Appeal details
Counselvise Citation
[2022] 103 COUNSELVISE.COM (IT) 8606 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 4 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-11-2022
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
27-10-2022
Assessment Year
misc
Appeal Filed On
08-07-2018
Judgement Text
ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA Nos.2135 to 2139/Bang/2018 Assessment Year: 2010-11 to 2014-15 M/s. Karnataka EMTA Coal Mines Ltd. Flat No.104, No.3, Magrath Road Bengaluru 560 025. PAN NO : AACCK4112G Vs. ACIT Circle-4(1)(1) Bengaluru APPELLANT RESPONDENT Appellant by : Smt. Sheetal Borkar, A.R. Respondent by : Shri Gudimella V.P. Pavan Kumar & Dr. G. Manoj Kumar, D.Rs. Date of hearing 28 10 2022 Date of Pronouncement 14 11 2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These are appeals by assessee directed against different orders of CIT(A) for the assessment years 2010-11 to 2014-15. Since certain issues in these appeals are common in nature, these are clubbed together, heard together and disposed of for the sake of convenience. The main grounds are as follows:- 2. The first common ground in all appeals is with regard to disallowance of depreciation on leasehold land claimed by the assessee u/s 32(1)(ii) of the Income-tax Act,1961 ['the Act' for short]. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 2 of 55 2.1 Next ground in ITA No.2135/Bang/2018 for the AY 2010-11 is with regard to not adjudicating the ground No.4 with regard to allowability of carry forward loss. 2.2 Third ground in ITA No.2136 to 2139/Bang/2018 for the AYs 2011-12 to 2014-15 is with regard to sustaining disallowance claimed u/s 35E of the Act. 2.3 Fourth ground in ITA Nos.2136 & 2137/Bang/2018 for the AYs 2011-12 & 2012-13 is with regard to non-granting of depreciation on intangible assets claimed u/s 32(1)(ii) of the Act. 2.4 The fifth and last ground in ITA No.2138 & 2139/Bang/2018 for the AYs 2013-14 & 2014-15 is with regard to disallowance being interest on TDS made by the assessee u/s 37 of the Act. 3. The assessee has also filed additional ground in these appeals which is as follows:- “1. That in the alternate to Ground No 2, raised in memorandum of appeal, the appellant ought to be allowed deduction u/s 37 of the Act in respect of investment in land purchased/ allotted for mining of coal in forms of mining agreement in respect of the year in which land was purchased/ allotted to the appellant. It is respectfully submitted that the facts, required to adjudicate the additional ground, is already on record and there is no requirement for additional facts to be stated or referred. That the additional ground of appeal now raised goes to the very root of the matter and being legal ground can be raised for the first time before the Hon'ble Tribunal in view of decision of Hon'ble Supreme Court in the case of National Thermal Power Ltd vs CIT (1998) 229 ITR 383 (SC), where it has been held that ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 3 of 55 the powers of the Tribunal dealing with this are expressed in widest possible terms.” 3.1 The additional ground in the alternative to ground No.2, raised in these appeals, the contention of Ld. A.R. is that the AO ought to have allowed deduction u/s 37 of the Act in respect of investment in land purchased/allotted for mining of coal in farms of Mining Agreement in respect of the year in which the land was purchased/allotted to the assessee. The assessee has filed a petition for admission of additional ground stating that this ground was inadvertently not raised on earlier occasion and all the facts necessary for adjudication of this issue already on record and there is no question of investigation of any fresh facts and placed reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 and requested that this additional ground may be admitted. 4. The Ld. D.R. strongly opposed the admission of additional ground stating that there was no reasonable cause for raising this ground at this stage after lapse of long period and this ground may not be admitted. 5. We have heard the rival submissions and perused the materials available on record. In our opinion, all the facts necessary for adjudication in this additional ground is already on record and this ground is alternative to the main ground of the assessee with regard to the allowability of depreciation claimed by assessee on lease hold land u/s 32(1)(ii) of the Act. Being so, in view of this, we admit this additional ground in all these appeals for adjudication. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 4 of 55 6. The first common ground in all these appeals is with regard to disallowance of depreciation on lease hold land claimed by assessee u/s 32(1)(ii) of the Act. 6.1 The ld. A.R. submitted that the assessee has entered into a Mining Agreement with the Government of Maharashtra vide Mining Agreement dated 25-09-2006 (“Mining Agreement”) for a period of 30 years. 6.2 The Grant of Mining Lease had covered an area of 1379.50 Hectares in seven villages in the State of Maharashtra. Pursuant to the grant of lease, assessee became entitled to carry out mining operations. However, these lands were neither vacant nor owned by the Government. These lands were owned by various individuals and legal persons. For the purpose of undertaking mining activity, the assessee was required to purchase the surface rights of the said lands from its occupants by paying necessary compensation based on the principles outlined by the Government. 6.3 Accordingly, assessee had to purchase land comprised in the mining area of 1379.50 Hectares of land from its present owners/occupants after making payment of necessary compensation. For the period till 31 st March 2014, a total of Rs. 189.78 Crs. was spent on purchase of land including Rs. 19.97 Crs. during the impugned period FY 2009-10. The copy of sample deed evidencing payment of compensation/acquiring land from the seller/occupier is referred by Ld. A.R. in page no. 122-123 of paper book of assessment year 2012-13. 6.4 Ld. A.R. submitted that grant of mining lease does not automatically provide the assessee right of way to the land area. The ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 5 of 55 lease only provides the right to undertake mining activity in a specific area which would have to be acquired from its occupants. In this regard. She made reference to Section 24A of the Mines and Minerals (Development and Regulation) Act, 1957 (“MMDR Act”), relevant extract (He referred Page 173 of the Paper book of assessment year 2012-13). Further Ld. A.R. submitted that the extract of MMDR Act which is very clear that the mining lease holder would be required to pay compensation to the occupier of the lands. 6.5 In view of the above, Ld. A.R. submitted that while the mining lease holder is expected to acquire the surface rights also on its own in respect of the land comprised in the area covered mining lease. Post expiration/termination of the mining lease, the entire land, surface right of which is acquired by the mining lease holder, is transferred to the government without any further compensation to the mining lease holder. Effectively, purchase of mining land is part of the mining lease granted and is part of the cost of obtaining license to undertaking the mining activity. In other words, what the assessee has acquired is the surface right of the land forming part of the mining lease since the title in the land would ultimately vests with the Government. 6.6 The ld. A.R. submitted that post getting mining lease, it was required to acquire the surface rights of the entire land comprised in the allocated mining area of 1379.50 hectares. These surface rights were purchased over a period of time as under: (a) Prior to FY 2008-09: Rs. 65,77,73,136/- (b) FY 2008-09: Rs. 17,61,20,528/- (c) FY 2009-10: Rs. 58,48,23,149/- (d) FY 2010-11: Rs. 12,51,91,928/- (e) FY 2011-12: Rs. 19,97,27,680/- (f) FY 2012-13: Rs. 1,35,70,076/- ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 6 of 55 (g) FY 2013-14: Rs. 14,05,80,799/- 6.7 Total amount spent by the assessee in purchasing the surface rights in relation to the allocated land in the mining area was Rs. 189.78 Crs. (Till FY 2013-14) 6.8 It is thus the submission of the assessee that the surface rights of these lands, though were purchased by the assessee, were ultimately to be transferred to the Government after a period of 30 years, being the period of mining lease agreement. 6.9 Ld. A.R. submitted that the assessee was even contractually & legally bound to acquire the surface rights of the land comprising the mining area. 6.9.1 The ld. AR submitted that in terms of the Mining Lease agreement entered into by it with Government of Maharashtra, it is its responsibility to purchase all the surface rights of the lands forming part of the Mining Lease area of 1379.50 Hectares. Further, post termination/expiry of the Mining lease, the entire land along with its surface rights shall vests with the Government. She drew our attention to relevant paras of Primary agreement which is placed at paper book page No.26 in AY 2012-13. 6.9.2 In view of the aforesaid, the assessee submitted that even as per the Mining Lease, the assessee was bound to surrender the land along with its surface rights comprised in the entire mining area of 1379.50 hectares to the Maharashtra Government upon the termination/expiration of the Mining Lease Agreement. 6.10 The Mining Area of 1379.50 hectares was private land and not land owned by Government ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 7 of 55 6.10.1 The total mining area of 1379.50 Hectares, only 103.29 Hectares was owned by Government and balance 1,276.21 Hectares was owned/occupied by private individuals. 6.10.2 In order to commence the mining activity, assessee was required to have access to these lands since the Mining Agreement granted the right to mine minerals but not the right to access the land which is a private property. For getting the right to access land, assessee was required to purchase the surface rights from the existing owners/occupiers to enable it to undertake the mining activity. Accordingly, assessee not only purchased the surface rights of the said land from the private individuals who were the owners/occupiers, it also purchased such surface rights from the Government. Total amount spent as stated aforesaid is Rs. 189.78 Crs. 6.11 She submitted that the Ld. AO disallowed the claim of depreciation on the following grounds: No payment made for acquiring lease and only royalty payment is prescribed in the agreement Leasehold land is nothing but land taken on lease from government for which royalty has bene prescribed in the agreement Royalty paid has already been allowed as deduction. Depreciation is not admissible on leasehold rights Reliance was placed on Hon’ble Calcutta High Court decision of Peerless General Finance & Investment Company Ltd. vs CIT (2013) 35 Taxmann.com 615 (Kolkata) and decision of Mumbai Tribunal in Dabur India Ltd. vs ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 8 of 55 ACIT (2013) 37 Taxmann.com 289 (T). which is distinguishable since in this case the assessee has failed to show any document to establish whether there is a leasehold interest on the land or not 6.12 She submitted that the Ld. CIT(A) upheld the disallowance on the following grounds: Claim of depreciation is over and above the royalty paid when no payment has been made for acquiring lease Instant land is not owned by the assessee and hence crucial test of ownership u/s 32 has not bene met Long term lease does not in itself entitle depreciation on land which is in the ownership/possession of State Government Relies on CIT vs O P Monga (1986) 162 ITR 224 (Bom); ACIT vs Malayala Manorama Co. Ltd. [(2010) 4 ITR(T) 513 (Cochin)]; and Drilbits International Pvt. Ltd. vs DCIT Nasik [TS 822 ITAT 2011 (Pune)] which are also distinguishable to the facts of assessee’s case since they are lease of land simpliciter where as in present case it is mining lease. 6.13 Hence, Ld. A.R. submitted that claim of the depreciation made by the assessee is a genuine claim and allowable on the following ground. 6.14 Claim of depreciation has been allowed by AO in the remand proceedings for AY 2009-10 6.15 The Assessee submitted that during AY 2009-10, the assessee has claimed depreciation on similar facts of Rs. 51,29,299/- ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 9 of 55 . During the appeal proceedings, the matter was remanded to the AO for fresh examination in view of the documents furnished by the assessee. In his remand report (He referred Page 171-172 of the PB), the AO has specifically observed that the impugned depreciation on of Rs. 51,29,299/- is allowable. 6.16 Ld. A.R. submitted that the Ld. CIT(A) failed to appreciate the facts and law correctly by observing that the assessee is not the owner of such land comprising the mining area 6.17 Ld. A.R. further submitted that Ld. CIT(A) has been observed that there is no ownership of the assessee over the land, hence depreciation should not be allowed. The Ld. CIT(A) has based this observation on the presumption that land continues to remain in possession of the State Government, hence the assessee is not the owner of the land. 6.18 In this context, the assessee submitted that the Ld. CIT(A) and Ld. AO has failed to appreciate that as per the Act, for the purpose of claim of depreciation, in terms of Section 27(iiib) read with Section 269UA(d)(i) and Section 269UA(f)(i), holder of lease of land for a period of more than 12 years is deemed to be owner of the property. In the present case, the Mining Lease Agreement is for a period of more than 12 years and hence the assessee is the rightful owner of the said land. In any case, if the stand of the Ld. CIT(A) is accepted for a moment, then, if Government is the owner of land, all that assessee has paid is to get the right of entry to that land to enable it to undertake the mining activity. That right itself falls within the purview of the term intangible asset and is eligible for depreciation u/s 32 of the Act. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 10 of 55 6.19 Further, Ld. A.R. submitted that the Ld. CIT(A) also failed to appreciate the law of the land in as much as the Hon’ble Supreme Court in the case of Mysore Minerals Ltd. vs CIT (1999) 239 ITR 775 (SC). In this decision the Court has categorically held that “The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the assessee-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature.” 6.20 In light of the above decision, the Ld. A.R. submitted that it is the rightful owner of the land in as much as it has purchased the surface rights from the occupants and it is using those lands for mining of the coal, in other words for its business purposes. 6.21 According to Ld. A.R. Royalty is different than compensation paid to lease hold land owners: 6.22 The ld. A.R. submitted that the Ld. CIT(A) failed to appreciate the facts correctly in as much as he has equated purchase of mining land to payment of royalty and came to the conclusion that mining area purchased by the assessee is not an expenditure related to mining operation ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 11 of 55 6.23 The ld. A.R. submitted that the Hon’ble Bench to Para 5.3 (I) of the impugned order of the Ld. CIT(A) whereby the Ld. CIT(A) has stated that the leasehold arrangement is essentially for acquiring mining rights for which royalty is prescribed by the State Government. The CIT(A) has observed that AO has noted that no consideration has been paid for acquiring the impugned land in perpetuity. The CIT(A) also notes that payment of royalty on the coal mined has already been claimed as revenue expenditure and that claim of depreciation on land is over and above the mining expenditure. 6.24 The ld. A.R. submitted that the Ld. CIT(A) as well as the Ld. AO has completely misunderstood the facts and have also failed to appreciate the law. The same is explained hereunder: 6.25 The assessee, by way of the mining lease, was granted the license to undertake mining activity. However, it does not have the surface rights on the land forming part of the mining area which as per the agreement was to be acquired by the assessee. Every piece of land has two components - right on the surface of the land (i.e., for constriction of property, agriculture, etc.) and the right to the minerals deep within in such land. Any activity of mining requires a specific license without which no mining activity can take place. Once mining/lease is granted, it permits the license holder to undertake mining activity but does not provide the surface right over the area/land forming part of the mining license. Such surface rights have to be acquired which happens by way of purchasing the lands from their occupants. It may be noted that the lands so purchased is ultimately transferred to the Government once the mining lease is terminated/expired. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 12 of 55 6.26 According to ld. A.R. payment of Royalty is not a consideration of obtaining Mining Lease. Royalty is paid for per ton of mineral mined and has got no correlation with the grant of Mining Lease Agreement. For arguments sake, in case if a mining lease holder does not excavate a single ton of mineral, there will not be any liability towards the royalty payment because no mineral has been mined. However, there would be cost for acquiring the land and surface right from the occupant of such land over which mining lease has been granted. The Ld. CIT(A) and the Ld. AO failed to appreciate the distinction between payment of royalty and payment for acquiring the surface rights of the land over which the mining rights has been granted. 6.27 The ld. A.R. submitted that for the purpose of undertaking the mining activity, lot of construction activity takes place like building shafts, roads, rail lines, waterways, sheds, silos, etc. which are important and inseparable part of any mining activity. 6.28 The ld. CIT(A) failed to appreciate this peculiarity of the mining industry while observing that there is no wear and tear and there is no construction activity on the mining land in Para 5.3(iii) of the impugned order. 6.29 The ld. A.R. submitted that the issue of depreciation u/s 32 on such mining land is well settled and is no more res integra 6.30 Allowability of depreciation on the mining land purchased by entities engaged in the business of extraction of minerals has already been settled by various courts and assessee forums in favour of the assessee. She placed reliance on the order of ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 13 of 55 Tribunal in the case of NMDC Ltd. vs JCIT, Hyderabad [2015] 56 taxmann.com 396 (Hyderabad - Trib.). 6.31 Further, she also placed reliance on the order of Tribunal in the case of ACIT vs Progressive Constructions Ltd [2018] 92 Taxmann.com 104 (ITAT-Hyderabad) (SB). 6.32 The ld. A.R. submitted that the Mining Lease being right to undertake mining activity and the acquisition of surface rights thereon falls with the purview of the term “business or commercial right” 6.33 The lease granted to the assessee is nothing but a license under the Mines and Minerals (Development & Regulation) Act, 1957 to undertake mining of coal. Without the mining lease, no person can undertake any mining activity. Further, the license/lease holder is also required to acquire the surface rights of the area falling within the mining area 6.34 This “right to mine” and the “surface right” falls within the definition of intangible assets as defined in Section 32(1)(ii) and Explanation 3 to Section 32(1(ii). She submitted that the term “Business and Commercial Rights” has been dealt by the Hon’ble Delhi High Court in the case of CIT vs Hindustan Coca Cola Beverages (P.) Ltd. [2011] 198 TAXMAN 104 (Delhi). 7. The ld. DR submitted that as per the agreements, the lease-hold arrangement is essentially for acquiring mining rights for which the payment of royalty is prescribed by the state government. The AO has noted that, no specific ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 14 of 55 consideration has been passed for acquiring the impugned land-in perpetuity. The payment of royalty and other related levies is essentially a revenue expense, which has been duly claimed by the assessee in its P&L account; under the head- charges for mining operation. The assessee has therefore claimed the impugned sum of depreciation, over and above the mining-expenditure, which is prima-facie not allowable on what is essentially a mining operation out of which profits are earned by the assessee. 7.1 According to ld. DR, lease-hold rights are not an intangible asset in terms of section 32 of the I.T. Act, 1961. It is a matter of plain logic that, depreciation is allowable only in respect of an asset, which is in real-ownership of the assessee. The lease-hold rights over a certain period of time, which is not permanent, cannot therefore be held to be in any degree of ownership of the assessee. The crucial test laid down by the I.T. Act under section 32 of the I.T. Act that of ownership is not met in the present circumstances. The long term lease hold as in the present case, does not in itself entitle the assessee for claim of depreciation on land, which is in effect continues to remain in the ownership / possession of the state government. 7.2 He also submitted that that depreciation in respect of lease-hold properties: (including lease in perpetuity) does not give rise to claim of depreciation. The AO has quoted in this regard. the ratio of judgment in the case of Peerless General Finance & Investment company limited vs CIT [2013] 35 Taxmann.com (Kolkata), wherein the Hon'ble Kolkata High Court held this position. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 15 of 55 7.3 According to ld. DR, it is a basic condition for claim of depreciation u/s 32 of the I.T. Act that the property in question should be a capital asset, whether tangible or intangible. It is necessary therefore that the impugned investment should be of an investment of capital nature. The AO has noted in this regard that, the company in the present case has taken land on lease for the purpose of mining, which does not result in capital building or construction. In the present case, it is a peculiar situation where there is no physical construction or building of any structured asset but, on the contrary a depletion of the earth-material, due to mining-processes involved. Essentially therefore, there is neither capital accretion nor the wear and tear against which depreciation can be allowed in the normal course. 7.4 The judicial position on the issue at hand reveals. that, the issue is predominantly against assessee's case in the present facts and circumstances. • It is clear that depreciation is not allowable for lease hold rights as well as tenancy rights as held in the case of Peerless General Finance & Investment company limited vs CIT [2013] 35 Taxmann.com (Kolkata) and Dabur India Ltd. Vs ACIT (2013) 37 Taxmann.com 289 (Mumbai-Trib). • In the case of CIT Vs. O.P. Monga (Born) 162 ITR 224, it was held that ownership of an asset is a must; for a rightful claim of depreciation. In view of the condition that the lease-agreements were only for a specified period, which on the date of expiry would be restored to the owner, therefore gives no entitlement of depreciation to the assessee as in the present case. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 16 of 55 • In the case of ACIT Vs Malayala Manorama Co. Ltd (ITAT Cochin) 4 ITR (Trib) 513 and Dribits International (P) Ltd. Vs DCIT (ITAT-Pune) 62 DTR 171; the Hon'ble Courts held that any payments for continuous use of premises (including land) which is essentially in lieu of acquiring use of leasehold property, would not be entitled to depreciation. 7.5 He submitted that orders of lower authorities to be confirmed. Findings: 8. We have heard the rival submissions and perused the materials available on record. With regard to ground No.1 it is observed that the assessee has entered into a Mining Agreement with the Government of Maharashtra vide Mining Agreement dated 25-09- 2006 (“Mining Agreement”) for a period of 30 years. a. Pursuant to the mining lease been granted, the assessee acquired the right and license to mine coal. However, the land which formed part of the area over which the mining lease was granted was not provided by the Government and it was left to the assessee to acquire such land on its own. Assessee was therefore contractually as well as legally bound to acquire such land comprising the mining area and such land were to be handed over to the Government after expiration or termination of the mining lease period Accordingly, assessee started acquiring such land and also stared excavation of coal. The commercial production started for the first time in FY 2008-09 (AY 2009-10). ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 17 of 55 8.1 The Grant of Mining Lease had covered an area of 1379.50 Hectares in seven villages in the State of Maharashtra. Pursuant to the grant of lease, assessee became entitled to carry out mining operations. However, these lands were neither vacant nor owned by the Government. These lands were owned by various individuals and legal persons. For the purpose of undertaking mining activity, the assessee was required to purchase the surface rights of the said lands from its occupants by paying necessary compensation based on the principles outlined by the Government. 8.2 Accordingly, assessee had to purchase land comprised in the mining area of 1379.50 Hectares of land from its present owners/occupants after making payment of necessary compensation. For the period till 31 st March 2014, a total of Rs. 189.78 Crs. was spent on purchase of land including Rs. 19.97 Crs. during the impugned period FY 2009-10. The copy of sample deed evidencing payment of compensation/acquiring land from the seller/occupier is referred by Ld. A.R. in page no. 122-123 of paper book of assessment year 2012-13. 8.3 The grant of mining lease does not automatically provide the assessee right of way to the land area. The lease only provides the right to undertake mining activity in a specific area which would have to be acquired from its occupants. In this regard, ld. A.R. made reference to Section 24A of the Mines and Minerals (Development and Regulation) Act, 1957 (“MMDR Act”), relevant extract (He referred Page 173 of the Paper book of assessment year 2012-13). Further the extract of MMDR Act which is very clear that the mining lease holder would be required to pay compensation to the occupier of the lands. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 18 of 55 Section 24A: Rights and liabilities of a holder of prospecting licence or mining lease. (i) On the issue of a reconnaissance permit, prospecting licence or mining lease under this Act and the rules made thereunder, it shall be lawful for the holder of such permit, licence or lease, his agents or his servants or workmen to enter the lands over which such permit, lease or licence had been granted at all times during its currency and carry out all such reconnaissance, prospecting or mining operations as may be prescribed: Provided that no person shall enter into any building or upon an enclosed court or garden attached to a dwelling-house (except with the consent of the occupier thereof) without previously giving such occupier at least seven days' notice in writing of his intention to do so. (ii) The holder of a reconnaissance permit, prospecting licence or mining lease referred to in sub-section (1) shall be liable to pay compensation in such manner as may be prescribed to the occupier of the surface of the land granted under such permit, licence or lease for any loss or damage which is likely to arise or has arisen from or in consequence of the reconnaissance, mining or prospecting operations. (iii) The amount of compensation payable under sub-section (2) shall be determined by the State Government in the manner prescribed. Rule 27: Conditions: (Refer to page no. 174 -179 of paper book for assessment year 2012- 13) I. Every mining lease shall be subject to the following conditions: (a) ......... (b) .......... .................... (t) the lessee shall pay to the occupier of the surface of the land such compensation as may become payable under these rules. ................... II. A mining lease may contain such other conditions as the State Government may deem necessary in regard to the following, namely: (a) ................. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 19 of 55 ........................... (l) the delivery of possession of lands and mines on the surrender, expiration or determination of the lease; (la) the time limit for removal of mineral, ore, plant, machinery and other properties from the lease hold area after expiration, or sooner determination or surrender or abandonment of the mining lease; (m) the forfeiture of property left after determination of lease; ........................... 8.4 In view of the above, while the mining lease holder is expected to acquire the surface rights also on its own in respect of the land comprised in the area covered mining lease. Post expiration/termination of the mining lease, the entire land, surface right of which is acquired by the mining lease holder, is transferred to the government without any further compensation to the mining lease holder. Effectively, purchase of mining land is part of the mining lease granted and is part of the cost of obtaining license to undertaking the mining activity. In other words, what the assessee has acquired is the surface right of the land forming part of the mining lease since the title in the land would ultimately vests with the Government. 8.5 Post getting mining lease, it was required to acquire the surface rights of the entire land comprised in the allocated mining area of 1379.50 hectares. These surface rights were purchased over a period of time as under: (h) Prior to FY 2008-09: Rs. 65,77,73,136/- (i) FY 2008-09: Rs. 17,61,20,528/- (j) FY 2009-10: Rs. 58,48,23,149/- (k) FY 2010-11: Rs. 12,51,91,928/- (l) FY 2011-12: Rs. 19,97,27,680/- (m) FY 2012-13: Rs. 1,35,70,076/- (n) FY 2013-14: Rs. 14,05,80,799/- ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 20 of 55 8.6 Total amount spent by the assessee in purchasing the surface rights in relation to the allocated land in the mining area was Rs. 189.78 Crs. (Till FY 2013-14) 8.7 The surface rights of these lands, though were purchased by the assessee, were ultimately to be transferred to the Government after a period of 30 years, being the period of mining lease agreement. 8.8 The assessee was even contractually & legally bound to acquire the surface rights of the land comprising the mining area. In terms of the Mining Lease agreement entered into by it with Government of Maharashtra, it is its responsibility to purchase all the surface rights of the lands forming part of the Mining Lease area of 1379.50 Hectares. Further, post termination/expiry of the Mining lease, the entire land along with its surface rights shall vests with the Government. The relevant clauses are as under: (a) Para 2 of Part VIII of the Mining Agreement (ld. AR referred Page No. 26 of paper book assessment year 2012-13) “2. Acquisition of land of third parties and compensation thereof If in accordance with the provision of Cl.4 of part VII of this schedule the lessee/lessees offer to pay to an occupier of the surface of any part of the said lands compensation for any damage or injury which may arise from the proposed operation of the lessee/lessees and the said occupier shall refuse his consent to the exercise of the right and powers reserved to the state government and demised to the lessee/lessees by these presents and the lessee/lessees shall report the matter to the state government and shall deposit with it the amount offered as compensation and if central/state government is satisfied that the amount of compensation offered is fair and reasonable or if it is not so satisfied and the lessee/lessees shall have deposited with it such further amount as the state and central government shall consider fair and reasonable the state government shall order the occupier to allow the lessee/lessees to enter the land ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 21 of 55 and to carry out such operation as may be necessary for the purpose of these lease. In assessing the amount of such compensation, the state government shall be guided by the principles of Land Acquisition Act.” (b) Para 20 of Part VII of the Mining Agreement (ld. AR referred Page No. 20 of paper book for the assessment year 2012-13) “20. Delivery of working in good order to State Government after determination of lease The lessee/lessees shall at the expiration or sooner determination of the said term or any renewal thereof deliver up to the state government all mines, pits, shafts, inclines, drills, levels, waterways, airways and other works now existing or hereafter to be sunk or made on or under the said lands except such as have been abandoned with the sanction of the state government and in any ordinary and fair course of working all engines machinery, plant buildings, structures, other works and conveniences which at the commencement of the said terms were upon or under the said lands and all such machinery set up by the lessee/lessees below ground which cannot be removed without causing injury to the mines or work under the said lands (except such of the same as may with the sanction of the state government has become disused) and all buildings and structure of bricks of stone erected by lessee/lessees above ground level in good repair order and condition and fit in all respects for further working of the said mines and the said minerals.” (c) Para 5 & 6 of Part IX of the Mining Agreement (ld. A referred Page No.29 of paper book for assessment year 2012-13) “5. Lessee/lessees to remove his/their properties on the expiry of lease The lessee/lessees having first paid and discharged the rents, rates any royalties payable by virtue of these presents may at the expiration or sooner determination of the said terms or within 6 calendar months thereafter (unless the lease shall be determine under Cls 1 and 2 of this part and in that case at any time not less than 3 calendar months not more than 6 calendar months after such determination) takedown and remove for his/their own benefits all or any engines, machinery, plant, buildings structures, tramways, ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 22 of 55 railways and other work erections and conveniences which may have been erected set up or placed by the lessee/lessees in or upon the said lands and which the lessee/lessees is/are not bound to deliver to the state govt. under Cl 20 of part VII of this schedule and which the state govt. shall not desire to purchase. “6. Forfeiture of property left more than six months after determination of lease If at the end of six calendar months after the expiration or sooner determination of the said term under the provision contained in Cl.4 of part VIII of this schedule become effective there shall remain in or upon the said land any engines, machinery, plant, buildings, structures, tramways, railways and other work erections and conveniences or other property which are not required by the lessee/lessees in connection with operations in any other lands held by him/them under prospecting license or mining lease the same shall if not removed by the lessee/lessees within one calendar month after notice in writing requiring their removal has been given to the lessee/lessees by the state govt. be deemed to become the property of the state govt. and may be sold or disposed of in such manner as the state govt. shall deem fit without liability to pay any compensation or to account to the lessee/lessees in respect thereof.” 8.9 In view of the aforesaid, the assessee submitted that even as per the Mining Lease, the assessee was bound to surrender the land along with its surface rights comprised in the entire mining area of 1379.50 hectares to the Maharashtra Government upon the termination/expiration of the Mining Lease Agreement. 8.10 The Mining Area of 1379.50 hectares was private land and not land owned by Government i. The total mining area of 1379.50 Hectares, only 103.29 Hectares was owned by Government and balance 1,276.21 Hectares was owned/occupied by private individuals. ii. In order to commence the mining activity, assessee was required to have access to these lands since the Mining Agreement ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 23 of 55 granted the right to mine minerals but not the right to access the land which is a private property. For getting the right to access land, assessee was required to purchase the surface rights from the existing owners/occupiers to enable it to undertake the mining activity. Accordingly, assessee not only purchased the surface rights of the said land from the private individuals who were the owners/occupiers, it also purchased such surface rights from the Government. Total amount spent as stated aforesaid is Rs. 189.78 Crs. 8.11 It is noted that during AY 2009-10, the assessee has claimed depreciation on similar facts of Rs. 51,29,299/-. During the appeal proceedings, the matter was remanded to the AO for fresh examination in view of the documents furnished by the assessee. In his remand report (ld. AR referred Page 171-172 of the PB), the AO has specifically observed that the impugned depreciation on of Rs. 51,29,299/- is allowable. 8.12 It is to be noted that the assessee is not the owner of such land comprising the mining area. 8.13 However, the ld. CIT(A) has observed that there is no ownership of the assessee over the land, hence depreciation should not be allowed. The Ld. CIT(A) has based this observation on the presumption that land continues to remain in possession of the State Government, hence the assessee is not the owner of the land. 8.14 In this context, the Ld. CIT(A) and Ld. AO has failed to appreciate that as per the Act, for the purpose of claim of depreciation, in terms of Section 27(iiib) read with Section 269UA(d)(i) and Section 269UA(f)(i), holder of lease of land for a period of more ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 24 of 55 than 12 years is deemed to be owner of the property. In the present case, the Mining Lease Agreement is for a period of more than 12 years and hence the assessee is the rightful owner of the said land. In any case, if the stand of the Ld. CIT(A) is accepted for a moment, then, if Government is the owner of land, all that assessee has paid is to get the right of entry to that land to enable it to undertake the mining activity. That right itself falls within the purview of the term intangible asset and is eligible for depreciation u/s 32 of the Act. 8.15 Further, the Ld. CIT(A) also failed to appreciate the law of the land in as much as the Hon’ble Supreme Court in the case of Mysore Minerals Ltd. vs CIT (1999) 239 ITR 775 (SC). In this decision the Court has categorically held that “The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the assessee-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature.” 8.16 In light of the above decision, it is the rightful owner of the land in as much as it has purchased the surface rights from the occupants and it is using those lands for mining of the coal, in other words for its business purposes. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 25 of 55 8.17 In our opinion, royalty is different than compensation paid to lease hold land owners, as rightly pointed out by the ld. AR. 8.18 However, the Ld. CIT(A) has equated purchase of mining land to payment of royalty and came to the conclusion that mining area purchased by the assessee is not an expenditure related to mining operation. 8.19 The Ld. CIT(A) has also noted that the leasehold arrangement is essentially for acquiring mining rights for which royalty is prescribed by the State Government. The ld. CIT(A) has observed that no consideration has been paid for acquiring the impugned land in perpetuity and also noted that payment of royalty on the coal mined has already been claimed as revenue expenditure and that claim of depreciation on land is over and above the mining expenditure. 8.20 In the present case, the assessee, by way of the mining lease, was granted the license to undertake mining activity. However, it does not have the surface rights on the land forming part of the mining area which as per the agreement was to be acquired by the assessee. Every piece of land has two components - right on the surface of the land (i.e., for constriction of property, agriculture, etc.) and the right to the minerals deep within in such land. Any activity of mining requires a specific license without which no mining activity can take place. Once mining/lease is granted, it permits the license holder to undertake mining activity but does not provide the surface right over the area/land forming part of the mining license. Such surface rights have to be acquired which happens by way of purchasing the lands from their occupants. The lands so purchased ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 26 of 55 is ultimately transferred to the Government once the mining lease is terminated/expired. 8.21 In our opinion, payment of Royalty is not a consideration of obtaining Mining Lease. Royalty is paid for per ton of mineral mined and has got no correlation with the grant of Mining Lease Agreement. For arguments sake, in case if a mining lease holder does not excavate a single ton of mineral, there will not be any liability towards the royalty payment because no mineral has been mined. However, there would be cost for acquiring the land and surface right from the occupant of such land over which mining lease has been granted. The Ld. CIT(A) and the Ld. AO failed to appreciate the distinction between payment of royalty and payment for acquiring the surface rights of the land over which the mining rights has been granted. 8.22 In our opinion, for the purpose of undertaking the mining activity, lot of construction activity takes place like building shafts, roads, rail lines, waterways, sheds, silos, etc. which are important and inseparable part of any mining activity. 8.23 The Ld. CIT(A) failed to appreciate this peculiarity of the mining industry while observing that there is no wear and tear and there is no construction activity on the mining land in Para 5.3(iii) of the impugned order. 8.24 In our opinion, allowability of depreciation on the mining land purchased by entities engaged in the business of extraction of minerals has already been settled by various courts and assessee forums in favour of the assessee. This issue was considered by Coordinate Bench in the case of NMDC Ltd. vs JCIT, Hyderabad ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 27 of 55 [2015] 56 taxmann.com 396 (Hyderabad - Trib.), wherein Tribunal has held as under: “22. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. Similar came up for consideration before the coordinate bench of ITAT, Cuttack in case East India Minerals Ltd. (supra) on which reliance placed by the assessee, wherein it has been held as follows: "7. We have heard the rival contentions of the parties and perused the material available on record. Considering the facts and circumstances of the case, we uphold the contention of the learned Counsel for the assessee for the simple reason that the denial of claim of depreciation has been made on misinterpretation of law and the applicability thereof. Explanation to Section 32(1)(ii) leans in favour of the assessee to the extent that it is the actual action of put to use which entitles the assessee to claim depreciation. A straight line method of claiming the writing off of lease hold rights for the period of lease cannot be denied to the assessee for the simple reason it being intangible asset has been written off which pertains to land being a intangible asset. It is nobody's case that the land either belonged to the lessee or to the Government. This simply indicates that a depletion of the land against the payment of premium it was leased has to be claimed after capitalization thereof by the assessee which is for the purpose of its main business. All expenses are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset. The definition of depreciation therefore has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the learned CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. Assessment Year 2003-04. In this view of the mater, we are inclined to hold that the assessee is entitled to depreciation as charged to the P & L account in accordance with its business exigencies. We direct accordingly. On the claim of deduction/s.80G, the A.O., is directed to verify the receipts and allow the deduction in accordance with the provisions of Income-tax Act, 1961." 22.1 Since the issue under consideration is materially identical to that of the case decide by the Tribunal in the case of East India Minerals Ltd., (supra) respectfully following the same, we set aside the order of the CIT(A) and direct the AO to delete the addition made in this regard.” ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 28 of 55 8.25 Further, in the case of ACIT vs Progressive Constructions Ltd [2018] 92 Taxmann.com 104 (ITAT-Hyderabad) (SB), Hyderabad Tribunal held as under: “11....... Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs. 214 crores............ At the cost of repetition, we must observe, as per the terms of agreement the expenses incurred by the assessee towards construction of the roads, bridges, etc., were not going to be reimbursed by the Government of India. This fact was known to both the parties before the execution of the agreement as the tender itself has made it clear that the project is to be executed with private sector participation on BOT basis. Thus, from the very inception of the project, assessee was aware of the fact, it has to recoup the cost incurred in implementing the project along with the profit from operating the road and collecting toll charges during the concession period. Therefore, assessee has capitalized the cost incurred on the BOT project on which it has claimed depreciation. Thus, in our view, the expenditure incurred by the assessee of Rs. 214 crores for creating the project or project facilities have created an intangible asset in the form of right to operate the project facility and collect toll charges. ............ Thus, having held that the expenditure of Rs. 214 crores incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1)(ii) of the Act. For this purpose, it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience. ..................... 13. A plain reading of the aforesaid provisions would indicate that certain kind of assets being knowhow, patents, copyrights, trademarks, license, franchise, or any other businesses or commercial rights of similar nature are to be treated as intangible asset and would be eligible for depreciation at the specified rate. It is the claim of the assessee that the right acquired under C.A. to operate the project facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 29 of 55 below the definition of "license" as provided under section 52 of the Indian Easements Act, 1882:- License defined:- Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license." ..................... 16.... ........Now, it has to be seen whether such intangible asset comes within the expression "any other business or commercial rights of similar nature". As could be seen from the definition of intangible asset, specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade and facilitate smooth carrying on of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression "any other business or commercial rights of similar nature". The Hon'ble Supreme Court in Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle 'goodwill' would fall under the expression "any other business or commercial rights of similar nature". Thus, as could be seen, even though, 'goodwill' is not one of the specifically identifiable assets preceding the expressing "any other business or commercial rights of similar nature", however, the Hon'ble Supreme Court held that 'goodwill' will come within the expression "any other business or commercial rights of similar nature". ..............The Hon'ble Delhi High Court in case of Areva T and D India Ltd. (supra), while interpreting the aforesaid expression by applying the principles of ejusdem generis observed, the right as finds place in the expression "business or commercial rights of similar nature" need not answer the description of knowhow, patents, trademarks, license or franchises, but must be of similar nature as the specified asset. The Court observed, looking at the meaning of categories of specified intangible assets referred to in section 32(1)(ii) of the Act preceding the term "business or commercial right of similar nature", it could be seen that the said ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 30 of 55 intangible assets are not of the same line and are clearly distinct from one another. The Court observed, the use of words "business or commercial rights of similar nature", after the specified intangible assets clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets which were neither visible nor possible to exhaustively enumerate. The Hon'ble Court, therefore observed, in the circumstances the nature of business or commercial right cannot be restricted only to knowhow, patents, trademarks, copyrights, licence or franchise. The Court observed, any intangible assets which are invaluable and result in smoothly carrying on the business as part of the tool of the trade of the assessee would come within the expression "any other business or commercial right of similar nature. 17. In the case of Techno Shares and Stocks Ltd. (supra), the Hon'ble Supreme Court while examining the assessee's claim of depreciation on BSE Membership Card, after interpreting the provisions of section 32(1)(ii), held that as the membership card allows a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C.A. the assessee has acquired the right to operate the toll road/bridge and collect toll charges in lieu of investment made by it in implementing the project. Therefore, the right to operate the toll road/bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, in our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible asset. Thus, we answer the question framed by the Special Bench as under:- The expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the specified rate.” 8.26 In our opinion, the Mining Lease being right to undertake mining activity and the acquisition of surface rights thereon falls with the purview of the term “business or commercial right” ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 31 of 55 8.27 The lease granted to the assessee is nothing but a license under the Mines and Minerals (Development & Regulation) Act, 1957 to undertake mining of coal. Without the mining lease, no person can undertake any mining activity. Further, the license/lease holder is also required to acquire the surface rights of the area falling within the mining area. 8.28 This “right to mine” and the “surface right” falls within the definition of intangible assets as defined in Section 32(1)(ii) and Explanation 3 to Section 32(1(ii). The term “Business and Commercial Rights” has been dealt by the Hon’ble Delhi High Court in the case of CIT vs Hindustan Coca Cola Beverages (P.) Ltd. [2011] 198 TAXMAN 104 (Delhi). The Hon’ble Court observed as under: “24. It is worth noting that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of section 32(1)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights, trademarks, licenses, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation.” 8.29 In the case of South Eastern Coal Fields Ltd. Vs. JCIT Nagpur (85 ITD 608) (Nag.) the coordinate Bench of Nagpur considered similar issue and held as under:- “11.6 As regards the nature of expenditure, it is necessary to look into the nature of payment as well as the nature of asset acquired by the assessee to ascertain as to whether a particular expenditure is capital or revenue in ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 32 of 55 nature. The aim and object of the expenditure as well as the resultant advantage are the relevant determining factors to characterize the concerned expenditure whether it is capital or revenue in nature. In the case of Bikaner Gypsums Ltd. (supra), the Hon'ble Apex Court observed that a question whether a particular expenditure incurred by the assessee is of a capital or revenue nature is a vexed question and it is very difficult to lay down exhaustive test for distinguishing the capital expenditure from revenue expenditure and each decision in this regard has to be founded on its own facts and circumstances. It is thus pertinent to cull out the facts relevant to the issue under consideration in the present case. In this regard, it is observed that the assessee company acquired certain land on lease from the State Government for a period not exceeding 30 years under the Mines and Minerals (Regulation and Development) Act, 1957 on the terms and conditions as set out in the model form of mining lease. As per the said model form of mining lease (copy placed in assessee's paper book at pages 14.8 to 14.16), the assessee acquired certain liberties, powers and privileges to be exercised and enjoyed in respect of the lease-hold land for a period not exceeding 30 years as specified in Part II of the said model form. As per clause 2 of Part III of the said lease agreement, the assessee was under an obligation to obtain a permission from the appropriate authority for using the lease-hold land for surface operations from time to time on payment of surface rent as specified in clause 4 of Part V of the said lease agreement. Accordingly, the assessee acquired the surface rights from the Government in terms of the said lease agreement for using the said land for its surface operations for the balance period of lease which itself was a long-term period. The purpose for acquiring the said surface rights in the leasehold land as mentioned by the assessee company itself was for the purpose of constructing the utility buildings such as office com plex, health ce ntres for w orkers etc. After acquiring such surface rights in r es pect of the leas ehold land, the asse ss ee com pany acquired the right to possession of the said land from the villagers who were occupying the said land. For this purpose, the assessee company spent certain amount for relocating and rehabilitating the said villagers. The contention of the learned counsel for the assessee before us was that this entire expenditure was incurred by the assessee for the use of land for a limited period and as no asset of enduring benefit came into existence, th e e nt i r e e x p e n di t u r e ha s t o b e a l l ow e d as r e v e n u e e x p e n di t u r e . I n support of this contention, he has r elied on various authorities and has also made an attempt to distinguish the precedents relied upon by the Revenue. In this regard, it is worthwhile to review the various decisions cited by the learned representatives of both the sides in the light of facts and circumstances of the present case so as to ascertain whether the expenditure in question can be treated as capital or revenue. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 33 of 55 11.7 Before us, the learned counsel for the assessee has relied on the decision of Hon'ble Supreme Court in the case of R.J. Trivedi (supra) wherein the expenditure was incurred by the assessee on fault-stone cutting operation in order to remove the obstruction in the course of mining operation and considering that it was not possible for the assessee to carry on the mining operation without removing the said obstruction, the Hon'ble Apex Court found the said expenditure incurred by the assessee was to facilitate mining activities and therefore treated the same as revenue in nature. In the present case, there was no such obstruction in carrying on the mining operation of the assessee and the expenditure was incurred by the assessee to relocate and rehabilitate the villages in order to acquire a right to possession in the leasehold land to facilitate the enjoyment of surface rights in respect of the leasehold land. We agree, therefore, of the opinion that the present case is distinguishable on facts from the case of R.J. Trivedi (supra) and, therefore the said decision cannot help the assessee's case. Reliance was also placed by the learned counsel for the assessee on the decision of Hon'ble Supreme Court in the case of Gotan Lime Syndicate (supra) wherein the payment of royalty was made by the assessee in relation to the raw material i.e. lime stone to be obt4ed from mines taken on lease and the same was not referable to the acquisition of the mining lease. Considering these facts, the Hon'ble Apex Court found the said expenditure incurred in relation to the raw material. which was going to be excavated or extracted by the assessee, and accordingly treated the same as revenue expenditure. The facts in the present case, however, are different inasmuch as the impugned expenditure has been incurred by the assessee company to acquire the surface rights as well as the right to possession in respect of the leasehold land hit-enduring benefits and the same being not in the revenue field, the decision in the case of Gotan Lime Syndicate (supra) has no application to the facts of the present case. As regards the reliance placed by the learned counsel for the assessee on the decision of Hon'ble Supreme Court in the case of Madras Auto Service (P.) Ltd. (supra), it is observed that the assessee in that case had made substantial savings in monthly rent for the entire lease period by spending the amount on construction of a new building on the land taken on long lease and as the said expenditure resulted in a saving of rent which was a revenue expenditure, the Hon'ble Apex Court allowed the said expenditure as revenue expenditure. Similarly, in the case of CIT v. Associated Cement Co. Ltd. [1988] 172 ITR 257' (SC), the assessee by bearing the cost of laying pipelines as per the agreement entered into with the Government/municipality, was not needed to pay municipal taxes for 15 years and considering that the assessee in the absence of the said arrangement would have to pay the taxes every year to the debit of revenue account, the said expenditure was allowed as revenue expenditure - by the Hon'ble Supreme Court. In the present case as already observed, the expenditure was incurred by the assessee for acquiring any enduring benefits in the capital field and therefore the same is distinguishable from ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 34 of 55 the case of Madras Auto Service (P.) Ltd. (supra) as well as that of Associated Cement Co. Ltd. (supra). Further in the case of Empire Jute Co. Ltd.(supra) the Hon'ble Supreme Court observed that if the advantage merely consists of facilitating the assessee's trading operation or enabling the management and conduct of the assessee's business more efficiently or more profitably while leaving fixed capital untouched, the expenditure would be of revenue nature even though the advantage may endure for a indefinite future. In the present case, the assessee has acquired an interest in the immovable property in the form of surface rights and right to possession in respect of leasehold land and the same being not merely to facilitate the assessee's business operation but being in the nature of acquisition of substantive right in the immovable property for enduring advantage, the ratio laid down by the Hon'ble Apex Court in the case of Empire Jute Co. Ltd. (supra) cannot be said to have any application in the assessee's case. Similarly the case of Plantation Corpn. of Kerala Ltd. (supra) is also distinguishable on the similar line. 11.8 The learned counsel for the assessee has also contended before us that the assessee company did not acquire any right or interest in respect of relocated villages which were built up and handed over to the villagers and ultimately became the property of the said villagers. In this regard, we may observe that the said expenditure on rehabilitation and relocation of the villages was incurred by the assessee company to acquire the right to possession in the leasehold land in respect of surface rights obtained by it and the very purpose of incurring the said expenditure was to acquire such rights in the said immovable property. This being so, it cannot be said that the said expenditure did not result in the acquisition of enduring benefits in the capital asset, the rights or interest in the relocated villages notwithstanding. 11.9 In the case of Assam Bengal Cement Co. Ltd. (supra) relied upon by the revenue, the Hon'ble Apex Court observed that the aim and object of the expenditure would determine the character of expenditure whether it is a capital or revenue and the source or the manner of payment would then be of no consequence. In the present case, the expenditure was incurred by the assessee-company with aim and object to acquire the surface rights as well as the right to possession in respect of the leasehold land for a long period and, therefore, the nature of such expenditure was certainly of capital nature. The revenue has also relied on the decision of Hon'ble Mysore High Court in the case of N. Peer Sahib (supra) in respect of which the learned counsel far the assessee has contended that the lease amounts having been paid to the surface owners by the assessee therein for extracting iron coal at the beginning of the mining operation, it was considered as capital in nature whereas in the present case the assessee has made the relevant payments during the currency of the lease period. After carefully perusing the said decision of Hon'ble Mysore High Court, it however, appears that ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 35 of 55 the payment made to the Pattedars who were occupying rights over the land which had been acquired by the assessee from the Government was found to be of the same character as the payments to the Government for acquiring the mining leases and keeping in view this character of the payment, the Hon'ble Mysore High Court held the same to be a capital expenditure. In the case of Chloride India Ltd. (supra) relied upon by the revenue, the assessee had paid the money for buying out the tenancy right and, therefore, it was held by the Hon'ble Calcutta High Court that the amount so paid for acquiring the possession which was a benefit of enduring nature, is a capital expenditure. In the present case also, the assessee has acquired the right to possession from the villagers/occupants in respect of the leasehold land by rehabilitating and relocating the said villagers and, therefore, the decision in the case of Chloride India Ltd. (supra) is clearly applicable to the facts of the present case. Similarly the case of Lucky Bharat Garage (supra) relied upon by the Revenue also renders support to the revenue's case that the said expenditure was capital in nature. Heavy reliance has been placed by the revenue to support its stand on the decision of Hon'ble Supreme Court in the case of R.B. Seth Moolchand Suganchand (supra) wherein the Hon'ble Supreme Court held that the amount spent for obtaining a right of an enduring character which in the case of mining leases is to acquire rights over and for winning the mineral is of a capital nature. Before us the learned counsel for the assessee has contended that the said decision in the case of R.B. Seth Moolchand Suganchand (supra) has been distinguished by the Hon'ble Apex Court in its subsequent decision in the case of Bikaner Gypsums Ltd. (supra). A perusal of the subsequent judgment of the Hon'ble Apex Court, however, reveals that the facts involved in the case of R.B. Seth Moolchand Suganchand(supra) were found to be totally different from the facts involved in the case of Bikaner Gypsums Ltd (supra) inasmuch as in the latter case the expenditure was incurred by the assessee for the removal of a restriction which was obstructing his business operation of mining within a particular area. We have already observed that the existence of village was not obstructing the mining operations of the assessee-company and the expenditure in question was incurred to acquire the right to possession in respect of the leasehold land to facilitate the enjoyment of surface rights. Moreover, as the said acquisition resulted into accrual of enduring benefits to the assessee- company for the balance period of lease, the same has to be treated as capital expenditure, as held by the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. (supra). As such, considering all the facts of the case and legal position enumerating from the judicial pronouncements discussed hereinabove, we are of the considered opinion that the impugned expenditure incurred by the assessee for acquiring surface rights as well as the right to possession in respect of leasehold land for enduring period was a capital expenditure and the learned CIT(Appeals) was fully justified in upholding the action of the Assessing Officer in treating the same as capital expenditure and ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 36 of 55 thereby disallowing the deduction claimed by the assessee in respect of the same.” 8.30 In the case of ONGC Videsh Ltd. Vs. Deputy Commissioner of Income-tax (37 SOT 97), wherein the Coordinate Bench of Delhi Tribunal considered similar issue that the Commercial rights of exploration of minerals, oil, by entering into production sharing agreement with Russian Government fall under the expression “any other business or commercial rights on similar nature”, same being akin to licenses “as stipulated in section 32(1)(ii) of the Act and therefore, they are in the nature of intangible assets, eligible for depreciation at the prescribed rate, wherein it was held as under: “The law has specified items of intangible assets eligible for depreciation in the following categories : (i) know-how (ii) patents (iii) copyrights (iv) trademarks (v) licences (vi) franchises (vii) any other business or commercial rights of similar nature. So far as claim of depreciation in case of intangible assets falling in the category of "any other business or commercial rights of similar nature" is concerned, all the business or commercial rights are not by themselves assets eligible for depreciation, and that only those rights which are similar in nature with the know-how, patents, copyrights, trademarks, licences etc. are eligible for claim of depreciation. In view of principle of ejusdem generis, the expression "any other business or commercial rights" has to be read in the company of the preceding words. This rule of interpretation makes an attempt to reconcile incompatibility between the specific and general words. The first category of words like know-how, patents, copyright, etc., forms a distinct genesis or category in as much as all those items are specific and elucidated rights of business or commercial nature. In such circumstances, the expression 'any other business or commercial rights of similar nature' also must be in the same genesis or category with specific and elucidated identity of commercial or business nature. Therefore, in the light of the statutory provisions contained in s. 32(1)(ii), the commercial rights of exploration of mineral oils, as acquired by the assessee fall under the expression of any other business or commercial rights of the nature similar to one of the categories i.e., licenses as stipulated in s. 32(1)(ii). The commercial rights of exploration and licenses acquired by the assessee being in the nature of intangible assets are eligible for the claim of depreciation at the rate prescribed under s. 32(1)(ii). The AO himself in his order had observed that as a result of entering into such an agreement i.e., PCA, the assessee company has been granted licenses by Russian Government ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 37 of 55 to explore and produce hydrocarbons in the agreement area. There is no dispute to the fact that assessee has incurred expenditure of Rs. 1,559.09 crores for obtaining the right and license for exploration of oil. It is not possible to say that such expenditure was neither capital nor revenue in nature. If it is held to be capital, then it is obvious that what the assessee has acquired was a participating right which is in the nature of commercial right of carrying on of business of exploration and production of mineral oil. It also cannot be said that the right so acquired was not an asset. If it is an asset being the right then it is obvious that same is commercial right, therefore in the nature of asset in the form of license. This right had been granted to the assessee by way of license and the assessee became owner of such right i.e., license to have an access and to carry on of business of exploration and development of mineral oil. Accordingly, such an asset falls within the category of asset falling under s. 32(1)(ii). The assessee had acquired business and commercial right and license by making payment of Rs. 1,559.10 crores, which is in the nature of intangible assets entitled to claim of depreciation under s. 32(1) (ii). In view of the above discussion assessee's claim for allowing deduction of entire expenditure of Rs. 1,559.10 crores is declined. The stand of CIT(A) in treating the alleged expenditure as deferred revenue expenditure and directing the AO to allow 1/19th of the expenditure during the year is also declined, since there is no concept of deferred revenue expenditure under IT Act. Commercial rights of exploration of mineral oils acquired by assessee by entering into production sharing agreement with the Russian Government fall under the expression 'any other business or commercial rights of similar nature, same being akin to 'licences' as stipulated in s. 32(1)(ii) and therefore, they are in the nature of intangible assets eligible for depreciation at the prescribed rate.” 8.31 In view of this discussion, we are of the opinion that the amount expended by the assessee to acquire the right of mining the coal, therefore, to be considered as “Capital Expenditure” and the assessee is entitled for depreciation. In view of this, we direct the AO to treat this as “Capital Expenditure”, which is in enduring nature and grant applicable rate of depreciation on it as appliable to commercial rights of similar nature. 9. Next ground only in ITA No.2135/Bang/2018 in AY 2010-11 is that the Ld. CIT(A) grossly erred on the facts and in law in not adjudicating the ground No.4 raised in the memorandum of grounds of appeal annexure to Form No.35 regarding allowance of ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 38 of 55 loss as claimed by the assessee. In other words, the assessee has raised this ground as ground No.4 before Ld. CIT(A) as follows:- “The Ld. A.O. erred on facts and in law in not allowing the loss as claimed”. 9.1 The Ld. A.R. submitted that the Ld. CIT(A) grossly erred on the facts and in law in not adjudicating with regard to carry forward of loss. 9.2 The assessee has filed its tax return for AY 2009-10 whereby a loss of Rs. 8,07,89,690/- was carried forward to subsequent assessment years. The said return was picked up for scrutiny assessment and an order u/s 143(3) was passed on 23-12-2011 determining total loss of Rs. 7,56,97,759/-. The above reduction of loss is solely on account of disallowance of claim of depreciation of Rs. 51,29,299/- on the mining land. Appeal for the same is presently pending before Ld. CIT(A). 9.3 During AY 2010-11, at the time of assessment, AO allowed a loss of Rs. 7,56,97,759/-instead of the loss claimed by the assessee of Rs. 8,07,89,690/-. 9.4 The assessee therefore prayed that the ground of adjustment in AY 2009-10 is similar to the ground in AY 2010-11 and other subsequent years presently before the Hon’ble Bench. Hence directions be given to the Ld. AO to reinstate the loss as claimed by the assessee in its return for AY 2009-10. 10. The Ld. D.R. submitted that the issue may be remitted back to AO for fresh consideration. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 39 of 55 11. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this issue required to be considered by the AO. Accordingly, the AO is directed to grant the loss claimed by the assessee in accordance with law while passing the consequential order in assessment year 2010-11 under consideration. It is needless to say that AO has to give an opportunity of hearing to the assessee before deciding this issue. Ordered accordingly. 12. Next common ground in ITA Nos.2136 to 2138/Bang/2018 for the AYs 2011-12 to 2014-15 is with regard to sustaining of disallowance claimed u/s 35E of the Act. 12.1 The facts of the case are that the Assessing Officer has drawn the conclusion in the assessment order as follows:- “...........On perusal of list of expenditure mentioned above, the value of mines & purchase of following assets which are eligible for depreciation u/s 32 are not eligible for claim of deduction u/s 35E of the Act. Hence, the deduction u/s 35E is disallowed on following expenditure: Sl.No. Particulars Amount (Rs.) 1. Value of mines 13000000 2. Purchase of hose rubber pipe 408673 3. Construction of Hume Pipe Culvert 173939 4. Construction of ground water tank 295584 5. Construction & filling metal in setting tank for water filtration 606198 Total 14484394 10% of the above expenditure is disallowed & brought to tax u/s 35E(3) of the I.T. Act. The addition comes to Rs.14,48,439/-” 12.2 The Ld. A.R. submitted that the Assessee has incurred an expense of Rs. 12.93 Crs. [She referred Order of the AO – Page 95 of the PB] towards exploration charges for excavation of coal prior to commencement of commercial production. In terms of the provisions ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 40 of 55 of the Section 35E, assessee is entitled to deduction of the expenses incurred over a ten year period. Accordingly, the assessee claimed a deduction of Rs. 1,29,39,237/- from AY 2009-10 and onwards. 12.3 It would be relevant to examine the extracts of Section 35E to understand its applicability to the present case: Section 35E - Deduction for expenditure on prospecting, etc., for certain minerals. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for, or extraction or production of, any mineral and incurs, after the 31st day of March, 1970, any expenditure specified in sub-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) The deduction to be allowed under sub-section (1) for any relevant previous year shall be— (a) an amount equal to one-tenth of the expenditure specified in sub-section (2) (such one-tenth being hereafter in this sub-section referred to as the instalment); or ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 41 of 55 (b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation whether or not such commercial exploitation is as a result of the operations or development referred to in sub-section (2) of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals as aforesaid in respect of which the expenditure was incurred, whichever amount is less: Provided that the amount of the instalment relating to any relevant previous year, to the extent to which it remains unallowed, shall be carried forward and added to the instalment relating to the previous year next following and deemed to be part of that instalment, and so on, for succeeding previous years, so, however, that no part of any instalment shall be carried forward beyond the tenth previous year as reckoned from the year of commercial production. (4) For the purposes of this section, — (a) "operation relating to prospecting" means any operation undertaken for the purposes of exploring, locating or proving deposits of any mineral, and includes any such operation which proves to be infructuous or abortive; (b) "year of commercial production" means the previous year in which as a result of any operation relating to prospecting, commercial production of any mineral or any one or more of the minerals in a group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule, commences; (c) "relevant previous years" means the ten previous years beginning with the year of commercial production. 12.4 During the impugned period, i.e. AY 2011-12, the Ld. AO disallowed expenses to the tune of Rs. 1,44,84,394/- on the ground that the same is not eligible u/s 35E(3) of the Act. The same disallowance were made in AY 2011-12 to AY 2014-15. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 42 of 55 The details of such expenses are as under: Sl. No. Particulars of Expense Amount Reasons for disallowance u/s 35E(3) 1 Value of Mines 1,30,00,000 Section 35E(3)(i) – value of mines 2 Purchase of Hose Rubber Pipe 4,08,673 Section 35E(3)(iii) – depreciable in nature 3 Construction of Hume Pipe Culvert 1,73,939 Section 35E(3)(iii) – depreciable in nature 4 Construction of Ground water tank 2,95,584 Section 35E(3)(iii) – depreciable in nature 5 Construction and filling metal in setting tank for water filtration 6,06,198 Section 35E(3)(iii) – depreciable in nature TOTAL 1,44,84,394 12.5 The ld. A.R. stated that the Certificates from the Tax Auditor are enclosed in the written submission for ready reference which certifies that the assessee has not claimed any depreciation on the said items and hence there cannot be any case of disallowance u/s 35E(3)(iii); 13. The ld. D.R. submitted that the AO invoked the provision of section 35E(3)(iii) wherein it is specified that, this allowance is not claimable in respect of items of a capital nature, on which depreciation is allowable u/s 32 of the Act. It is seen that the items included by the AO (as extracted in the AO’s order) are in the nature of depreciable items. The assessee in its written submission has not brought anything on record to substantiate that, no depreciation was otherwise claimed in this respect. In these facts & circumstances the AO’s action is to be upheld. The assessee’s grounds of appeal are therefore disallowed. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 43 of 55 Findings:- 14. We have heard the rival submissions and perused the materials available on record. If the assessee claims any depreciation on this expenditure incurred for excavation of coal prior to commencement of production by capitalizing the same, the assessee is not entitled for deduction u/s 35E of the Act. On the other hand, if the assessee has not claimed any depreciation on this expenditure, the claim of assessee u/s 35E of the Act is to be granted. Accordingly, the issue is remitted to AO for fresh consideration. AO has to decide the issue after giving opportunity of hearing to the assessee. Ordered accordingly. 15. Next common ground in ITA Nos.2136 & 2137/18 for the AYs 2011-12 & 2012-13 is with regard to disallowance being depreciation on intangible assets claimed u/s 32(1)(ii) of the Act. 15.1 Facts of the case are that the assessing Officer has drawn the conclusion in the assessment order, which is reproduced as under: “ T h e as s e s s ee c om pa ny ha s c l a i m e d de p r e c i a t i on of Rs . 4 6, 9 4 , 68 7 /- o n th e a s s e t s a c qu i r e d du r i n g t h e y e ar o f R s . 1 2 , 51 , 9 1,9 28 / - pu r p or te d t o th e c o m m er c i al r i gh t . T he a s s e s s e e w as a s k e d to e xp l ai n t h e n a t u r e o f co m m e r c i al a s s e t ac q ui r ed . I n t hi s r e ga rd , i t i s ex p l ai n e d t h at : "With respect to your query of furnishing detail of purchase of land during the year amounting to Rs. 12,51,91,928/- it is stated that the land has been acquired for different purposes such as compensatory afforestation, mining purpose, rehabilitation and railway siding. The detail of addition to land has already been furnished during the previous hearings wherein area of land, cost of acquisition, other charges, name of the village, sale deed no. have been properly reflected. We have also furnished few of the sale deeds in respect of the purchase of such land." ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 44 of 55 It is evident from above clarification that the above assets are nothing hut land purchased/ acquired under lease for mining & other related purposes. No depreciation is allowable u/s 32 to the cost of land irrespective of use. The depreciation is not allowable for lease hold rights as well as tenancy rights as held in the case of Peerless General Finance & Investment company limited Vs. CIT(2013) 35 Taxmann. corn 615 (Kolkata) & Dahur India Limited vs. ACTT (2013)37 Taxmann.com 289 (Mumbai-Trib). Hence, the depreciation claimed on land in the name of commercial rights of Rs. 46,94,697/- is disallowed & brought to tax." 15.2 Before the Ld. CIT(A), The assessee company in its additional grounds of appeal stated as under: “That the AO grossly erred on facts and in law in disallowing a sum of Rs. 46,94,697/- being the depreciation claimed by the appellant company on an intangible asset being the investment made of Rs. 12,51,91,928/- in additional land (through the Land Acquisition Act mode) for mining purposes." That appellant slates that no additional facts or investigation into faces are required to dispose off the present ground of appeal as all the facts are on recor4and the submissions are legal in nature. The investment of Rs. 12,51,91,928/- in land earmarked for mining )1 coal acquired with the consent of the Government. The Hon 'ble Commissioner of Income-Tax (Appeals) on the facts narrated herein above may graciously be pleased to exercise his power vested in him to admit the additional ground of appeal, which has not been inadvertently taken at the time of filing the appeal." 15.3 The amount of Rs.46,94,687/- pertains to depreciation claim on the acquiring of additional/new land/mining rights during the period under consideration, the AO has disallowed the assessee's claim for the same reasons as elucidated in respect of the claim at his para-4, with regard to the same issue of depreciation on lease-hold rights, which has been disallowed. The ld. CIT(A) confirmed the disallowance of depreciation on the same reasons adduced in ground No.1 of this order and disallowed the depreciation claim of Rs. 46,94,687/- held to be inadmissible. The assessee's grounds of appeal are therefore disallowed by the Ld. CIT(A). ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 45 of 55 15.4 Similar is the position in assessment year 2012-13 & 2013-14 except change in figures. Against this assessee is in appeal before us. 16. We have heard the rival submissions and perused the materials available on record. In our opinion, as discussed in ground No.1 with regard to granting of depreciation on leasehold land, this ground is also allowed on similar lines. This ground of appeals of the assessee is allowed. However, we make it clear that there cannot be double claim of depreciation, one in by way of ground No.1 as above and another one by way of this ground. 17. Next common ground in ITA Nos.2137 & 2138/18 for the AYs 2013-14 & 2014-15 is with regard to disallowance being the interest on TDS made by the assessee u/s 37 of the Act. The Assessee has paid interest on delayed payment of TDS. These corresponding expenses on which the TDS was deducted represent revenue expenses and TDS was deducted u/s 192, 194C, 194J, 194- I, 194A. The assessee submits that these expenses are revenue in nature and has been debited in the Profit and Loss Account. 17.1 The AO as well as Ld. CIT(A) has disallowed the interest paid on delayed payment of TDS without appreciating the facts and the prevalent law of the land. It is the humble submission of the assessee that interest paid on late payment of TDS deducted from revenue expenses is a deductible expense/s 37 of the Act in as much as the same is compensatory in nature. The Ld. A.R. referred following judgements in this regard. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 46 of 55 17.2 The ld. AR placed reliance on the judgement of Hon’ble Karnataka High Court in the case of CIT Bangalore vs Oriental Insurance Co. Ltd. [2009] 315 ITR 102 (Karnataka) wherein held as under: “7. In the Mittal Steel Ltd.'s case (supra), the proviso to section 201 was under consideration. The said proviso empowers levy of penalty if the TDS deduction is not effected for any valid reason. However, section 201(1A) is a distinct provision to levy interest for delayed remittance. It is in the practice of revenue that for belated payment of tax for any reasonable cause, the assessee is liable to pay interest at the rate of 12 per cent p.a. Similarly, for refunds, revenue pays interest to the assessee. Therefore, the levy of interest under section 201(1A) cannot at any rate be construed as a penalty. In that view, the contra finding of the Tribunal is set aside. The questions of law are answered in favour of the revenue.” 17.3 She also placed reliance on the order of Coordinate Bench of Tribunal in the case of M/s IDS Next Business Solutions Pvt. Ltd. vs ACIT [ITA no 510/Bang/2018]. The Tribunal in this case referred the case of Narayani Ispat Pvt Ltd (supra) and held as under: “We find that in that case also, the issue involved was regarding allowability of interest on belated payment of service tax and TDS whereas in the present case, the issue in dispute is regarding interest payment on belated payment of TDS. Hence it is seen that the facts and dispute are similar and therefore, by respectfully following this Tribunal order, we decide the issue in favour of the assessee.” 17.4 She took support from order of Tribunal in the case of DCIT vs M/S Narayani Ispat Pvt Ltd ITA No.2127/Kol/2014 (Kolkata- Trib) wherein the Tribunal held as under: “The principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down by the ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 47 of 55 Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd.(supra). We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed.” 17.5 Further, she submitted that this issue came for consideration before Hon’ble Supreme Court in the case of Lachmandas Mathuradas vs CIT [(2002) 122 Taxmann 828 SC] – wherein it has been held as under: 3. “The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue.” 17.6 She also placed reliance on the order of Coordinate Bench of Tribunal in case of M/s IDS Next Business Solutions Pvt. Ltd. vs ACIT [ITA no 510/Bang/2018 wherein it was held as under: “We find that in that case also, the issue involved was regarding allowability of interest on belated payment of service tax and TDS whereas in the present case, the issue in dispute is regarding interest payment on belated payment of TDS. Hence it is seen that the facts and dispute are similar and therefore, by respectfully following this Tribunal order, we decide the issue in favour of the assessee.” ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 48 of 55 17.7 She submitted that in view of the above, the interest on TDS has to be allowed as revenue expenditure. Thus, she submitted that in absence of any specific adverse, findings of the AO, the payment of interest is compensatory and not penal in nature and should be allowed as expenditure u/s 37 of the Act. 18. The ld. D.R. submitted that in respect of service tax & excise, the Assessee has contended that the interest in the present case was compensatory and not penal in nature, as per the relevant service tax / excise provisions. The assessee claims that the law has provided for distinct provisions for compensating the loss on default in payment of tax and imposition of penalty for breach of the statutory provisions. While section 75 is a section for compensating the - Government of delayed payment of the service tax / excise, there are separate provisions for penalizing the assessee for non-payment or delayed payment of service tax / excise. The assessee submits that as held by the Courts, the recovery of interest u/s 75 of the service tax / excise law is automatic and does not require a separate proceeding by way of issuance of notice. The assessee's case is that, where there are separate sections governing the imposition of penalty under the service tax / excise law, it cannot be the intent of the legislature to levy a penalty for under section 75 as well. 18.1 He placed reliance on following judgements: (a) Division bench of the Andhra Pradesh High Court in CIT v. Hyderabad Allwyn Metal Works Ltd. (1988) 172 ITR 113 ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 49 of 55 (b) Prakash Cotton Mills Pvt. Ltd. v. CIT (1993) 201 TTS 684 (SC). (c) DCIT v. Messee Duysseldorf India (P) Ltd. (2010) 129 TTJ 81 T (Del.). (d) Commissioner of Income-Tax vs Prem Nath Motors (Pvt.) Ltd. on 5 September. 2001 Equivalent citations: 2002 253 ITR 705 Delhi Findings: 19. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this issue is squarely covered by earlier decision in the case of CIT Vs. Oriental Insurance Company Ltd. (315 IT 102) (Karn.) and also other judgements cited (supra), wherein held that the levy of interest for delay payment of TDS is not in the nature of penalty but it is a compensatory in nature and the same is allowable u/s 37 of the Act. Accordingly, this issue is decided in favour of the assessee. 20. Now we will consider the common additional ground in all appeals. 1. That in the alternate to Ground No 2, raised in memorandum of appeal, the appellant ought to be allowed deduction u/s 37 of the Act in respect of investment in land purchased/ allotted for mining of coal in forms of mining agreement in respect of the year in which land was purchased/ allotted to the appellant. It is respectfully submitted that the facts, required to adjudicate the additional ground, is already on record and there is no requirement for additional facts to be stated or referred. That the additional ground of appeal now raised goes to the very root of the matter and being legal ground can be raised for the first time before the Hon'ble Tribunal in view of decision of Hon'ble Supreme Court in the case of National Thermal Power Ltd vs CIT (1998) 229 ITR 383 (SC), where it has been held that the powers of the Tribunal dealing with this are expressed in widest possible terms. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 50 of 55 21. The Ld. A.R. submitted that in alternate to Ground 2 & 3, the appellant ought to be allowed deduction u/s 37 of the Act in respect of investment in land purchased/allotted for mining of coal in form of mining agreement in respect of the year in which land was purchased allotted to the assessee. The assessee submitted that the following facts are not in dispute: (a) Assessee was awarded a license to mine in the form of a mining lease over an area of 1379.50 hectares by the Government of Maharashtra (b) In the terms of the said Mining lease and the prevalent law of the land, assessee was legally as well as contractually bound to purchase land, forming part of the allocated mining area, from its present occupiers/owners upon payment of necessary consideration (c) Assessee was required to extract coal and supply the same to KPCL (d) At the end of the mining period, upon expiration/termination of the mining lease, the assessee was required to hand over the entire land to the Government. Such vesting of title to the government was pursuant to process of law and is automatic. (e) The only amount received by the assessee was the coal excavation charge received per ton of coal excavated and supplied to KPCL (f) The amount spent by the assessee on acquiring land is an expense incurred by the assessee in the process of undertaking the mining activities. (g) The land so acquired by the assessee would ultimately be transferred to the government without assessee receiving any compensation. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 51 of 55 21.1 In this context, the assessee submits that the land so purchased by it from its occupiers/owners was used for the purpose of mining activity. Post completion of the activity, the title of the land vested with the Government. The payment made by the assessee for land was ultimately transferred to government without any compensation. The only compensation to the assessee was the excavation charge received by it from KPCL which has already been offered to tax. It is therefore natural that expenses incurred for earning such excavation charge needs to deducted from the receipts. Purchase of land is one such expense which need to be deducted. 21.2 Reference in also made to the decision of the Hon’ble Supreme Court in the case of Bikaner Gypsums Ltd. vs CIT [1991] 187 ITR 39 (SC). In this case the Court held as under: “In our opinion where the assessee has an existing right to carry on a business, any expenditure made by it during the course of business for the purpose of removal of any restriction or obstruction or disability would be on revenue account, provided the expenditure does not acquire any capital asset. Payments made for removal of restriction, obstruction or disability may result in acquiring benefits to the business, but that by itself would not acquire any capital asset. 13. In the instant case the assessee had been granted mining lease in respect of 4.27 square miles at Jamsar under which he had right to sink, dig, drive, quarry and extract mineral, i.e., the gypsum and in that process he had right to dig the surface of the entire area leased out to him. Clause 3 of Part III of the lease, however, placed a restriction on his right to mining operations from the Railway area, but that area could also be operated by it for mining purposes with the permission of the authorities. The assessee had under the lease acquired full right to carry on mining operations in the entire area including the Railway area. Under clause 3 he could carry on mining operations only after obtaining the permission of the authorities which had been granted by the Railway authorities. The payment of Rs. 3 lakhs was not made by ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 52 of 55 the assessee for the grant of permission to carry on mining operations within the Railway area, instead the payment was made towards the cost of removing the construction which obstructed the mining operations. The presence of the Railway Station and Railway track was operating as an obstacle to the assessee's business of mining, the assessee made the payment to remove that obstruction to facilitate the mining operations. On the payment made 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 or 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 the minerals under the Railway area. The High Court has held that on payment of Rs. 3 lakhs, the assessee acquired capital asset of an enduring nature. The High Court failed to appreciate that clause 3 was only restrictive in nature it did not destroy the assessee's right to the minerals found under the Railway area. The restriction operated as an obstacle to the assessee's right to carry on business in a profitable manner. The assessee paid a sum of Rs. 3 lakhs towards the cost of removal of the obstructions which enabled the assessee to carry on its business of mining in an area which had already been leased out to it for that purpose. There was, therefore, no acquisition of any capital asset. There is no dispute that the assessee completed mining operations on the released land (Railway area) within a period of 2 years, in the circumstances the High Court's view that the benefit acquired by the assessee on the payment of the disputed amount was a benefit of an enduring nature is not sustainable in law. As already observed, there may be circumstances where expenditure, even if incurred for obtaining advantage of enduring benefit may not amount to acquisition of asset. The facts of each case have to be borne in mind in considering the question having regard to the nature of business, its requirement and the nature of the advantage in commercial sense. 14. 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. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 53 of 55 3 lakhs towards the cost of shifting the Railway construction. The payment made by the assessee was for removal of disability and obstacle and it did not bring into existence any advantage of an enduring nature. The Tribunal rightly allowed the expenditure on revenue account. The High Court in our opinion failed to appreciate the true nature of the expenditure.” 21.3 In the present case, the mining lease was granted to the assessee over an area of 1379.50 hectares. As per the mining lease agreement, the assessee does not have the right to access such land until and unless it obtains specific approval from its owners/occupiers. Accordingly, to remove such obstacles and to get free and unhindered access to such land, the assessee was bound, both legally as well as contractually, to pay the present owners/occupiers to get unhindered access to such land. These payments made by the assessee did not create any asset for the assessee in as much as such lands would ultimately vests with the Government. In view of the above and relying on the Hon’ble Supreme Court decision, the assessee humbly submits that the expenses incurred towards land should be allowed as deduction u/s 37(1). 21.4 She also placed reliance on the order of Tribunal in the case of M/s Associated Soapstone distributing Co. Pvt. Ltd. Vs. ACIT, Circle-5 (Jaipur), wherein held as under: “25 In the instant case, during the relevant previous year, the assessee company paid an amount of 35,00,000 to Mr. Panchiya Meena. It is the contention of the AR that the amount has been paid as compensation to the land owner. The area for which compensation was paid forms part of the area which has already been leased out by the government of Rajasthan to the assessee company and for which the assessee company had the right to carry out mining operations. It was contended that as the existence of the landowner on such land had the potential of obstructing the mining operations, the assessee company paid the compensation with a view to carry on its business activities smoothly and without any operation hindrances. It ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 54 of 55 was further submitted that on payment of compensation, the landowner surrendered the land. To the government of Rajasthan and the land becomes exclusive property of government of Rajasthan and mutated in the name of government of Rajasthan in the revenue records. It was accordingly submitted that the assessee company didn’t acquired the said piece of the land by way of any new assets and the amount was spent merely for the purpose of removing the obstructions to facilities the mining operations.in support of his contentions, the ld AR has submitted various documents such as undertaking for surrender of land owner, surrender letter or samarpan patra executed by the land owner, chain of events documented by tehsildar, letter written by land owner to tehsildar to surrendering the land, report of tehsildar for verification of facts and evidence that the land surrendered by Mr. Ranga was muted in the name of government of Rajasthan in the revenue records. It has been contented that all theses 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 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 35 lacs 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 areas allotted by the government to the appellant for mining of 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 findings of the ld. Cit(a) remains uncontroverted before us. Given that piece of land falls within the mining area in respect of which assessee has existing rights to carry on its mining operation and the fact that assessee wishes to carry on mining in that area, the assessee required to pay compensation to the land owner so that the later do not obstruct or challenge to accruing out mining activities underneath the surface of land which belongs to him. The payment is for removing the disability or obstacle and to facilitated the carrying on its business. No fresh rights have been acquired by the assessee by paying of the set compensation. The assessee was already having right on the mining operation. The facts that land stand mutated in the name of government of Rajasthan post surrendered by shri. Ranga also shows that land and surface right have not been acquired by the assessee. In the light of above discussion and respectfully following the decision of Hon’ble supreme court in the case of Bikaner gypsum, the assessee deserves to succussed in the instant case”. 22. The Ld. D.R. submitted that the issue may be remitted back to AO for fresh consideration. ITA Nos.2135 to 2139/Bang/2018 M/s. Karnataka EMTA Coal Mines Ltd., Bangalore Page 55 of 55 Findings: 23. We have heard the both the parties on admission of additional ground. After hearing both the parties, we are of the opinion that this ground is infructuous in view of our finding in main ground No.1 in all these appeals that assessee is entitled for depreciation on leasehold land of mining. Accordingly, the additional ground in all appeals is dismissed as infructuous. 24. In the result, assessee’s appeals are partly allowed for statistical purposes. Order pronounced in the open court on 14 th Nov, 2022 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 14 th Nov, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.
