Asst C I T Bangalore v. Sri K R Kaviraj Hospet

In The Income Tax Appellate Tribunal C Bench B E Ngal U R U Before Shri Vijay Pal Rao Judicial Member And Shri Inturi Rama Rao Accountant Member Ita No S 362 To 366 Bang 20 16 Assessment Year S 20 08 09 To 2012 13 Asst Commissioner Of Income Tax Circle 1 Bellary Vs Appellant Shri K R Kaviraj Prop M S Lakshmi Minerals Nahar Complex Dam Road Hospet Respondent Pan Algpk 6521 K And Cross Objn Nos 2 To 6 Bang 2017 In Ita No S 362 To 366 Bang 20 16 Assessment Year S 2008 09 To 2012 13 By The Assessee Revenue By Shri Nambirajan Addl Cit Dr Assessee By Shri V K Gurunathan Advocate Date Of Hearing 26 09 2017 Date Of Pronouncement 26 12 2017 O R D E R Per I Nturi Rama Rao Am These Are The Appeals Filed By The Revenue And The Cross Objections By The Assessee Directed Against Different Orders Of The Learned Commissioner Of Income Tax Appeals Gulbarga Cit A Dated 29 12 2015 For The Assessmen T Years 2008 09 To 2012 13 Since Common Issues Are Involved In All These Appeals Cross Objections We Proceed To Dispose Of The Same By This Common Order For The Sake Of Convenience Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 2 Of 9 2 Now We Shall Take Up The Revenue S Appeals The Revenue Raised The Following Grounds Of Appeal For Assessment Year 2008 09 I Dentical Grounds Of Appeal Except Change In Figures Are Raised By The Revenue For Assessment Years 2009 10 To 2012 13 3 For The Sake Of Clarity And Convenience Facts Relevant To Assessm Ent Year 2008 09 Are Stated Herein The Respondent Assessee Is An Individual Engaged In The Business Of Extraction Of Iron Ore And Trading In Iron Ore The Return Of Income For The Assessment Year 2008 09 Was Filed On 30 09 2008 Disclosing Taxable Income Of Rs 3 17 38 490 The Said Return Of Income Was Revised Admitting Additional Income Of Rs 5 84 01 227 On Account Of Material Found During The Course Of Survey Operations Against The Said Return Of Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 3 Of 9 Income The Assessment Was Completed By The Addl C It Bellary Range Bellary Hereinafter Referred To As Ao Vide Order Dated 16 12 2010 Passed U S 143 3 Of The Income Tax Act 1961 Hereinafter Referred To As The Act For Short At Total Income Of Rs 10 35 26 771 After Making Several Additions On E Of The Additions Relates To An Amount Of Rs 23 62 578 Debited To P L Account I T Was Stated That It Represents Proportionate Lease Amount Paid For Acquiring Mining Rights The Explanations Furnished By The Respondent Assessee As Well As The Finding Of The Ao Is Stated By The Ao Vide Para 12 Of The Assessment Order Which Is As Under Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 4 Of 9 4 From The Above It Is Clear That This Amount Represents The Amount Of Amortization Of Lease Premium Paid For Acquiring Mining Rights It Also Contains Compe Nsatory Afforestation Which Is Inextricably Connected With The Mining Rights The Ao Treated This As A Capital Expenditure 5 Being Aggrieved By The Above Addition An Appeal Was Preferred Before The Cit A Who Vide Impugned Order Following The Decision Of The Hon Ble Karnataka High Court In Ita No 5021 2009 Dated 06 01 2012 In The Case Of Acit Vs M S Ramgad Minerals Mini N Gs Pvt Ltd Held That The Same Is Revenue In Nature However T He Cit A Upheld The Addition On Account Of Advance Payment Of Lease Rental Debited To P L Account Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 5 Of 9 6 Being Aggrieved Revenue Is In Appeal The Assessee Is In Cross Objections Contesting The Finding Of The Cit A Upholding The Addition On Account Of Advance Lease Rental Debited To P L Account 7 The Ld Cit Dr S Ubmitted That Lease Premium Paid Is Capital And Therefore The Same Cannot Be Allowed As A Deduction He Also Placed Reliance On The Decision Of Hon Ble Supreme Court In The Case Of R B Seth Molchand Suganchand Vs Cit 86 Itr 647 Sc On The Other Hand Learned Counsel For The Respondent Assessee Submitted That This Issue Is Covered By The Decision Of The Co Ordinate Bench Of Tribunal In The Case Of P Abubakar Vs Dcit In Ita No 725 Bang 2009 Dated 22 01 2010 And The Decision Of The Honble Jurisdiction Al High Court In The Case Of M S Ramgad Minerals Minings Pvt Ltd Supra 8 We Heard Rival Submissions And Perused The Material On Record The Issue In The Present Appeal Is Whether Consideration Paid For Acquiring Mining Rights Is Capital Or Revenue Expenditure It Is Undisputed Fact That The Respondent Assessee Made Lump Sum Payment For The Purpose Of Acquiring Mining Rights From The Government Of Karnataka This Payment Was Made For Acquiring Right To Excavate The Minerals And Not For Acquiring M Inerals The Issue Before Their Lordships Of Hon Ble Supreme Court In The Case Of Pingle Industries Vs Cit 1966 40 Itr 67 Sc Was Whether Consideration Paid For Acquiring Right To Extract Stones By Taking On Lease For A Period Of 12 Years Lands From J Agirdar Can Be Allowed As Revenue Expenditure Their Lordships By A Majority Judgment Held That The Assessee Had Acquired By His Long Term Lease Right To Win Stones The Stones In Situ Were Not Stock In Trade And Therefore Neither The Rent Nor The Roya Lty Which Was Paid Was Allowable As Revenue Deduction As By Making These Payments The Assessee Had Acquired A Capital Asset Of Enduring Benefit This Decision Was Subsequently Followed By The Hon Ble Apex Court In The Case Of R B Seth Molchand Suganchand Vs Cit 86 Itr 647 Sc Wherein It Was Held That The Amount Paid For Obtaining Mining Lease For 20 Years Was Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 6 Of 9 Held To Be A Capital Expenditure The Hon Ble Supreme Court In The Case Of Gotan Lime Syndicate Vs Cit 1966 59 Itr 718 Sc Held That Rent Pa Id For Lime Excavation Was Held To Be Revenue Expenditure Subsequently The Hon Ble Apex Court Held In The Case Of Aditya Minerals Pvt Ltd Vs Cit 236 Itr 39 Sc Perceived Difference Of Opinion Between Co Ordinate Benches Of The Hon Ble Supreme Court In Pingle Industries Supra And Gotan Lime Syndicate Supra And Therefore Referr Ed The Matter To A Larger Bench This Controversy Was Resolved By Bench Consisting Of 5 Judges In Aditya Minerals Pvt Ltd Vs Cit 239 Itr 817 Wherein It Was Held That There Was No Conflict Of Decisions Of Hon B Le Apex Court In Pingle Industries Supra And Gotan Lime Syndicate Supra As There Was Material Difference Between Facts Of The Case Of Pingle Industries Supra And The Facts Of The Case In Gotan Lime Syndica Te Supra As Facts Of The Case In Gotan Lime Syndicate Supra Annual Payment Of Royalty Or Dead Rent Whereas In The Case Of Pingle Industries Supra It Was A Case Of Lump Sum Payment For Acquiring Mining Rights In These Circumstances It Was Held Th At There Was Material Difference However The Hon Ble Apex Court Had Proceeded To Hold That Lease Rent Paid For Acquiring Mining Rights Is Capital In Nature And Cannot Be Allowed As A Deduction The Relevant Paragraph Is As Under 4 We Find That Th Ere Is A Material Difference In The Facts Of The Case Of Pingle Industries Ltd Supra And The Effects Of The Case Of Gotan Lime Syndicate Supra As The Judgment In Gotan Lime Syndicates Case Supra Relied Upon By The Assessee Clearly Shows In That Case There Is No Payment Once For All It Is An 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 It S 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 Supra Was D Istinguishable 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 Syndicates Case Supra Took The View That The Royalty Payment Therein Was Not A Direc T 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 Syndicates Case Supra That What It Got Was A Right To Get Lime For Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 7 Of 9 Manufacturing And The P Ayment Had A Direct Relation To The Amount Of Lime That Was Removed 5 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 A Guarantee For The Performance Of This Lease Deed For Fift Een 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 Supra And Accordingly The Civil A Ppeals Must Fail And Are Dismissed In The Light Of The Judgment Of The Hon Ble Supreme Court In The Case Of Aditya Minerals Pvt Ltd 239 Itr 817 The Impugned Payment Made For Acquiring Mining Rights Is Capital Expenditure And Cannot Be Allowed As Rev Enue Expenditure The Reliance Placed By The Ld Cit A On The Co Ordinate Bench Decision Of Tribunal In The Case Of P Abubakar Supra And The Decision Of The Hon Ble Jurisdictional High Court In The Case M S Ramgad Minerals Minings Pvt Ltd Supra Is Misplaced In The Light Of The Decision Of The Larger Bench Decision Of The Hon Ble Supreme Court In The Case Of Aditya Minerals Pvt Ltd Supra 9 Then An Issue May Arise As To Whether This Expenditure Can Be Allowed On A Staggering Basis Spread Over Lease Period As Revenue Expenditure In The Light Of The Decision Of The Hon Ble Supreme Court In The Case Of Madras Industrial Corporation 225 Itr 802 Needless To Mention That If The Payment Is Capital In Nature Expenditure Cannot Be Allowed On Stagger Ed Basis Even For The Purpose Of Spreading Over Period Of Lease It Is Essential That The Expenditure Should Be In The Nature Of Revenue Expenditure Th Us Grounds Of Appeal Of The Revenue Are Allowed 10 Identical Issue Is Raised By The Revenue In Th E Grounds Of Appeal In Ita Nos 363 To 366 Bang 2016 Since Identical Issue Is Decided By Us In Favour Of Revenue In Ita No 362 Bang 2016 For Parity Of Reasons Stated Therein The Grounds Of Appeal Raised By The Revenue For Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 8 Of 9 Assessment Years 2009 10 To 2012 13 In Ita No 363 To 366 Bang 2016 Are Allowed 11 In The Result All The Appeals Filed By The Revenue Are Allowed 12 In Co Nos 2 To 6 Bang 2017 Grounds Of Cross Objections Are Filed By The Assessee Company Challenging The Finding Of The Ld Cit A Con Firming The Addition Of Advance Lease Rental Debited To P L Account These Grounds Of Cross Objections Are Not Pressed And Hence Dismissed As Not Pressed 13 However In C O No 6 Bang 2016 For Assessment Year 2012 13 Another Ground Of Cross Objection W A S Raised Challenging The Disallowance Of Rs 55 42 369 The Facts Leading To The Disallowance Are As Under It Was Stated That The Assessee Took A Keyman Policy From Birla Sun Life Insurance And The Premium Paid Was Shown As Advance In The Year It Was P Aid However Since The Policy Lapsed On Account Of Non Payment Of Premium In Subsequent Year The Same Was Claimed As Deduction During The Year Under Consideration The Assessee Claimed It To Be Revenue Expenditure Placing Reliance On The Decision Of Th E Hon Ble Delhi High Court In The Case Of Cit Vs B N Exports 323 Itr 178 The Ld Cit A Also Confirmed The Addition As It Was Shown As An Asset In The Books Of Account 14 Being Aggrieved The Assessee Is Before Us In The Cross Objection 15 We Hea Rd Rival Submissions And Perused The Material On Record Premium Paid For Keyman Insurance Is Held To Be Allowable By The Decision Of The Hon Ble Delhi High Court In The Case Of B N Exports Supra And Also By The Cbdt Circular No 726 Dated 18 2 1998 But The Same Is Allowable Only In The Year In Which Premium Was Paid In The Present Case Admittedly Premium Was Paid In The Earlier Years And The Question Of Allowing It As Deduction In The Subsequent Year Does Not Arise As The Liability Of The Expenditur E Had Not Crystallized During The Ita No S 362 To 366 2016 Co No 2 To 6 Bang 201 7 Page 9 Of 9 Year Under Consideration The Refore Grounds Of Cross Objections Of The Assessee Are Di S Missed 16 In The Result All The Cross Objection S Filed By The Assessee Are Dismissed Order Pronounced In The Open Court On 26 Th Decem Ber 201 7 Sd Sd Vijay Pal Rao Inturi Rama Rao Judicial Member Accountant Member Pla Ce B En Gal Uru D Ate 26 1 2 2017 Srinivasulu Sps Copy To 1 Appellant 2 Respondent 3 Cit A 4 Cit 5 Dr Itat Bangalore 6 Guard File By Order Senior Private Secretary Income Tax Appellate Tribunal Bangalore