Substantial Question Of Law v. Substantial Question Of Law

OD–5 ITA/133/2012 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction [Income Tax]ORIGINAL SIDE COMMISSIONER OF INCOME TAX,KOLKATA –II, KOLKATA BIRLA CORPORATION LTD. BEFORE : THE HON’BLE JUSTICE SURYA PRAKASH KESARWANIAndTHE HON’BLE JUSTICE RAJARSHI BHARADWAJDate : 16[th] January, 2024 Appearance:Sri Vipul Kundalia, Adv.Smt. Oindrilla Ghosal, Adv....for the appellant. Sri J.P. Khaitan, Sr. Adv.Sri Sanjoy Bhaumik, Adv.Smt. Swapna Das, Adv....for the respondent. 1. Heard Sri Vipul Kundalia, learned senior standing counselfor the appellant/revenue and Sri J.P. Khaitan, learnedsenior advocate assisted by Sri Sanjoy Bhaumik and Smt.Swapna Das, learned advocates for the respondent/assessee. 2. This appeal was admitted by this Court by an order dated30.11.2012 on the following substantial questions of law: “1) Whether in view of the facts and circumstancesof the instant case the Tribunal erred by notconsidering that subsides which may be used freely, are operational subsidies and not capital subsidesand thus the same are taxable as revenue income?2)Whether the Hon’ble ITAT has erred in law aswell as on facts by deleting the disallowance madeby Assessing Officer on account of claim ofdeduction of proportionate amount of lease hold landwritten off of Rs.20,50,052?3)Whether the Hon’ble ITAT has erred in law aswell as on facts by deleting the addition made bythe Assessing Officer on account of profit on saleof machinery of a closed down unit forRs.2,41,44,000/-?4)Whether the learned Tribunal was incorrect inrejecting the appeal preferred by the RevenueDepartment, on the issue of treatment of accountingprofit from sale of certain depreciable fixed assetschargeable of tax on the basis that the accountingtreatment cannot effect the operation of thestatutory provisions contained in Section 43(6) ofthe said Act and for the purpose of income tax theblock of assets concept was followed as per thestatutory provisions?” Substantial Question of Law No.1 3.So far as the afore-quoted substantial question of lawno.1 is concerned, we find that this issue has beendecided in favour of the revenue and against the assesseeby a judgment and order dated 18.12.2023 in ITANo.158/2010 (Commissioner of Income Tax, Kolkata – II,Kolkata Vs. M/s. Birla Corporation Limited). Followingthe aforesaid judgment, the substantial question of lawno.1 is concerned, we find that this issue has beendecided in favour of the revenue and against the assesseeby a judgment and order dated 18.12.2023 in ITANo.158/2010 (Commissioner of Income Tax, Kolkata – II,Kolkata Vs. M/s. Birla Corporation Limited). Followingthe aforesaid judgment, the substantial question of law no.1, as afore-quoted, is answered in favour of therevenue and against the assessee. The present appeal ofthe revenue stands allowed in respect of the substantialquestion of law no.1 and to that extent the impugnedorder of the Tribunal dated 29.7.2011 in ITA No.1936(Kol)of 2010 (Assessment Year 2006-07) is set aside. Substantial Question of Law No.2 no.1, as afore-quoted, is answered in favour of therevenue and against the assessee. The present appeal ofthe revenue stands allowed in respect of the substantialquestion of law no.1 and to that extent the impugnedorder of the Tribunal dated 29.7.2011 in ITA No.1936(Kol)of 2010 (Assessment Year 2006-07) is set aside. Substantial Question of Law No.2 4.Briefly stated facts of the present case having bearingon the afore-quoted substantial question of law no.2 arethat the respondent/assessee had acquired mining lease of9.99 kilometer land in village- Chittorgarh for mining oflime stone for use as raw material for manufacture ofcement. To carry out mining operation/businessoperation, in terms of the lease deed as well as pursuantto the provision of Section 89 of the Rajasthan LandRevenue Act, the compensation for damages caused to thesurface of the lease area or for infringement of rightsof any person by the occupation or disturbance of thesurface of such land, was to be paid. In the matter ofthe respondent/assessee, the compensation for damagescaused to the surface or infringement of rights wasdetermined by the Collector and it was paid by theassessee. Accordingly, the respondent/assessee claimedRs.20,55,052/- as expenditure deductible from income,which was disallowed by the assessing officer relyingon the afore-quoted substantial question of law no.2 arethat the respondent/assessee had acquired mining lease of9.99 kilometer land in village- Chittorgarh for mining oflime stone for use as raw material for manufacture ofcement. To carry out mining operation/businessoperation, in terms of the lease deed as well as pursuantto the provision of Section 89 of the Rajasthan LandRevenue Act, the compensation for damages caused to thesurface of the lease area or for infringement of rightsof any person by the occupation or disturbance of thesurface of such land, was to be paid. In the matter ofthe respondent/assessee, the compensation for damagescaused to the surface or infringement of rights wasdetermined by the Collector and it was paid by theassessee. Accordingly, the respondent/assessee claimedRs.20,55,052/- as expenditure deductible from income,which was disallowed by the assessing officer relying upon a decision of the Hon’ble Supreme Court in the caseof Enterprising Enterprises v. Deputy Commissioner ofIncome Tax, reported in (2007) 293 ITR 437. Aggrieved bythe aforesaid disallowance made by the assessing officer,the respondent/assessee filed an appeal before theCommissioner of Income Tax (Appeals). Before the CIT(A),the respondent/assessee restricted its claim fordeduction to Rs.19,38,232/-. The CIT(A) had set asidethe disallowance made by the assessing officer andaccepted the contention of the assessee that thecompensation paid was an expenditure incidental to thebusiness activity. Aggrieved by the order of the CIT(A),the revenue had filed the ITA No,.1936(Kol)/2010 whichwas dismissed by the impugned order passed by the IncomeTax Appellate Tribunal, “B” Bench, Kolkata. 5.Learned senior standing counsel for the revenue hassubmitted that the compensation paid by the assessee toland owners for damage caused to the surface of the landfalling in mining lease area for carrying out miningoperation or allied activity, is a capital expenditureand not a business expenditure and the CIT(A) hascommitted a manifest error of law to set aside thedisallowance of Rs.19,38,232/-.submitted that the compensation paid by the assessee toland owners for damage caused to the surface of the landfalling in mining lease area for carrying out miningoperation or allied activity, is a capital expenditureand not a business expenditure and the CIT(A) hascommitted a manifest error of law to set aside thedisallowance of Rs.19,38,232/-. 6.Learned counsel for the respondent/assessee has submittedthat once it is undisputed that the compensation paid toland owners was for carrying out business activity by thethat once it is undisputed that the compensation paid toland owners was for carrying out business activity by the 7. 8. 6.Learned counsel for the respondent/assessee has submittedthat once it is undisputed that the compensation paid toland owners was for carrying out business activity by thethat once it is undisputed that the compensation paid toland owners was for carrying out business activity by the 7. 8. assessee in mining lease area, then necessarily it is anexpenditure for carrying out business operation.Therefore, the CIT(A) and the Tribunal have not committedany error of law to hold that the aforesaid amount is abusiness expenditure and its deduction from income waslawfully claimed by the respondent/assessee. Therefore,the appeal of the revenue deserves to be dismissed onthis question and the question deserves to be answered infavour of assessee and against the revenue. We have carefully considered the submissions of learnedcounsel for the parties and perused the records of theappeal. It is undisputed that the assessee acquired a mininglease of 9.99 kilometers situated in village- Chittorgarhfor obtaining lime stone used as raw material formanufacture of cement. To carry out the miningoperation/business activity, the assessee has paid theamount in question to land owners for damage caused tothe surface of the land or for infringement of rights ofland owner by conducting mining operations and thebusiness operations. The amount paid by the assessee wasdetermined by the Collector in terms of the statutoryprovision of Rajasthan Revenue Act read with theRajasthan Land Acquisition Act. The event to paycompensation arose to the assessee only on account ofdamage caused to the surface of the land falling in mining lease area during mining operation/businessoperation. There was no requirement to pay had therebeen no damage caused to the surface of the land bymining/business operation. Thus, the payment in questionmade by the respondent/assessee was in the nature ofexpenditure for carrying out business operations. Nointerest in land has been acquired by therespondent/assessee by payment of such compensation.Thus, the payments are in the nature of incidentalexpenditure to conduct the mining and business operation.Therefore, the expenditure so incurred by therespondent/assessee is revenue in nature. Consequently,the CIT(A) and the Income Tax appellate Tribunal have notcommitted any error of law to hold the aforesaidexpenditure of Rs.19,38,232/- as revenue in nature andaccordingly allowed the deduction. 9.The judgment of the Hon’ble Supreme Court in the case ofEnterprising Enterprise (supra) relied upon by learnedcounsel for the appellant has no bearing on facts of thepresent case inasmuch as the controversy involved in thatcase was as to whether the lease rent paid by the mininglessee for acquiring leasehold right for extractingminerals from mineral bearing land would be a capitalexpenditure or a revenue expenditure ? In the presentset of facts there is no such controversy and, instead,the controversy is with regard to the expenditure in theEnterprising Enterprise (supra) relied upon by learnedcounsel for the appellant has no bearing on facts of thepresent case inasmuch as the controversy involved in thatcase was as to whether the lease rent paid by the mininglessee for acquiring leasehold right for extractingminerals from mineral bearing land would be a capitalexpenditure or a revenue expenditure ? In the presentset of facts there is no such controversy and, instead,the controversy is with regard to the expenditure in the form of compensation incurred by the respondent/assesseeduring the course of mining/business operation.Therefore, the judgment relied upon by the learnedcounsel for the appellant is clearly distinguishable andis of no help. 10.In view of the aforesaid, the substantial question of lawno.2 is answered in favour of the assessee and againstthe revenue. To this extent, the appeal of the revenuedeserves to be dismissed.no.2 is answered in favour of the assessee and againstthe revenue. To this extent, the appeal of the revenuedeserves to be dismissed. Substantial Question of Law Nos.3 & 4 form of compensation incurred by the respondent/assesseeduring the course of mining/business operation.Therefore, the judgment relied upon by the learnedcounsel for the appellant is clearly distinguishable andis of no help. 10.In view of the aforesaid, the substantial question of lawno.2 is answered in favour of the assessee and againstthe revenue. To this extent, the appeal of the revenuedeserves to be dismissed.no.2 is answered in favour of the assessee and againstthe revenue. To this extent, the appeal of the revenuedeserves to be dismissed. Substantial Question of Law Nos.3 & 4 11.These two substantial questions of law are inter- connected. Briefly stated facts having bearing on thesubstantial question of law nos.3 and 4 are that therespondent/assessee reduced the written down value of itsblock assets by Rs.2,41,44,000/- in terms of Section43(6)(c)(i)(B) of the Income Tax Act, 1961. Theaforesaid amount represented the sale of part of someblock assets. Section 43(6)(c)(i)(B) is reproduced below: 43. Definitions of certain terms relevant to income from profits and gains of business or profession.- 12. (i) in respect of any previous yearrelevant to the assessment yearcommencing on the 1[st] day of April,1988, the aggregate of the writtendown values of all the assets fallingwithin that block of assets at thebeginning of the previous year andadjusted,-relevant to the assessment yearcommencing on the 1[st] day of April,1988, the aggregate of the writtendown values of all the assets fallingwithin that block of assets at thebeginning of the previous year andadjusted,- (A)...(B) by a reduction of the moneys payablein respect of any asset falling withinthat block, which is sold or discarded ordemolished or destroyed during thatprevious year together with the amount ofthe scrap value, if any, so, however, thatthe amount of such reduction does notexceed the written down value as soincreased;”(B) by a reduction of the moneys payablein respect of any asset falling withinthat block, which is sold or discarded ordemolished or destroyed during thatprevious year together with the amount ofthe scrap value, if any, so, however, thatthe amount of such reduction does notexceed the written down value as soincreased;” Thus, reducing the block assets by the amount in questionrepresenting the sale of some of the assets out of theblock assets is in terms of the afore-quoted provisionsof Section 43(6)(c)(i)(B) of the Act, 1961 which permitsreduction of money in respect of any asset falling withinthat block which is sold or discarded or demolished ordestroyed during the previous year together with amountof scrap value, if any, so, however, that the amount ofsuch deduction does not exceed the written down value asso increased. The deduction by the amount in question isundoubtedly under the aforesaid provisions of Section43(6)(c)(i)(B) of the Act, 1961. Therefore, the CIT(A) and the Income Tax Appellate Tribunal have not committedany manifest error of law to reduce the sale proceedsfrom the written down value and allowed the depreciationon reduced written down value. 13.In view of the aforesaid, the substantial question of lawnos.3 and 4 are answered in favour of the assessee andagainst the revenue. To this extent the appeal deservesnos.3 and 4 are answered in favour of the assessee andagainst the revenue. To this extent the appeal deserves to be dismissed. 14.For all the reasons afore-stated, the substantialquestion of law no.1 is answered in favour of the revenueand against the assessee. The substantial question oflaw nos.2, 3 and 4 are answered in favour of the assesseeand against the revenue.question of law no.1 is answered in favour of the revenueand against the assessee. The substantial question oflaw nos.2, 3 and 4 are answered in favour of the assesseeand against the revenue. 15.Thus, the appeal (ITA/133/2012) is partly allowed to theextent indicated above.extent indicated above. (SURYA PRAKASH KESARWANI, J.) (RAJARSHI BHARADWAJ, J.)