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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B R BASKARAN
Per N.V. Vasudevan, Vice President This appeal by the revenue is against the order dated 30.6.2016 of the Commissioner of Income Tax (Appeals), Mysore relating to assessment year 2010-11. The grounds of appeal raised by the revenue reads as follows:-
“1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. Whether on the facts and circumstances of the case, the CIT(A) was justified in law in allowing the claim as revenue expenditure in respect of Dead Rent paid in respect of mines
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which are not operational and no manufacturing activity is carried on"? (For A.Y. 2009¬10, A.Y. 2010-11 & A.Y. 2011-12) 3. Whether on the facts and circumstances of the case, the CIT(A) was justified in law in allowing the claim of the assessee for payment towards "Environment Protection Fees", as revenue expenditure, though the expenditure resulted in enduring benefit and the same had to be capitalized"?(For A. Y 2010-11) 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.” 2. There is a delay of 1 day in filing this appeal which was explained due to administrative reasons. The delay is condoned accepting the reasons given in the affidavit for condonation of delay.
As far as ground No.2 raised by the revenue is concerned, the facts are that assessee is a company engaged the business of gold mining and extraction. In the return of income filed for AY 2010-11, the assessee in arriving at the profits of business, claimed a deduction of a sum of Rs.15,64,745 as dead rent on different leases which were part of the head of expenditure ‘rates & taxes’ in the profit and loss account. Before the AO, the assessee submitted that the aforesaid payment was paid as per the Mines, Minerals Concession Rates, 1994 as dead rent. The AO, however, took the view that since the mines in respect of which the aforesaid payment was made was operational, the amount cannot be allowed as a deduction.
On appeal by the assessee, the Commissioner of Income Tax (Appeals) allowed the claim of assessee by following the CBDT Circular No.1D(V.53) of 1966, wherein it was laid down that dead rent is allowed as
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deduction irrespective of the fact whether the mines are operational or not. Aggrieved, the revenue has raised ground No.2 before the Tribunal.
The ld. DR relied on the order of AO. The ld. counsel for the assessee apart from relying on the decision of the CIT (Appeals) also placed reliance on the decision of the Hon’ble Andhra Pradesh High Court in the case of Singareni Collieries Co. Ltd. V. CIT, 66 ITR 553 (AP) wherein it was held that the dead rent payable was revenue expenditure. The ld. counsel for the assessee also relied on the decision of the Hon’ble High Court of Karnataka in the case of CIT v. Lawrence D’Souza [2011] 203 Taxman 200 [Karn] wherein the Hon’ble High Court took the view that rent paid even if the business was stopped cannot be disallowed.
We have considered the rival submissions. For the sake of ready reference, we give below the extract of the CBDT Circular which is self explanatory:
“BOARD'S CIRCULAR NO. 1-D(V-53) DT. 20TH JANUARY, 1966 Dead rent and royalty paid mining lease—Allowance of— Revised instructions regarding 20/01/1966 BUSINESS EXPENDITURE SECTION 37(1), By Circular No. 16D of 1965, dt. 21st June, 1965, instructions were issued that in view of the decision of the Rajasthan High Court in the case of Gotan Lime Syndicate (1947) 15 ITR 533 (Raj) : TC 17R.203 the payment of dead rent or royalty in respect of a lease under the Mineral Concession Rules, 1960, should be regarded as expenditure of a capital nature and should not be allowed as a deduction in computing the taxable income. The above decision of the High Court has recently been reversed by
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the Supreme Court. A gist of the above decision has appeared in short notes of current cases in (1965) 58 ITR 29 (SC) of short notes [since reported at (1966) 59 ITR 718 (SC) : TC 17R.197]. The Supreme Court has held that the royalty payment including the dead rent had relation only to the lime deposits collected by the lessee and would, therefore, be revenue expenditure. According to the Supreme Court, the royalty paid in that case was not a direct payment for securing an enduring advantage; it had relation to the raw material to be obtained. The mere fact that there is no lump sum payment, would not itself, lead to the conclusion that yearly payments made under the mining lease have relation to the acquisition of an enduring advantage. The Supreme Court has also distinguished the case of Gotan Lime Syndicate from the case of Pingle Industries Ltd. vs. CIT (1960) 40 ITR 67 (SC) : TC 16R.935 and Abdul Kayoom vs. CIT 44 ITR 69 (SC) : TC 16R.1006. 2. In the light of the above decision, the instructions issued in the Board's Circular referred to above may now be treated as withdrawn. Under the Mineral Concession Rules, 1960, royalty is payable in respect of any mineral removed by the lessee from the leased area. The amount of royalty cannot be less than the amount of dead rent which is in the nature of minimum royalty. In view of this, the royalty and dead rent paid under the Mineral Concession Rules, 1960, will have to be allowed as revenue deduction for the purpose of computation income under the IT Act. Similarly where the royalty has relation to the quantity extracted the royalty and the dead rent may be allowed as revenue deduction. The Court has observed that each case must depend on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. In view of this, ITOs should examine the mining lease deed and see whether the case is covered by the above decision of the Supreme Court.” In view of the above CBDT Circular relied on by the Commissioner of Income Tax (Appeals), there is no merit in ground No.2 raised by the revenue and accordingly the same is dismissed.
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The facts relating to ground No.3 are that the assessee paid a sum of Rs.11,80,76,208 to the Govt. of Karnataka towards Environmental Protection Fees levied on the mining leases. The assessee claimed the amount as a deduction in computing income from business. The assessee submitted the fee in question was levied by the Govt. @ Rs.84,000 / hectare from companies engaged in quarrying activities on revenue and patta lands. The assessee also submitted that the payment was a one- time fee levied on all mines and quarries. The AO took the view that the payment of Environment Protection Fee would result in enduring benefit to the assessee and he therefore allowed 1/10th of the expenditure claimed by the assessee resulting in an addition of Rs.10,62,68,588 to the total income of assessee by way of disallowance of Environmental Protection Fees. In other words, the AO considered that the assessee would get the benefit of the fee paid for 10 years and allowed 1/10th of the expenditure claimed as deduction by the assessee.
On appeal by the assessee, the CIT(Appeals) held that the expenditure in question was revenue expenditure and had to be allowed in full. Aggrieved by the order of CIT(Appeals), the revenue has raised ground No.3 before the Tribunal.
The ld. DR submitted that the payment of Environmental Protection Fees is akin to lease deposit and relied on the decision of ITAT Bangalore Bench in the case of ACIT v. K R Kaviraj, ITA No.362 to 366/Bang/2016, order dated 26.12.2017. He also pointed out that the assessee in his submissions has also made a claim for deduction of 1/5th of total expenditure u/s. 35D of the Act and therefore the assessee accepts that the payment in question would give an enduring benefit.
The ld. counsel for the assessee relied on the order of CIT(Appeals) and submitted that the decision rendered by the ITAT Bangalore Bench in
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the case of K R Kaviraj (supra) is with regard to lump sum consideration paid for acquiring mining rights and therefore of no relevance to the issue sought to be agitated by the revenue in ground No.3.
We have given a careful consideration to the rival submissions. We are of the view that Environmental Protection Fees cannot be equated to consideration paid for acquiring mining rights and therefore the decision of ITAT Bangalore in the case of K R Kaviraj (supra) is not applicable to the facts of the present case. We are of the view that the sum paid was a compensation paid by the assessee for damage to the environment and it cannot be said that it gives an enduring benefit to the assessee. We therefore agree with the conclusion of the CIT(Appeals) that expenditure in question is a capital expenditure. Accordingly we find no merit in ground No.3 and the same is dismissed.
In the result, the appeal by the revenue is dismissed.
Pronounced in the open court on this 31st day of August, 2020.
Sd/- Sd/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT Bangalore, Dated, the 31st August, 2020. /Desai S Murthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.