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2017 (11) TMI 1199 - ITAT JAIPURApplicability of section 35E - compensation paid for usage of land for the purpose of mining to the land owner - assessee-company entered into a lease agreement with the Government of Rajasthan for the purpose of mining in the year 2000 - Whether the provisions of section 37(1) would then get excluded as the latter covers expenditure other than expenditure described in sections 30 to 36 of the Act? - Held that:- For applicability of section 35E, both the nature and period of incurrence of the expenditure are relevant. In the instant case, it is not in dispute that the year under consideration is not the year when the commercial production has started. The assessee has entered into lease agreement with the Government of Rajasthan way back in the year 2000 and thereafter, it has started commercial production and reported revenues to tax. In view of the same, given that the expenditure under consideration has been incurred much after the start of the commercial production, one of the conditions for invoking section 35E are not satisfied. We therefore need not examine the second condition regarding nature of the expenditure as the same would be purely academic in nature. The provisions of section 35E are therefore not applicable in the instant case. Therefore, the applicability of provisions of section 37(1) cannot be excluded merely on account of the fact that the expenditure is covered under section 35E of the Act. Given that the piece of land falls within the mining area in respect of which the assessee has an existing right to carry on its mining operations and the fact that the assessee wishes to carry on the mining area in that area, the assessee was required to pay compensation to the land owner so that the latter does not obstruct or challenge the carrying of the mining activity underneath the surface of land which belongs to him. The payment is for the purposes of removing the disability or obstruction and to facilitate the carrying on its business. No fresh rights have been acquired by the assessee by virtue of paying the said compensation. The assessee was already having a right to carry on the mining operations. The fact that land stand mutated in the name of the Government of Rajasthan post-surrender by Shri Ranga also shows that the land or the surface rights therein have not being acquired by the assessee. In light of above discussions and respectfully following the decision of the hon'ble Supreme Court in case of Bikaner Gypsums Ltd. [1990 (10) TMI 2 - SUPREME Court] the assessee deserve to succeed in the instant case. The Assessing Officer is therefore directed to allow the claim of deduction of ₹ 35,00,000 under section 37(1) of the Act. - Decided in favour of assessee.
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