1998 (2) TMI 8 - SC - Income Tax

Land on lease for carrying on excavation of minerals - whether lease rentals are revenue expenditure or capital expenditure - Prima facie, it appears that there is a conflict in the decisions of this court - question involved is of a recurring nature and it is essential that the conflict should be resolved authoritatively - We, therefore, direct that the papers of this case be laid before the Hon ble the Chief justice for constituting a larger Bench

Summary

Issues:
1. Classification of rent payment as revenue or capital expenditure.
2. Conflict in decisions regarding the treatment of lease expenses.

Analysis:
The judgment revolves around the classification of rent payment for leased land as either revenue or capital expenditure. The appellant leased land for mining manganese ore and sought to deduct the rent as a revenue expense. The court referred to the decision in Pingle Industries Ltd. v. CIT [1960] 40 ITR 67, where it was held that expenses for acquiring a capital asset are not allowable as revenue deductions. The court compared this case with Gotan Lime Syndicate v. CIT [1966] 59 ITR 718, where it was ruled that lease expenses were revenue expenditure as they were related to the lime deposits. The appellant argued that the manganese ore was its stock-in-trade, making the rent a revenue expenditure essential for carrying out mining activities.

In the context of conflicting decisions, the court noted the judgment in R. B. Seth Moolchand Suganchand v. CIT [1972] 86 ITR 647, which followed Pingle Industries Ltd.'s case and classified mining lease expenses as capital expenditure. However, the court observed that this decision did not consider the ruling in Gotan Lime Syndicate's case, highlighting a potential conflict in judgments by co-ordinate Benches. Recognizing the recurring nature of the issue and the need for authoritative resolution, the court directed the case to be presented before a larger Bench for a conclusive decision to resolve the conflict.

The judgment emphasizes the distinction between revenue and capital expenditure concerning lease expenses for acquiring assets related to business activities. It underscores the importance of resolving conflicts in legal interpretations to provide clarity on recurring issues. The court's decision to refer the case to a larger Bench reflects the significance of authoritative resolution in addressing conflicting precedents and ensuring consistency in legal principles.