2016 (12) TMI 1658 - HC - Income Tax

Nature of expenditure - revenue or capital - recurring expenditure for removal of overburden and other related activities for extraction of existing minerals from mines under operation - Held that - In view of the observations made by the Supreme Court in the Judgment of Empire Jute Co. Ltd. vs. Commissioner of Income Tax ( 1980 (5) TMI 1 - SUPREME Court ), we are of the opinion that the expenses which gives fruitful result require to be done according to the necessity of relevant time and development with the nature of expenses. In that view of the matter, it cannot be capital expenses and is to be considered as revenue expenses. - Decided in favour of the assessee

Issues Involved:
1. Whether the recurring expenditure for removal of overburden and other related activities for extraction of existing minerals from mines under operation is allowable under Section 37(1) of the Income Tax Act as revenue expenditure or should be treated as capital expenditure.

Issue-Wise Detailed Analysis:

1. Nature of Expenditure for Removal of Overburden:
The appellant contended that the expenditure for removing overburden was revenue in nature. The Tribunal had previously allowed the department's appeal, treating the expenditure as capital. The appellant argued that the CIT(A) had provided detailed reasons supporting the expenditure as revenue, emphasizing that no new asset was created, and the removal was part of the continuous mining process.

Tribunal's Findings:
The Tribunal noted that the expenditure facilitated the continuous mining process without creating a new asset, thus considering it revenue in nature. The Tribunal's order stated, "Continuous process of removal of overburden was to facilitate the continuous process of the mining in the area. Therefore, in this context the expenditure has to be regarded as revenue in nature."

Supreme Court Precedents:
The appellant referenced the Supreme Court's decision in Commissioner of Income Tax vs. Kirkend Coal Co., where stowing operations necessary for coal extraction were considered revenue expenditure. The Court had held that such expenditure was integral to the profit-earning process and not for acquiring a permanent asset.

Further References:
The appellant also cited Empire Jute Co. Ltd. vs. Commissioner of Income Tax, where the Supreme Court held that expenditure facilitating trading operations without acquiring a permanent asset should be treated as revenue expenditure. The Court emphasized that the nature of the expenditure should be viewed in the context of business necessity and expediency.

Case of Bikaner Gypsums Ltd.:
The Supreme Court in Bikaner Gypsums Ltd. vs. Commissioner of Income Tax reiterated that expenditure for removing obstacles to business operations, without acquiring a capital asset, should be considered revenue expenditure. The Court noted, "The payment made by the assessee was for removal of disability and obstacle and it did not bring into existence any advantage of an enduring nature."

Respondent's Argument:
The respondent supported the Tribunal's view, arguing that the Tribunal's decision was consistent with earlier judgments for the same assessee, where similar expenses were allowed as revenue expenditure.

Court's Conclusion:
The Court, considering the Supreme Court's observations and earlier judgments, concluded that the expenditure for removing overburden was revenue in nature. The Court noted, "It is thus very clear that the survey expenses are almost identical and hence required to be allowed as revenue expenses." The Court emphasized that such expenses were necessary for the business's profit-earning process and did not result in acquiring a capital asset.

Final Judgment:
The Court answered the issue in favor of the assessee, stating, "Therefore, the issue is answered in favour of the assessee and against the department." The appeal was allowed, recognizing the expenditure as revenue in nature under Section 37(1) of the Income Tax Act.

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