Kerala Minerals and Metals Ltd, Kollam V. ACIT, Kollam

ITA 307/COCH/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61473 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 29-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 27-05-2009
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: V SATYANARAYANAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 307/COCH/2009 ASSESSMENT YEAR : 2005-06 M/S. KERALA MINERALS AND METALS LTD., SANKARAMANGALAM, CHAVARA, KOLLAM. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (ASSESSEE-APPELLANT) (REVENUE - RESPONDENT) ASSESSEE BY SHRI V.SATYANARAYANAN, CA REVENUE BY SMT. VIJAYAPRABHA, SR. DR DATE OF HEARING 29/03/2012 DATE OF PRONOUNCEMENT 27/04/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 11-03-2009 PASSED BY THE LD. CIT(A)-II, KOCHI AND IT RELATES TO THE A SSESSMENT YEAR 2005-06. 2. AT THE TIME OF HEARING, THE LD. AR DID NOT PRESS GROUND NO. 3 RELATING TO THE ADDITION OF SALARY/WAGE REVISION ARREARS. ACCORDIN GLY, THE SAID GROUND IS DISMISSED AS WITHDRAWN. WE SHALL PROCEED TO DISPOSE OF THE REMAI NING GROUNDS. 3. THE FIRST GROUND RELATES TO DISALLOWANCE OF 25% OF ROYALTY AMOUNT PAID TO GOVERNMENT OF INDIA ON EXTRACTION OF MINERALS. THE ASSESSEE PAID A SUM OF RS. 62.06 LAKHS AS ROYALTY TO GOVERNMENT AND CLAIMED THE SAME AS REVENUE EXPENDITURE. THE SAID ROYALTY WAS PAID TO THE GOVERNMENT ON THE BASIS OF THE QUANTITY OF MINERALS EXTRACTED FROM THE MINES AS PER THE GOVERNMENT NOTIFICATION. THE ASSESSING OFFICER DISALLOWED ITA NO. 307COCH/2009 2 25% OF THE SAID ROYALTY PAYMENT BY TREATING THE SAM E AS CAPITAL EXPENDITURE. IN THIS REGARD, THE AO PLACED RELIANCE ON THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCHGEARS LTD. REPORTED IN 232 ITR 35 7, WHEREIN THE HONBLE APEX COURT HAD UPHELD TREATMENT OF PART OF ROYALTY PAYMENT AS CAPITAL EXPENDITURE, AS THERE WAS ENDURING BENEFIT TO THE ASSESSEE THEREIN. THE LD. CIT(A) ALSO CONFIRMED THE SAID ADDITION. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD PA ID THE ROYALTY AT THE RATE OF 2% ON THE SALE PRICE AD VALOREM BASIS AS PER SECTION 9 OF THE MINING ACT ON THE TOTAL QUANTITY OF MINERALS REMOVED OR CONSUMED FOR PRODUCTION. HE FU RTHER SUBMITTED THAT SUCH KIND OF ROYALTY PAYMENT IS FULLY ALLOWABLE AS DEDUCTION AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOTAN LIME SYNDICATE V S. CIT, 59 ITR 718. THE LD. A.R. FURTHER SUBMITTED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCHGEARS LTD, SUPRA, IS NOT APPLICABLE TO THE IN STANT CASE AS THE FACTS PREVAILING IN THAT CASE ARE DISTINGUISHABLE. EXPLAINING FURTHER, HE S TATED THAT IN THE CASE OF SOUTHERN SWITCHGEAR LTD, SUPRA, THE ASSESSEE THEREIN ENTERED INTO A COLLABORATION AGREEMENT WITH A FOREIGN COMPANY FOR SETTING UP OF A FACTORY AND ALS O FOR OPERATING THEREOF. UNDER THE COLLABORATION AGREEMENT, THE FOREIGN COMPANY AGREED NOT TO MANUFACTURE SIMILAR PRODUCTS IN INDIA OR GIVE RIGHTS TO MANUFACTURE TO OTHERS. IN SUCH CIRCUMSTANCES, THE COURT HAS HELD THAT A PORTION OF THE TECHNICAL AID FEES AND ROYALTY PAID BY THAT ASSESSEE IS DISALLOWABLE ON THE GROUND THAT PART OF ROYALTY AMOUNT PAID FOR ACQUISITION OF EXCLUSIVE RIGHTS OF MANUFACTURE AND SELLING OF THE PRODUCTS I S CAPITAL IN NATURE. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS PAID THE ROYALTY AMO UNT TO THE GOVERNMENT FOR EXTRACTION OF MINERALS ON THE BASIS OF QUANTITY OF MINERALS EXTRA CTED. 5. ON THE OTHER HAND, THE LD. DR STRONGLY PLA CED RELIANCE ON THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY PE RUSED THE RECORD. WE AGREE WITH LD. AR THAT THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF SOUTHERN ITA NO. 307COCH/2009 3 SWITCHGEARS LTD. (SUPRA) DOES NOT APPLY TO THE FACT S OF THE INSTANT CASE, AS THE FACTS PREVAILING IN THAT CASE IS ENTIRELY DIFFERENT. HOW EVER, IN OUR VIEW, THE DECISION RENDERED BY THE HONBLE APEX COURT IN THE CASE OF GOTAN LIME SYNDICATE (SUPRA) SQUARELY APPLIES TO THE FACTS OF THE INSTANT CASE. IN THAT CASE, TH E HONBLE APEX COURT HAS HELD THAT THE PAYMENT OF ROYALTIES ON MINING OF LIMESTONE QUARRIE S IS REVENUE IN NATURE. IN THE INSTANT CASE ALSO, THE ASSESSEE HAS PAID ROYALTY TO THE GOV ERNMENT FOR EXTRACTION OF MINERALS. THE ASSESSEE CAN EXTRACT MINERALS ONLY DURING THE TENUR E OF LICENSE GIVEN TO IT. THE QUANTUM OF ROYALTY IS DEPENDENT UPON THE QUANTITY OF THE MI NERALS EXTRACTED BY IT. IN THESE CIRCUMSTANCES, WE FIND MERIT WITH THE CLAIM OF THE ASSESSEE THAT THE IMPUGNED ROYALTY PAYMENT IS REVENUE IN NATURE AND IS FULLY ALLOWABLE AS DEDUCTION. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE IN THIS REGARD. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF DO NATIONS/CONTRIBUTIONS MADE TO VARIOUS SCHOOLS/SOCIAL ORGANISATIONS. BEFORE THE A O, THE ASSESSEE HAD EXPLAINED THAT THESE DONATIONS WERE GIVEN IN ORDER TO EARN GOODWIL L OF THE PUBLIC. THE AO, BY PLACING RELIANCE ON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. MALAYALA MANORMA CO. LTD. VS. CIT, 284 ITR 69, DISA LLOWED THE SAID CLAIM. IN THE ABOVE CITED CASE, THE HONBLE KERALA HIGH COURT HAD HELD THAT THE MERE FACT THAT INDIRECTLY EARNING THE GOODWILL OF THE GENERAL PUBL IC DID NOT MEAN THAT THE EXPENDITURE INCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE BUSINES S PURPOSES.. IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT, THE LD CIT(A) CONFIR MED THE SAID DISALLOWANCE. BEFORE US, THE LD. AR SUBMITTED THAT THE DONATIONS/CONTRIBUTIO NS GIVEN TO VARIOUS SCHOOLS AND SOCIAL ORGANISATIONS IS ALLOWABLE AS THE SAME IS COVERED B Y THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF TRAVANCORE COCHIN CHEMICA LS LTD., 243 ITR 284, WHEREIN IT WAS HELD THAT THE CONTRIBUTION TO SCHOOL IN WHICH T HE CHILDREN OF THE EMPLOYEES WERE STUDYING IS ALLOWABLE U/S 37 OF THE ACT, AS THE SAM E IS SPENT FOR WELFARE OF THE EMPLOYEES. ADMITTEDLY, THE ASSESSEE HAS TAKEN A NEW STAND BEFO RE US TO EXPLAIN THE NATURE OF DONATIONS/CONTRIBUTIONS. HOWEVER, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS TO SUBSTANTIATE IT CLAIM THAT IT HAS PAID DONATIONS/CO NTRIBUTIONS TO VARIOUS LOCAL SCHOOLS IN ITA NO. 307COCH/2009 4 WHICH THE EMPLOYEES CHILDREN WERE STUDYING. HENCE , THE ABOVE SAID NEW CLAIM OF THE ASSESSEE REQUIRES VERIFICATION AT THE END OF THE AO . ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAM E TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ABOVE SAID CLAIM OF THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH NECESSARY DETAILS TO SUPPORT ITS STAND. 8. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF NOTI ONAL INTEREST INCOME OF RS. 40.10 LAKHS ON THE LOANS MADE TO OTHER PUBLIC SECTOR UNDE RTAKINGS. THE ASSESSEE HAD GIVEN LOAN TO OTHER PUBLIC SECTOR UNITS ON THE INSTRUCTION OF THE GOVERNMENT AND IT ALSO DID NOT CHARGE INTEREST ON THE LOAN SO GIVEN AS IT WAS INST RUCTED NOT TO CHARGE INTEREST BY THE ORDER ISSUED BY THE GOVERNMENT OF KERALA. THE TAX AUTHOR ITIES DID NOT ACCEPT THE SAID CLAIM OF THE ASSESSEE, AS THE ORDER FOR NOT CHARGING OF INTE REST HAD BEEN ISSUED BY THE GOVERNMENT SUBSEQUENTLY. IT WAS BROUGHT TO OUR NOTICE THAT AN IDENTICAL ADDITION WAS MADE IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2002- 03 AND THE SAME WAS DELETED BY THE TRIBUNAL VIDE ITS ORDER DATED 31-02-2009 IN I.T.A. NO. 481/COCH/2007. THE SAID ORDER OF THE TRIBUNAL WAS CONFIRMED BY THE HONBLE KERALA HI GH COURT, VIDE IT ORDER DATED 15-10- 2009 IN I.T.A. NO. 8/2008. ACCORDINGLY, BY FOLLOWI NG THE ABOVE SAID ORDER OF KERALA HIGH COURT, WE SET ASIDE THE ORDER OF THE LD. CIT(A ) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION MADE IN THIS REGARD. 9. THE ASSESSEE HAS MOVED A PETITION WITH A PRAYER TO ADMIT THE FOLLOWING ADDITIONAL GROUNDS:- A) WHETHER ON LAW, AND HAVING REGARD TO FACTS AND C IRCUMSTANCES OF THE CASE, THE EXPENDITURE INCURRED BY WAY OF PAYMENTS EFFECT ED DURING THE YEAR FOR THE BUILDINGS THAT EXISTED ON THE LAND ACQUIRED FO R MINING AND DEMOLISHED IMMEDIATELY SUCH ACQUISITION TO PREPARE SUCH LAND ACQUIRED FOR THE PURPOSE OF MINING OPERATIONS, IS ALLOWABLE AS REVENUE EXPE NDITURE INCURRED IN THE COURSE OF MINING OF ESSENTIAL RAW MATERIALS U/S. 3 7(1) OF THE INCOME TAX ACT, 1961? B) WITHOUT PREJUDICE TO THE ABOVE, THE COST INCURR ED FOR PREPARATION OF LAND TO MAKE IT MINABLE, FOR MINING THE ESSENTIAL RAW MAT ERIALS, INCURRED UNDER THE ITA NO. 307COCH/2009 5 AUTHORITY OF A STATUTORY LICENSE VESTED WITH THE A PPELLANT, IF NOT ALLOWABLE AS REVENUE EXPENDITURE, IS TO BE TREATED AS AN INTANG IBLE ASSET ELIGIBLE FOR AMORTIZATION FOR DEPRECIATION BEING COST INCURRED FOR ACQUIRING BUSINESS OR COMMERCIAL RIGHT IN THE NATURE OF LICENSE? THESE GROUNDS WERE NOT RAISED BEFORE THE TAX AUTHOR ITIES AND THEY HAVE BEEN RAISED BEFORE THE TRIBUNAL FOR THE FIRST TIME. IT WAS SUBMITTED THAT THESE ADDITIONAL GROUNDS INVOLVE LEGAL ISSUE AND ACCORDINGLY THE ASSESSEE PRAYED FOR THEIR ADMISSION. WHEN THE TRIBUNAL ASKED THE LD. AR AS TO WHETHER THE FACTS RELATING TO THE ABOVE SAID LEGAL ISSUES ARE AVAILABLE ON RECORD, THE LD. AR FAIRLY ADMITTED THAT THE RELEVAN T FACTS ARE NOT AVAILABLE ON RECORD. HOWEVER, BY PLACING RELIANCE ON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA STATE CO-OPERATIVE MARKETING FEDERATION LTD. (193 ITR 624), THE LD. AR PLEADED FOR THE ADMISSION OF THESE ADDITIONA L GROUNDS. 10. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THESE ADDITIONAL GROUNDS CANNOT BE ADMITTED AS THE RELEVANT FACTS ARE NOT AVAILABLE ON RECORD AND FOR THIS PROPOSITION, SHE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LTD. VS. CIT REPORTED IN 229 ITR 383 AND ALSO ON THE DECISION OF THE MADHYA PRADESH HIGH COURT IN THE CA SE OF CIT VS. TOLLARAM HASSOMAL REPORTED 298 ITR 22. IN THE JUDICIAL HIERARCHY, TH E DECISION OF THE SUPERIOR COURT IS REQUIRED TO BE PREFERRED. ON THE ISSUE WHETHER A N EW CLAIM RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL CAN BE ADMITTED OR NOT, THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LTD. VS. CIT (SUPRA) IS AVAILABLE AS ON TODAY. ACCORDING TO THE SAID DECISION, A NEW CLAIM INVOLVI NG LEGAL ISSUE CAN BE ADMITTED, PROVIDED ALL THE FACTS RELATING THERETO ARE AVAILAB LE ON RECORD. IN THE INSTANT CASE, THOUGH THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE MAY I NVOLVE LEGAL ISSUE, YET THE FACTS RELATING TO THERE TO ARE NOT AVAILABLE ON RECORD. ACCORDINGLY, BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERM AL POWER CORPORATION, SUPRA, WE DECLINE TO ADMIT THE ADDITIONAL GROUNDS RAISED BY T HE ASSESSEE. . ITA NO. 307COCH/2009 6 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. . PRONOUNCED ACCORDINGLY ON 27-04-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 27TH APRIL, 2012 GJ COPY TO: 1. M/S. KERALA MINERALS AND METALS LTD., SANKARAMAN GALAM, CHAVARA, KOLLAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, KOLLAM 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN