIDED BY A FORWARD MARKET CONTRACT FOR SUPPLYING THE RAW MATERIAL FOR COMING SEVERA L YEARS. THIRDLY, AS PER THE MATCHING CONCEPT, PRINCIPLE REVENUE RECEIPT SHOULD BE MATCHED WITH REVENUE EXPENSES AND THE PREMIUM TO M/S MML., IS MERELY ROYALTY WHICH ADDS TO THE COST OF MATERIAL AS THE SALE OF SAME IS A REVENUE RECEIPT. THE COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS: A. MEWAR SUGAR MILLS LTD., VS CIT, 87 ITR 400 (SC) B. GORELAL DUBY VS CIT, 248 ITR 3(SC) C. ABDUL KAYOOM VS CIT, 44 ITR 689(SC) D. GOTAN LIME SYNDICATE VS CIT, 59 ITR 718 (SC) BASED ON THE ABOVE CASE LAWS, IT IS ARGUED TO TREAT TH E PREMIUM PAID AS REVENUE EXPENDITURE. ON THE OTHER HAND, THE COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE PAYMENT IN QUESTION RELATES TO EXTRACTING IRON ORE FROM T HE LEASEHOLD LANDS HELD BY M/S MML., AND THE PAYMENT WAS MADE BASED ON THE QU ANTUM OF PRODUCTION, PERIODICALLY THUS, IT WAS TOWARDS THE ACQUISITION OF MINING RI GHTS AND THE NATURE OF PAYMENT IS CAPITAL IN NATURE THEREFORE, AS PER PROVISIONS OF SECTION 37 OF THE IT ACT, IT WAS RIGHTLY PROPOSED TO DISALLOW THE SAME. THE COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE DECISIONS OF THE SUPREME COURT REPO RTED IN 293 ITR 490(SC) AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS A JOINT VENTURE COMPANY FORMED BY M/S JINDAL VINJAYANAGAR STEEL LTD (JVSL) AND M/S MML. TO MANAGE MINE RESERVES O F BOTH COMPANIES. THE JOINT VENTURE CAME INTO EXISTENCE AS A RESULT OF MEM ORANDUM OF ITA NO.1089 & 243(B)/08/09 3 UNDERSTANDING DATED 17-01-1997 EXECUTED BY M/S JINDAL VIJANAGAR STEEL LTD. HEREIN AFTER CALLED AS JVSL AND M/S MYSORE MINERAL LTD., HE REIN AFTER CALLED AS M/S MML. THE ASSESSEE COMPANY ENGAGED I EXTRACTING IR ON ORE FROM MINES AND SALE OF THE SAME. THE ASSESSEE HAS DEBITED A SUM OF R S.84,58,543/- AS PREMIUM PAID TO M/S MML FOR EXTRACTING IRON ORE FROM MINE S OF LEASEHOLD LAND HELD BY M/S MML AND THE PAYMENT WAS MADE BASED ON QU ANTUM OF PRODUCTION PERIODICALLY. THE AO DISALLOWED THE SAME BY INVOKING PROVISIO NS OF SECTION 37 OF THE IT ACT. THE ASSESSEE COMPANY WAS FORMED TO EXECU TE RIGHT HELD BY M/S MML. THE ORE EXTRACTION WAS DONE BY THE ASSESSEE MAIN LY TO SELL THE SAME TO M/S JVSL ANOTHER PARENT COMPANY. THE ROYALTY WAS PAID DIRECTLY BASED ON QUANTITY OF SALE OF ORE AND THE SALE PRICE IS FIXED BY PARE NT COMPANY, AS REFERRED IN CLAUSE-5 OF MOU AS HELD IN M/S MEWA SUGAR MILLS LTD., VS CIT (1973) REPORTED IN 87 ITR 400. THE QUANTITY EXTRACTED SHOULD B E SOLD TO OUTSIDER ONLY IF THE OFFER IS REJECTED BY JVSC OR M/S MML. THE PROCESS OF LIBERALIZATION HAS LEAD TO RAPID UPGRADATION OF INFORMATION TECHNOLOGY ALONG WITH CONVERGENCE OF LEGISLATIONS ACCOUNTING AND BUSINESS PRACTICES AT GLOBAL LEVE L. FROM THE VERY SCOPE OF ROYALTY, IT SHOULD BE CONSTRUED IN THIS CONTEXT. THE HONBLE SUPREME COURT IN CASE OF M/S MEWA SUGAR MILLS LTD VS CIT (1973) RE PORTED IN 87 ITR 400(SC) OBSERVED THAT THE DETERMINING FACTOR WHETHER ROY ALTY IS CAPITAL OR REVENUE WILL DEPEND LARGELY ON THE NATURE OF TRADE IN WHIC H THE ASSET IS EMPLOYED AND THE QUANTITY OF THE PAYMENT THEREOF, ON FACT S OF EACH CASE. AS STATED ABOVE, THE ASSESSEE COMPANY WAS FORMED TO EXEC UTE RIGHTS HELD BY M/S MML, A PARENT COMPANY THE ORE EXTRACTION WAS DONE BY THE ASSESSEE COMPANY MAINLY TO SELL THE SAME TO M/S JVSL, ANOTHER PARENT COM PANY, ACCORDING TO MOU. THE ROYALTY, WAS PAID DIRECTLY BASED ON QUANTITY OF SALE OF ORE AND SALE PRICE IS FIXED BY PARENT COMPANIES, ACCORDING TO CLAUSE-5 OF MOU. SINCE SALE PRICE WAS DETERMINED BY THE PARENT COMPANY AS STATED ABOVE AND ROYALTY WAS LINKED TO THE SAME. IT CANNOT BE SAID THAT THE ASSESS EE HAS ACQUIRED ASSETS OF ENDURING NATURE AT ITS DISPOSAL. MOREOVER, THE QUANTITY EXTRACTED WOULD B SOLD ITA NO.1089 & 243(B)/08/09 4 TO THE OUTSIDER ONLY IF OFFER WAS REJECTED BY M/S JVSL A ND M/S MML. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS CHEMICAL S AND PLASTICS INDIA LTD., (2007) REPORTED IN 292 ITR 115(MAD.), CONSIDERING THE R ATIO OF HONBLE SUPREME COURT IN THE CASE OF K.T.M.T.M ABDUL KAYOOM (196 2) 44 ITR 689(SC) OBSERVED THAT INFACT, THE TREND OF JUDICIAL DECISION HOW A PROGRESSIVE LIBERAL VIEW ON CONCEPTS TO TREAT MANY ITEMS AS REVENUE EXPENDITURE WITH REG ARDS TO CONTRARY CONCLUSION COULD HAVE BEEN REACHED. IN FACT, EACH CASE DEPENDS ON ITS OWN FACTS AND CLOSE SIMILARITY BETWEEN ONE CASE AND ANOTHER IS NO T ENOUGH, EVEN SIGNIFICANT DETAIL MAY ALTER THE ENTIRE ASPECT. WHAT IS DECIS IVE IS THE NATURE OF BUSINESS, THE NATURE OF THE EXPENDITURE, THE NATURE OF TH E RIGHT ACQUIRED, AND THEIR RELATION INTER SE, AND THIS IS THE ONLY KEY TO RESOLV E THE ISSUE IN TE LIGHT OF THE GENERAL PRINCIPLES, WHICH ARE FOLLOWED IN SUCH CASES. THE FACTS OF EACH CASE, THE ATTENDANT CIRCUMSTANCES R EVOLVING ROUND THE EXPENDITURE, THE AIM, OBJECT AND PURPOSE OF THE SAME, THE IR IMPACT ON THE ASSESSEE, PARTICULARLY IN MATTERS RELATING TO THE FUTURE O F THE ASSESSEES TRADE AND BUSINESS, WHETHER IT COULD BE SUSTAINED ON ORDINARY C ANONS OF COMMERCIAL EXPEDIENCY SIMPLICITER, WHETHER IT IS A STEP-I-AID OF FUTURE EX PANSION OR PROLONGATION OF LIFE OF AN EXISTING BUSINESS, WHETHER IT IS TO S ECURE AN ENDURING BENEFIT, WHETHER THE EXPENDITURE CONSTITUTES CONCEIVABLE N UCLEUS TO FORM THE FOUNDATION FOR THE POSTERIOR PROFIT EARNING, WHETHER THE EX PENDITURE COULD BE VIEWED AS AN INTEGRAL PART OF THE CONDUCT OF THE BUSINESS AND TO AVOID IN-ROADS AND INCURSIONS INTO ITS CONCRETE PRESENT AND POTENTIAL FUT URE, ARE ALL SOME OF THE MAIN INCIDENTS WHICH HAVE A BEARING ON THE DECISION WHETHE R, IN A GIVEN CASE, THE EXPENDITURE IS CAPITAL OR CHARGEABLE TO REVENUE. ON T HE WHOLE, AN OBJECTIVE APPLICATION OF THE JUDICIAL MIND TO THE FACTS OF EACH CASE IS NECESSARY. ITA NO.1089 & 243(B)/08/09 5 (N.L.KALRA) (SH AILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: 2009 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) 7. GF(DELHI) BY ORDER AR, ITAT, BANGALORE