Principal Commissioner Of Income Tax – Central-1, Kolkata v. M/S. Feegrade & Company Pvt. Ltd

OD-23 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE IA No.GA 2 OF 2018(OLD NO: GA/399/2018)In ITAT 25 OF 2018 PRINCIPAL COMMISSIONER OF INCOME TAX – CENTRAL-1, KOLKATA VS.M/S. FEEGRADE & COMPANY PVT. LTD. BEFORE: The Hon'ble JUSTICE T. S. SIVAGNANAM ANDThe Hon’ble JUSTICE HIRANMAY BHATTACHARYYADate : January 04, 2022. Appearance: Mr. Smarajit Roychowdhury, Adv. for the appellant Mr. Subhas Agarwal, Adv. for the respondent The Court : This appeal by the revenue under Section 260A of theIncome Tax Act, 1961 (the Act in brevity) is directed against the order dated5[th] April, 2017 passed by the Income Tax Appellate Tribunal “C” Bench,Kolkata (the Tribunal) in IT(SS) No. 3836/Kol/2015 for the assessment year2010-11, 2011-12 and 2012-13 respectively. The revenue has raised the following substantial questions of law forconsideration : a) Whether as per the explanation (i) of Section 37 of the IncomeTax Act, 1961, punitive charges paid to the Railways in violationof the provision of Indian Railway Act 1989 are not allowableexpenditure and no deduction shall be made in respect of suchexpenditure.Tax Act, 1961, punitive charges paid to the Railways in violationof the provision of Indian Railway Act 1989 are not allowableexpenditure and no deduction shall be made in respect of suchexpenditure. b) Whether on the fact and circumstances of the case, the LearnedIncome Tax Appellate Tribunal erred in deleting the additionmade under section 37 of the Income Tax Act on account ofRailway Punitive charges. Income Tax Appellate Tribunal erred in deleting the additionmade under section 37 of the Income Tax Act on account ofRailway Punitive charges. c) Whether on the fact and circumstances of the case, the LearnedIncome Tax Appellate Tribunal erred in law in deleting thedisallowance as the overloading charges is nothing but penalty asper Provision of Section 73 of the Indian Railway Act 1989. Income Tax Appellate Tribunal erred in law in deleting thedisallowance as the overloading charges is nothing but penalty asper Provision of Section 73 of the Indian Railway Act 1989. d) Whether on the fact and circumstances of the case Net PresentValue (NPV) paid to Forest department is a non-recovering outlawwhose benefit was/would be consumed for several years and itwas one time/lump sum payment and such NPV paid by theassessee as statutory obligation for maintenance of environmentfor mining purpose and therefore it is capital expenditure andcannot be deducted as revenue expenditure. Value (NPV) paid to Forest department is a non-recovering outlawwhose benefit was/would be consumed for several years and itwas one time/lump sum payment and such NPV paid by theassessee as statutory obligation for maintenance of environmentfor mining purpose and therefore it is capital expenditure andcannot be deducted as revenue expenditure. e) Whether on the fact and circumstances of the case, the LearnedIncome Tax Appellate Tribunal erred in treating the Net PresentValue (NPV) as revenue in nature and not capital in nature. Income Tax Appellate Tribunal erred in treating the Net PresentValue (NPV) as revenue in nature and not capital in nature. We have heard Mr. Smarajit Roychowdhury, learned Counsel for theappellant/revenue and Mr. Subhas Agarwal, learned Counsel for therespondent/assessee. e) Whether on the fact and circumstances of the case, the LearnedIncome Tax Appellate Tribunal erred in treating the Net PresentValue (NPV) as revenue in nature and not capital in nature. Income Tax Appellate Tribunal erred in treating the Net PresentValue (NPV) as revenue in nature and not capital in nature. We have heard Mr. Smarajit Roychowdhury, learned Counsel for theappellant/revenue and Mr. Subhas Agarwal, learned Counsel for therespondent/assessee. The substantial questions of law (a), (b) and (c) above deal withwhether the punitive charges paid to the Railways for alleged violation of theprovision of Indian Railway Act could be allowable as expenditure andwhether deduction can be claimed by the assessee in respect of suchexpenditure. This issue has been decided in favour of therespondent/assessee by following the decision of the Hon’ble Supreme Courtin Prakash Cotton Mills Pvt. Ltd. reported in 201 ITR 684 wherein it was heldthat the payment made to the Railway for overloading of wagons iscompensatory in nature and can be allowed under explanation to Section37(1) of the Act. Furthermore, on facts the Tribunal noted that when therespondent/assessee loads the goods for dispatch through railway wagonsactual measurement of weight cannot be done due to absence of weighingbridge at the originating station. Thus, we find that the Tribunal rightlydecided the issue in favour of the respondent/assessee. Accordingly, thesubstantial questions of law (a), (b) and (c) all are answered against theappellant/revenue. So far as substantial questions of law (d) & (e) above areconcerned identical issue was decided in assessee’s group company’s case inITAT 133 of 2015 dated 21[st] June, 2018. This decision was followed inanother assessee’s group company’s case in PCIT –VS- M/s. Rungta Sons Pvt.Ltd. in ITAT 295 of 2017 dated 10[th] December, 2021. Operative portion ofthe order reads as follows;- “We have heard Mr. Smarajit Roychowdhury learned counsel for theappellant/revenue and Mr. Subash Agarwal, learned counsel for therespondent/assessee. It is not disputed before us that identical substantial questions of lawwere considered by this Court in the case of group company of therespondent/assessee in ITAT/133/2015 and by judgment dated 21[st] June, 2018the appeal filed by the revenue was dismissed. The operative portion of thejudgment reads as follows: “Both the Commissioner (Appeals) and the Appellate Tribunal have referred to ajudgment reported at 107 ITR 39 (Bikaner Gypsums Ltd. vs. CIT), where a similarquestion arose. A licence in respect of a certain area had been granted in favour of theassessee in that case for undertaking mining operations. The railways purported to setup railway tracks and even a station on the land without reference to the assessee andunmindful of the assessee’s underground rights in respect thereof. The disputebetween the assessee and the railways was resolved upon the relevant stakeholdersincluding the assessee, the railways and the State Government agreeing to share theadditional expenses for removing the railway station and tracks to allow the area to bemined by the assessee. The payment made by the assessee in that case fell forconsideration of the Supreme Court. The Supreme Court observed that since theassessee was entitled to carry on mining operations and such payment had been madefor the removal of the difficulty in the assessee carrying on its business in accordancewith its licence, the expenditure had to be regarded as a revenue expenditure and couldnot be treated as a capital expense. The dictum in Bikaner Gypsums Ltd. is squarely applicable in the present case.This is not a case where the assessee, upon payment of the NPV, obtaind a fresh rightto undertake any business. That right of the assessee was covered by the licencepreviously granted in its favour by the State of Odisha. The NPV payment is a king of acompensation for using forest land for non-forest purpose pursuant to an order of theSupreme Court. The payment of the NPV in this case, like in the case of BikanerGypsums Ltd., has to be regarded as a revenue expenditure in accordance with theration in the Bikaner Gypsums Ltd. case, since it was a one-time payment made toremove an obstacle from the path of the assessee carrying on its business operations. On behalf of the Revenue, a judgment reported at 86 ITR 647 (R.B.SethMoolchand Sugachand v CIT) has been cited where a prospecting licence fee was foundto be a capital expenditure. However, as is evident from paragraph 11 of the report, thefee was paid for obtaining a prospecting licence and it was such fee that entitled thebusiness to be conducted in the relevant area. The distinction between the judgment inR.B.Seth Moolchand Sugachand and the judgment in Bikaner Gypsums Ltd. is that inBikaner Gypsums Ltd. there was a pre-existing right and the expenditure was incurrednot to assert a new right but to exercise a pre-existing right. In the present case, it isthe same as in Bikaner Gypsums Ltd. since the mining licence was previously issued infavour of the assessee and the payment of the NPV did not extend the area of theassessee’s mining operations, it merely removed an impediment in the carrying on ofthe operations in terms of the original licence. In R.B.Seth Moolchand Sugachand a fee was paid to obtain a prospectinglicence. In other words, the right to carry on any prospecting or mining business wasconditional upon the fee being paid. Even if the assessee in that case had beenconducting mining or prospecting operations prior to obtaining the relevant licence, itwas relevant licence which gave the assessee the right in respect of a particular areaand that is the distinguishing feature. For the reasons aforesaid, the concurrent findings of the Commissioner(Appeals) and the Appellate Tribunal based on a long-standing judgment of theSupreme Court does not call for any interference.” Thus, following the above decision, the appeal filed by the revenue isdismissed. In the result, the substantial questions of law are answered againstthe revenue.” Thus, following the above decision substantial question of law Nos.(d) and (e) are answered against the revenue. In the result, the appeal filed by the revenue is dismissed and thesubstantial questions of law are answered against the revenue. Consequently, the application stands also dismissed. pa/GH. (T. S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)