Deputy Commissioner of Income Tax, Circle-7(1)(1), Bangalore V. M/s. The Hutti Gold Mines Company Ltd, Bangalore

ITA 1339/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7684 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-08-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 12-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN BENGALURU
• Assessee Lawyers: NAGENDRA SHARMA
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT A NO. 1339/BANG/2017 ASSESSMENT YEAR: 2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BANGALORE. VS. THE HUTTI GOLD MINES COMPANY LTD., 3 RD FLOOR, KHB SHOPPING COMPLEX, NATIONAL GAMES VILLAGE, KORAMANGALA, BANGALORE 560 047. PAN: AABCT 4338C APPELLANT RESPONDENT APPELLANT BY : SHRI MUZAFFAR HUSSAIN, CIT(DR)(ITAT), BE NGALURU. RESPONDENT BY : SHRI NAGENDRA SHARMA, ADVOCATE DATE OF HEARING : 13 .0 8 .2020 DATE OF PRONOUNCEMENT : 31 .0 8 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DAT ED 30.6.2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS), MYSORE RE LATING TO ASSESSMENT YEAR 2010-11. THE GROUNDS OF APPEAL RAISED BY THE R EVENUE READS AS FOLLOWS:- 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO L AW AND FACTS OF THE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) WAS JUSTIFIED IN LAW IN ALLOWING THE CLAIM A S REVENUE EXPENDITURE IN RESPECT OF DEAD RENT PAID IN RESPECT OF MINES ITA NO. 1339/BANG/2017 PAGE 2 OF 6 WHICH ARE NOT OPERATIONAL AND NO MANUFACTURING ACTI VITY IS CARRIED ON'? (FOR A.Y. 200910, A.Y. 2010-11 & A.Y. 2011-12 ) 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) WAS JUSTIFIED IN LAW IN ALLOWING THE CLAIM O F THE ASSESSEE FOR PAYMENT TOWARDS 'ENVIRONMENT PROTECTION FEES', AS REVENUE EXPENDITURE, THOUGH THE EXPENDITURE RESULTED IN END URING BENEFIT AND THE SAME HAD TO BE CAPITALIZED'?(FOR A. Y 2010- 11) 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 2. THERE IS A DELAY OF 1 DAY IN FILING THIS APPEAL WHICH WAS EXPLAINED DUE TO ADMINISTRATIVE REASONS. THE DELAY IS CONDON ED ACCEPTING THE REASONS GIVEN IN THE AFFIDAVIT FOR CONDONATION OF D ELAY. 3. AS FAR AS GROUND NO.2 RAISED BY THE REVENUE IS C ONCERNED, THE FACTS ARE THAT ASSESSEE IS A COMPANY ENGAGED THE BUSINESS OF GOLD MINING AND EXTRACTION. IN THE RETURN OF INCOME FILED FOR AY 2 010-11, THE ASSESSEE IN ARRIVING AT THE PROFITS OF BUSINESS, CLAIMED A DEDU CTION OF A SUM OF RS.15,64,745 AS DEAD RENT ON DIFFERENT LEASES WHICH WERE PART OF THE HEAD OF EXPENDITURE RATES & TAXES IN THE PROFIT AND LO SS ACCOUNT. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT THE AFORESAID PAYMENT W AS PAID AS PER THE MINES, MINERALS CONCESSION RATES, 1994 AS DEAD RENT . THE AO, HOWEVER, TOOK THE VIEW THAT SINCE THE MINES IN RESPECT OF WH ICH THE AFORESAID PAYMENT WAS MADE WAS OPERATIONAL, THE AMOUNT CANNOT BE ALLOWED AS A DEDUCTION. 4. ON APPEAL BY THE ASSESSEE, THE COMMISSIONER OF I NCOME TAX (APPEALS) ALLOWED THE CLAIM OF ASSESSEE BY FOLLOWIN G THE CBDT CIRCULAR NO.1D(V.53) OF 1966, WHEREIN IT WAS LAID DOWN THAT DEAD RENT IS ALLOWED AS ITA NO. 1339/BANG/2017 PAGE 3 OF 6 DEDUCTION IRRESPECTIVE OF THE FACT WHETHER THE MINE S ARE OPERATIONAL OR NOT. AGGRIEVED, THE REVENUE HAS RAISED GROUND NO.2 BEFOR E THE TRIBUNAL. 5. THE LD. DR RELIED ON THE ORDER OF AO. THE LD. C OUNSEL FOR THE ASSESSEE APART FROM RELYING ON THE DECISION OF THE CIT (APPEALS) ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE ANDH RA PRADESH HIGH COURT IN THE CASE OF SINGARENI COLLIERIES CO. LTD. V. CIT, 66 ITR 553 (A P) WHEREIN IT WAS HELD THAT THE DEAD RENT PAYABLE WAS REVENUE EXPENDITURE. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISIO N OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. LAWRENCE DSOUZA [2011] 203 TAXMAN 200 [KARN] WHEREIN THE HONBLE HIGH COURT TOOK THE VIEW THAT RENT PAID EVEN IF THE BUSINESS WAS STOPPED CANNOT BE DIS ALLOWED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FOR T HE SAKE OF READY REFERENCE, WE GIVE BELOW THE EXTRACT OF THE CBDT CI RCULAR WHICH IS SELF EXPLANATORY: BOARD'S CIRCULAR NO. 1-D(V-53) DT. 20TH JANUARY, 1966 DEAD RENT AND ROYALTY PAID MINING LEASEALLOWANCE O F REVISED INSTRUCTIONS REGARDING 20/01/1966 BUSINESS EXPENDITURE SECTION 37(1), BY CIRCULAR NO. 16D OF 1965, DT. 21ST JUNE, 1965, I NSTRUCTIONS WERE ISSUED THAT IN VIEW OF THE DECISION OF THE RAJ ASTHAN HIGH COURT IN THE CASE OF GOTAN LIME SYNDICATE (1947) 15 ITR 533 (RAJ) : TC 17R.203 THE PAYMENT OF DEAD RENT OR ROYA LTY IN RESPECT OF A LEASE UNDER THE MINERAL CONCESSION RULES, 1960 , SHOULD BE REGARDED AS EXPENDITURE OF A CAPITAL NATURE AND SHO ULD NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXABLE INC OME. THE ABOVE DECISION OF THE HIGH COURT HAS RECENTLY BEEN REVERSED BY ITA NO. 1339/BANG/2017 PAGE 4 OF 6 THE SUPREME COURT. A GIST OF THE ABOVE DECISION HAS APPEARED IN SHORT NOTES OF CURRENT CASES IN (1965) 58 ITR 29 (S C) OF SHORT NOTES [SINCE REPORTED AT (1966) 59 ITR 718 (SC) : T C 17R.197]. THE SUPREME COURT HAS HELD THAT THE ROYALTY PAYMENT INCLUDING THE DEAD RENT HAD RELATION ONLY TO THE LIME DEPOSIT S COLLECTED BY THE LESSEE AND WOULD, THEREFORE, BE REVENUE EXPENDI TURE. ACCORDING TO THE SUPREME COURT, THE ROYALTY PAID IN THAT CASE WAS NOT A DIRECT PAYMENT FOR SECURING AN ENDURING ADVAN TAGE; IT HAD RELATION TO THE RAW MATERIAL TO BE OBTAINED. THE ME RE FACT THAT THERE IS NO LUMP SUM PAYMENT, WOULD NOT ITSELF, LEA D TO THE CONCLUSION THAT YEARLY PAYMENTS MADE UNDER THE MINI NG LEASE HAVE RELATION TO THE ACQUISITION OF AN ENDURING ADV ANTAGE. THE SUPREME COURT HAS ALSO DISTINGUISHED THE CASE OF GO TAN LIME SYNDICATE FROM THE CASE OF PINGLE INDUSTRIES LTD. V S. CIT (1960) 40 ITR 67 (SC) : TC 16R.935 AND ABDUL KAYOOM VS. CI T 44 ITR 69 (SC) : TC 16R.1006. 2. IN THE LIGHT OF THE ABOVE DECISION, THE INSTRUCTIO NS ISSUED IN THE BOARD'S CIRCULAR REFERRED TO ABOVE MAY NOW BE TREAT ED AS WITHDRAWN. UNDER THE MINERAL CONCESSION RULES, 1960 , ROYALTY IS PAYABLE IN RESPECT OF ANY MINERAL REMOVED BY THE LE SSEE FROM THE LEASED AREA. THE AMOUNT OF ROYALTY CANNOT BE LESS T HAN THE AMOUNT OF DEAD RENT WHICH IS IN THE NATURE OF MINIM UM ROYALTY. IN VIEW OF THIS, THE ROYALTY AND DEAD RENT PAID UND ER THE MINERAL CONCESSION RULES, 1960, WILL HAVE TO BE ALLOWED AS REVENUE DEDUCTION FOR THE PURPOSE OF COMPUTATION INCOME UND ER THE IT ACT. SIMILARLY WHERE THE ROYALTY HAS RELATION TO TH E QUANTITY EXTRACTED THE ROYALTY AND THE DEAD RENT MAY BE ALLO WED AS REVENUE DEDUCTION. THE COURT HAS OBSERVED THAT EACH CASE MU ST DEPEND ON ITS OWN FACTS AND A CLOSE SIMILARITY BETWEEN ONE CA SE AND ANOTHER IS NOT ENOUGH BECAUSE EVEN A SINGLE SIGNIFICANT DET AIL MAY ALTER THE ENTIRE ASPECT. IN VIEW OF THIS, ITOS SHOULD EXA MINE THE MINING LEASE DEED AND SEE WHETHER THE CASE IS COVER ED BY THE ABOVE DECISION OF THE SUPREME COURT. IN VIEW OF THE ABOVE CBDT CIRCULAR RELIED ON BY THE COMMISSIONER OF INCOME TAX (APPEALS), THERE IS NO MERIT IN GROUND N O.2 RAISED BY THE REVENUE AND ACCORDINGLY THE SAME IS DISMISSED. ITA NO. 1339/BANG/2017 PAGE 5 OF 6 7. THE FACTS RELATING TO GROUND NO.3 ARE THAT THE A SSESSEE PAID A SUM OF RS.11,80,76,208 TO THE GOVT. OF KARNATAKA TOWARD S ENVIRONMENTAL PROTECTION FEES LEVIED ON THE MINING LEASES. THE A SSESSEE CLAIMED THE AMOUNT AS A DEDUCTION IN COMPUTING INCOME FROM BUSI NESS. THE ASSESSEE SUBMITTED THE FEE IN QUESTION WAS LEVIED BY THE GOV T. @ RS.84,000 / HECTARE FROM COMPANIES ENGAGED IN QUARRYING ACTIVIT IES ON REVENUE AND PATTA LANDS. THE ASSESSEE ALSO SUBMITTED THAT THE PAYMENT WAS A ONE- TIME FEE LEVIED ON ALL MINES AND QUARRIES. THE AO TOOK THE VIEW THAT THE PAYMENT OF ENVIRONMENT PROTECTION FEE WOULD RESULT IN ENDURING BENEFIT TO THE ASSESSEE AND HE THEREFORE ALLOWED 1/10 TH OF THE EXPENDITURE CLAIMED BY THE ASSESSEE RESULTING IN AN ADDITION OF RS.10,62,6 8,588 TO THE TOTAL INCOME OF ASSESSEE BY WAY OF DISALLOWANCE OF ENVIRONMENTAL PROTECTION FEES. IN OTHER WORDS, THE AO CONSIDERED THAT THE ASSESSEE WO ULD GET THE BENEFIT OF THE FEE PAID FOR 10 YEARS AND ALLOWED 1/10 TH OF THE EXPENDITURE CLAIMED AS DEDUCTION BY THE ASSESSEE. 8. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) HELD THAT THE EXPENDITURE IN QUESTION WAS REVENUE EXPENDITURE AND HAD TO BE ALLOWED IN FULL. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REVENUE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. 9. THE LD. DR SUBMITTED THAT THE PAYMENT OF ENVIRON MENTAL PROTECTION FEES IS AKIN TO LEASE DEPOSIT AND RELIED ON THE DEC ISION OF ITAT BANGALORE BENCH IN THE CASE OF ACIT V. K R KAVIRAJ , ITA NO.362 TO 366/BANG/2016, ORDER DATED 26.12.2017 . HE ALSO POINTED OUT THAT THE ASSESSEE IN HIS SUBMISSIONS HAS ALSO MADE A CLAIM FOR DEDUCTION OF 1/5 TH OF TOTAL EXPENDITURE U/S. 35D OF THE ACT AND THEREFORE THE A SSESSEE ACCEPTS THAT THE PAYMENT IN QUESTION WOULD GIVE AN ENDURING BENE FIT. 10. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(APPEALS) AND SUBMITTED THAT THE DECISION RENDERED BY THE ITA T BANGALORE BENCH IN ITA NO. 1339/BANG/2017 PAGE 6 OF 6 THE CASE OF K R KAVIRAJ (SUPRA) IS WITH REGARD TO LUMP SUM CONSIDERATION PAID FOR ACQUIRING MINING RIGHTS AND THEREFORE OF N O RELEVANCE TO THE ISSUE SOUGHT TO BE AGITATED BY THE REVENUE IN GROUND NO.3 . 11. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. WE ARE OF THE VIEW THAT ENVIRONMENTAL PROTECTION FEES CANNOT BE EQUATED TO CONSIDERATION PAID FOR ACQUIRING MINING RIGHTS AND THEREFORE THE DECISION OF ITAT BANGALORE IN THE CASE OF K R KAVIRAJ (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE ARE OF THE VIEW THAT THE SUM PAID WAS A COMPENSATION PAID BY THE ASSESSEE FOR DAMAGE TO THE ENVIRONMENT AND IT CANNOT BE SAID THAT IT GIVES AN ENDURING BENEFIT TO THE ASSESSEE. WE THEREFORE AGREE WITH THE CONCLUSION OF THE CIT(APPE ALS) THAT EXPENDITURE IN QUESTION IS A CAPITAL EXPENDITURE. ACCORDINGLY WE FIND NO MERIT IN GROUND NO.3 AND THE SAME IS DISMISSED. 12. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 31 ST AUGUST, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.