COMMISSIONER OF INCOME-TAX VS PANYAM CEMENTS AND MINERAL INDUSTRIES LTD.
1999 P T D 2830
[228 I T R 212]
[Andhra Pradesh High Court (India)]
Before M.N. Rao and T. N. C. Rangarajan, JJ
COMMISSIONER OF INCOME-TAX
Versus
PANYAM CEMENTS AND MINERAL INDUSTRIES LTD.
Case Referred No.43 of 1988, decided on 25/09/1996.
Income-tax---
----Capital or revenue expenditure---Expenditure incurred towards stamp duty for securing renewal of mining lease with Government---Original lease deed conferring a right on assessee to seek renewal---Expenditure incurred was necessary in course of carrying on business of assessee of manufacture of cement and calcium carbide---By exercising right of obtaining renewal of lease no new capital asset acquired---Expenditure is revenue expenditure-- Indian Income Tax Act, 1961, S.37(1)---Circular No.22 (R-Disc. No.27(53) I.T./43), dated 23-6-1943.
An expenditure of Rs.1,37,050 was incurred by the assessee during the assessment year 1978-79 on stamp duty for securing renewal of the mining lease with the Government. The assessee claimed deduction of the same as revenue expenditure. The Income-tax Officer took the view that the expenditure was in the nature of premium for obtaining the lease and hence, it was capital expenditure. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal held that the expenditure incurred was necessary in the course of carrying on the business of manufacturing cement and calcium carbide and that the expenditure was normal business expenditure and that the assessee had not acquired any capital asset. On a reference:
Held, affirming the decision of the Tribunal, that the Tribunal had found that the original lease deed conferred a right on the assessee to seek renewal of the lease. When that right was exercised by the assessee by obtaining renewal of the lease, any expenditure incurred by way of stamp duty could not be treated as acquisition of a new asset. Therefore, the Tribunal was right in holding that the expenditure incurred towards stamp duty for securing renewal of the mining lease with the Government was revenue expenditure.
Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT (1965) 56 ITR 52 (SC) applied.
J. V. Prasad for the Commissioner.
C. Kodandaram for the Assessee.
JUDGMENT
M.N. RAO, J.---At the instance of the Revenue, this Court has called for a statement of case on the following question under section 256(2) of the Income Tax Act, 1961, from the Income-tax Tribunal:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in treating the expenditure of Rs.1,37,050 incurred towards stamp duty for renewal of mining lease with the Government is allowable as revenue expenditure?"
An expenditure of Rs.1,37,050 was incurred by the assessee during the assessment year 1978-79 on stamp duty for securing renewal of the mining lease with the Government in an area of about 2,600 acres in Panyam village of Nandyal Taluk. The Income-tax Officer was of the view that it was in the nature of premium for obtaining the lease and treating it as a capital expenditure subjected the same to tax. The first appellate authority agreeing with that view dismissed the appeal. In the second appeal, the Tribunal held it to be revenue expenditure and, therefore, allowed it as a deduction under section 37. The Tribunal was of the view that the expenditure incurred was necessary in the course of carrying on the business of manufacturing cement and calcium carbide and that the expenditure was normal business expenditure and that the assessee had not acquired any capital asset.
Mr. J.V. Prasad, learned counsel for the Revenue, contends that because of the acquisition of the mining lease, the assessee is able to carry on the business and, therefore, it amounted to acquisition of a new asset and accordingly the stamp duty involved must be treated as capital expenditure.
We are not inclined to agree. As a fact it was found by the Tribunal that the original lease deed conferred a right on the assessee to seek renewal. When that right was exercised by the assessee by obtaining renewal, any expenditure incurred by way of stamp duty cannot be treated as acquisition of a new asset. The test laid down by the Supreme Court in Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT (1965) 56 ITR 52, 60:
"The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure,"
fully applies to the case on hand. Further a circular, dated June 23, 1943, in No.22 (R.Disc. No.27(53)-I.T./43), is also brought to our notice by learned counsel for the assessee Mr. Kodandaram. The circular reads as follows:
"Legal expenses incurred in connection with the renewal of lease should be allowed as an admissible deduction for purposes of income-tax provided that the renewal of the lease is for a period of less than fifty years."
Evidently because of the aforesaid circular all these years the Assessing Officers were not disallowing similar expenditure. Perhaps as the amount was large in this case, it was disallowed. For these reasons, we answer the question in the affirmative, in favour of the assessee and against the Revenue. No costs.
M.B.A./3037/FCReference answered.