Case Law Details
PCIT Vs Rungta Mines Ltd (Calcutta High Court)
The legal issue that the Revenue seeks to assert is as to whether the payment of the net present value by an assessee engaged in mining for use of forest land for mining purpose would be a capital expenditure or a revenue expenditure.
It is not in dispute that pursuant to a lease for mining manganese ore in village Konthar-Koira in the district of Sundergarh, Odisha, the assessee has been carrying on mining business in the area. Pursuant to a Supreme Court order in a matter pertaining to forest lands, it was made mandatory for all persons engaged in mining on forest land to pay the fee. The Supreme Court itself has described it to be a one-time fee. It is the treatment of such fee which is the subject of the present discussion.
The Assessing Officer reasoned that since it was a one-time payment for the assessee to continue its business operations or undertake mining operations in the relevant area for the first time, it had to be regarded as a capital expenditure and could not be deducted from the income as a revenue expenditure. In the assessee’s appeal before the Commissioner (Appeals), the Commissioner observed that the assessee did not get any fresh right to mining by making the payment of the NPV in terms of the Supreme Court order; it was only that if the payment had not been made, the assessee would have been liable to be hauled up for contempt or have its mining operations stopped.
Both the Commissioner (Appeals) and the Appellate Tribunal have referred to a judgment reported at 107 ITR 39 (Bikaner Gypsums Ltd. v CIT), where a similar question arose. A licence in respect of a certain area had been granted in favour of the assessee in that case for undertaking mining operations. The railways purported to set up railway tracks and even a station on the land without reference to the assessee and unmindful of the assessee’s underground rights in respect thereof. The dispute between the assessee and the railways was resolved upon the relevant stakeholders including the assessee, the railways and the State government agreeing to share the additional expenses for removing the railway station and tracks to allow the area to be mined by the assessee. The payment made by the assessee in that case fell for the consideration of the Supreme Court. The Supreme Court observed that since the assessee was entitled to carry on mining operations and such payment had been made for the removal of the difficulty in the assessee carrying on its business in accordance with its licence, the expenditure had to be regarded as a revenue expenditure and could not be treated as a capital expense.
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