ADITYA MINERALS (PVT.) LTD. VS COMMISSIONER OF INCOME-TAX
2001 P T D 2778
[239 I T R 817]
[Supreme Court of India]
Present: S. P. Bharucha, B. N. Kirpal, V. N. Khare,
S.S.M. Quadri and D. P. Mohapatra, JJ
ADITYA MINERALS (PVT.) LTD.
versus
COMMISSIONER OF INCOME‑TAX
C. As. Nos.4858 and 4859 of 1989, decided on 07/09/1999.
(Appeal by special leave from the judgment and order, dated December 4, 1984 of the Andhra Pradesh High Court in C. Rs. Nos. 382 and 75 of 1980).
Income‑tax‑‑‑
‑‑Capital or revenue expenditure‑‑‑Lease allowing use of land for excavation‑‑‑Entire rent deposited in advance and adjusted annually‑‑ Amount adjusted annually was not deductible‑‑‑Indian Income Tax Act, 1961, S.37.
There is a material difference between the facts of the case of Pingle Industries Ltd. v. CIT (1960) 40 ITR 67 (SC) and the facts of the case of Gotan. Lime Syndicate v. CIT (1966) 59 ITR 718 (SC). As the judgment in Gotan Lime Syndicate v. CIT (1966) 59 ITR 718 (SC), clearly shows, in that case "there is no payment once for all; it is a yearly payment of dead rent and royalty. It is true that if a capital sum is arrived at and payment .is made every year 'by chalking out the capital amount in various instalments, the payment does not lose its character as a capital payment if the sum determined was capital in nature. But it is an important fact in this case that it is a case of annual payment of royalty or dead rent. The judgment adds that the case of Pingle Industries Ltd. v. CIT (1960) 40 ITR 67 (SC) was "distinguishable because, on the facts, it was a lump sum payment in instalments for acquiring a capital asset of enduring benefit to his trade". The Court in Gotan Lime Syndicate v. CIT_(1966) 59 ITR 718 (SC) took the view that the royalty payment therein was "not a direct payment for securing an enduring advantage; it has relation to the raw material to be obtained". The Court thus, accepted the argument on behalf of the assessee in Gotan Lime Syndicate v. CIT (1966) 59 ITR 718 (SC) that what it got was a. right to get lime for manufacturing and the payment had a direct relation to the amount of lime that was removed.
The assessee had obtained a lease deed. Under the terms of the lease agreement, the lessee had to deposit with the lessor by way of the guarantee for due performance of this lease deed for fifteen years, the amount equal to the rent of lease of land for the full period of lease which would be adjustable against rent of every month. This entire guarantee deposit would not carry any interest payable to the lessee by the lessor. The lease deed granted to the assessee the liberty "to use the land for excavation purposes and subsidiary purpose". The assessee claimed the rent amounts worked out and Rs.10,752 per annum as revenue expenditure. The claim of the assessee in this behalf was turned down by the authorities, the Income‑tax Appellate Tribunal and finally by the High Court. On appeal:
Held, dismissing the appeal, that in the instant case as indicated by the lease deed, what was to be paid by the assessee was rent for the land that was leased. It was payable at the rate of Rs.35 per acre per month. The assessee was required to pay in advance the rent calculated at this rate for the entire period of the lease, i.e., fifteen years, in the form of a "deposit". The deposit was "by way of the guarantee for due performance of this lease deed for fifteen years", that is, towards fifteen years' rent. It was adjustable against the rent of each month and it carried no interest. On the facts and circumstances of the case, the sum of Rs.10,752 paid by the assessee in the accounting year was not expenditure allowable as a deduction in computing the business profits of the assessee‑company.
Aditya Minerals (Pvt.) Ltd. v. CIT (1987) 167 ITR 774 (AP) affirmed.
Pingle Industries Ltd. v. CIT (1960) 40 ITR 67 (SC) fol.
Aditya Minerals (Pvt.) Ltd. v. CIT (1999) 236 ITR 39 (SC) and Gotan Lime Syndicate v. CIT (1966) 59 ITR 718 (SC) ref.
Sanjay Kunur and R. N. Keshwani, Advocates for Appellant.
M. L. Verma, Senior Advocate (Ranbir Chandra, S. K. Dwivedi and S. Wasim A. Qadri, Advocates with him) for Respondent.
JUDGMENT
S. P. BHARUCHA, J.‑‑‑These appeals have been referred to a Constitution Bench (see (1999) 236 ITR 39), to resolve the apparent conflict between the judgments of two Benches of this Court, of three learned Judges each, in Pingle Industries Ltd. v. CIT (1960) 40 ITR 67 (SC) and Gotan Lime Syndicate v. CIT (1966) 59 ITR 718 (SC).
The Common question to be considered reads thus (see (1987) 167 ITR 774, 776):
"Whether, on the facts and in the circumstances of the case, the sum of Rs.10,752 paid by the assessee in the accounting year was not expenditure allowable as a deduction in computing the business profit of the assessee‑company?"
The appellant‑assessee obtained a lease, dated March 8, 1972, from Aditya Minerals (Private) Limited (?). It was a term of the lease deed that "the lessor will grant lease of the land more particularly described in Schedule "A" attached to this lease deed and forming part of the same, for a period of Fifteen Years from first December, One thousand nine hundred and seventy one at a monthly rent of Rs.35 (rupees thirty five) only per acre." Clause 2 of the lease deed stated "that the lessee shall deposit with the lessor by way of the guarantee for due performance of this lease deed for fifteen years, the amount equal to the rent of lease of land for the full period of lease which will be adjustable against rent of every month. This entire guarantee deposit shall not carry any interest payable to the lessee by the lessor." The lease deed granted to the assessee the liberty "to use the land for excavation purposes and subsidiary purposes".
For the assessment years in question, the assessee claimed the rent amounts worked out at Rs.10,752 per annum as revenue expenditure. The claim of the assessee in this behalf was turned down by the authorities, the Income‑tax Appellate Tribunal and, finally, by the High Court of Andhra Pradesh, against whose judgment the assessee is in appeal.
We find that there is a material difference in the facts of the case of Pingle Industries Ltd.'s case (1960) 40 ITR 67 (SC) and the facts of the case of Gotan Lime Syndicate s case (1966) 59 ITR 718 (SC). As the judgment in Gotan Lime Syndicate's case (1966) 59 ITR 718 (SC), relied upon by the assessee, clearly shows, in that case (page 725) "there is no payment once for all; it is a yearly payment of dead rent and royalty. It is true that if a capital sum is arrived at and payment is made every year by chalking out the capital amount in various instalments, the payment does not lose its character as a capital payment if the sum determined was capital in nature. But it is an important fact in this case that it is a case of an annual payment of royalty or dead rent". The judgment adds that the case of Pingle Industries Ltd. (1960) 40 ITR 67 (SC) was (page 727) "distinguishable because, on the facts, it was a lump sum payment in instalments for acquiring a capital asset of enduring benefit to his trade". The Court in Gotan Lime Syndicate's case (1966) 59 ITR 718 (SC) took the view that the royalty payment therein was "not a direct payment for securing an enduring advantage; it has relation to the raw material to be obtained." The Court thus, accepted the argument on behalf of Gotan Lime Syndicate's case (1966) 59 ITR 718 (SC), that what it got was a right to get lime for manufacturing and the payment had a direct relation to the amount of lime that was. removed.
In the case before us, as indicated by the lease deed, what was to be paid by the assessee was rent for the land that was leased. It was payable at the rate of Rs.35 per acre per month. The assessee was required to pay in, advance the rent calculated at this rate for the entire period of the lease, i.e., fifteen years, in the form of a "deposit". The deposit was "by way of the guarantee for due performance of this lease deed for fifteen years", that is, towards fifteen years' rent. It was adjustable against the rent of each month and it carried no interest.
On the facts, as it appears to us, this case is on a par with Pingle Industries Ltd.'s case (1960) 40 ITR 67 (SC) and, accordingly, the civil appeals must fail and are dismissed.
No order as to costs.
M.B.A./265/FCAppeal dismissed.