SALGAONKAR MINING INDUSTRIES VS COMMISSIONER OF INCOME-TAX
1999 P T D 2624
[228 I T R 183)
[Bombay High Court (India)]
Before Dr. B. P. Saraf and Dr. Mrs. P.D. Upasani, JJ
SALGAONKAR MINING INDUSTRIES
Versus
COMMISSIONER OF INCOME-TAX
Income-tax Reference No. 113 of 1988, decided on 26/03/1997.
Income-tax---
----Capital or revenue expenditure---Mines and quarries ---Assessee carrying on business of screening and selling iron ore ---Assessee entering into agreement for acquiring mining lease ---Assessee not operating- mines in relevant accounting year---Liquidated damages paid to owners of mines-- Capital expenditure---Indian Income Tax Act, 1961, S.37.
The assessee was engaged in the business of screening iron ore, sale of iron ore, making provision for truck transport and barge transport. On July 14, k975, the assessee entered into an agreement with B who was the owner of a mining concession of iron ore, for raising iron ore from the said mine. On December 14, 1975, the assessee entered into another agreement with Z who was also the owner of a mining concession of iron ore, for extraction of iron ore from the above mine. The assessee did not operate the said two mines in the previous year relevant to the assessment year 1977-78 as also in the previous year relevant to the assessment year 1978-79. The previous year of the assessee for the assessment year 1978-79 was the year which ended on June 30, 1977. In its assessment for the assessment year 1978-79, the assessee claimed deduction of a sum of Rs.1,50,500 out of which a sum of Rs.42,000 pertained to liquidated damages paid to Z and Rs.50,000 paid to B for non-operation of the mines. The Income-tax Officer rejected the claim of the assessee for deduction on the ground that the payments were of capital nature. The above finding of the Income-tax Officer was confirmed by the Commissioner of Income-tax (Appeals) and by the Tribunal. On a reference:
Held, that there was no dispute about the fact that the assessee, after entering into the agreements with the two parties for lease of the mines, did not operate the mines. The amount of Rs.92,000 was payable by the assessee by way of liquidated damages for acquisition of mining leases which it did not operate. Obviously, the expenditure was referable to acquisition of the mining lease and not operation of the same. Moreover, the business of the assessee was also not of mining. The expenditure of Rs.92,000 incurred by the assessee was clearly referable to the acquisition of mining leases which the assessee did not operate at all. That being so, it was capital expenditure.
F. B. Andhyarujina for the Assessee.
Dr. V. Balasubramanian with J. P. Deodhar for the Commissioner.
JUDGMENT
DR. B. P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion at the instance of the assessee:
"Whether, on the facts and in the circumstances of the case the Tribunal was right in law in holding that the payments made by the assessee-company to Zacaria Antao and Babul Naik Tari under the agreements, dated December 13, 1975, and July 14, 1975, were expenditure of a capital nature?"
The reference pertains to the assessment year 1978-79. The assessee was engaged in the business of screening iron ore, sale of iron ore, making provision for truck transport and barge transport. On July 14, 1975, the assessee entered into an agreement with one Mr. Babul Naik Tari, who was the owner of a mining concession of iron ore, viz., "Chormola", for raising iron ore from the said mine. On December 14, 1975, the assessee entered into another agreement with one Mr. Zacaria Antao, who was also the owner of a mining concession of iron ore, viz., "Irnqui for extraction of iron ore from the above mine. The assessee did not operate the said two mines in the previous year relevant to the assessment year 1977-78 as also in the previous year relevant to the assessment year 1978-79. The previous year of the assessee for the assessment year 1978-79 was the year which ended on June 30, 1977. In its assessment for the assessment year 1978-79, the assessee claimed deduction of a sum of Rsi1,50,500, out of which a sum of Rs.42,000 pertained to liquidated damages paid to Mr,. Zacaria Antao and Rs.50,000 paid to Mr. Babul Naik Tari for rlon-operation of the mines in the previous year relevant to the assess Trent year 1978-79, a sum of Rs.21,000 and Rs.37,500 being a provision .for the period from January 1,976, to June 30, 1976, and October 1, 1975 to June 30, .1976, respectively, towards the dead rent or liquidated damages payable to .the above two persons. The claim for deduction of Rs.21,000 and Rs.37,500 was rejected by the Income tax Officer on the ground that the said provision was not relatable to the previous year relevant to the assessment year under consideration. So far as the claim of Rs.92,000, which pertained to the previous year relevant to the assessment year which is the subject-matter of this reference is concerned, the Income-tax Officer rejected the claim of the assessee for deduction on the ground that the payment was a payment of capital nature. The Income-tax Officer completed the assessment under the directions of the Inspecting Assistant Commissioner under section 144B of the Act. The above finding of the Income-tax Officer was confirmed by the Commissioner of Income-tax (Appeals) and by the Income-tax Appellate Tribunal. Aggrieved by the same, the assessee is in reference before us.
We have heard Mr. Andhyarujina, learned counsel for the assessee. There is no dispute about the fact that the assessee, after entering into the agreements with the two parties for lease of the mines, did not operate the mines. The amount of Rs.92,000 was payable by the assessee by way of liquidated damages for acquisition of the mining lease which he did not operate. Obviously, the expenditure is referable to acquisition of the mining lease and- not operation of the same. Moreover, the business of the assessee was also not of mining. In such a situation, we do not find any reason to accept the contention of learned counsel for the assessee that the above expenditure. should be regarded as revenue expenditure. In fact, the expenditure of Rs.92,000 incurred by the assessee in the instant case is clearly referable to the acquisition of mining leases which the assessee did not operate at all. That being so, it is capital expenditure. The Tribunal, in our opinion, was justified in holding so.
In view of the above, we answer the question referred to us in the affirmative and in favour of the Revenue.
This reference is disposed of accordingly. There shall be no order as to costs,
M.B.A./3032/FCReference answered.