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2022 (6) TMI 1202 - HC - Income TaxDepreciation on Geographical Report as intangible asset - whether the Geographical Report is only a document and not an asset and no deduction is permissible under Section 35E (2) ? - ITAT deleted the addition - HELD THAT - Assessing Officer raised various queries on the Geographical Report for which the assessee offered certain explanation. The Tribunal elaborately considered the Geographical Report. To examine as to whether deduction can be claimed by the assessee on the said amount, the Tribunal noted that the Geographical Report is a fundamental document which was essential to assess the feasibility of the mine, to evaluate the economics of the mine and contains a mine-plan according to which the mining activity is to be carried on. Therefore, the Tribunal after appreciating the scope of the report held that the activity involves the nature of exploring, locating or providing deposits and it is only after the study of the Geographical Report, the location of deposit can be identified. Further, the Tribunal noted that the report gives the idea of the nature of deposit and whether mining activity can be carried on in the location. Thus, ultimately the Tribunal agreed with the assessee s stand. However with regard to the claim of the additional depreciation at 15%, the Tribunal did not agree with the assessee. However, the assessee is not an appeal as against such finding Additions on expenses on Road belonging to Zilla Parishad - HELD THAT - It cannot be disputed by the revenue that by upgrading/ constructing the link-road from the mine to the railway station, the assessee stands benefitted as the transportation of coal which has been mined, can be transported more efficiently and profitably. Further, the road is a public road and the assessee is not the owner of the road and the road was upgraded/ constructed not exclusively by the assessee but the assessee had made contribution for doing the upgradation/ construction work and the remaining contribution was made by the Zilla Parishad. Therefore, the tribunal agreed with the assessee and dismissed the cross-objection filed by the revenue The roads which were constructed around the factory with the help of the amount of Rs. 50,000 contributed by the assessee belonged to the Government of Uttar Pradesh and not to the assessee. Moreover, it was only a part of the cost of construction of these roads that was contributed by the assessee, since under the sugarcane development scheme, one-third of the cost of construction was to be borne by the Central Government, one-third by the State Government and only the remaining one-third was to be divided between the sugarcane factories and sugarcane growers. These roads were undoubtedly advantageous to the business of the assessee as they facilitated the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the market centres. There can be no doubt that the construction of these roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee s business to be carried on more efficiently and profitably. It is no doubt true that the advantage secured for the business of the assessee was of a long duration inasmuch as it would last so long as the roads continued to be in motorable condition, but it was not an advantage in the capital filed, because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-making apparatus of the assessee. The amount of Rs. 50,000 was contributed by the assessee for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable and it was clearly an expenditure on revenue account. Revenue appeal dismissed.
Issues Involved:
1. Whether the Tribunal was justified in law in deleting the addition of Rs. 66,00,000/- on account of depreciation on 'Geographical Report'. 2. Whether the Tribunal was justified in law in directing to allow depreciation on Geographical Report as an intangible asset and not considering expense on Geographical Report under Section 35E of the Income Tax Act, 1961. 3. Whether the Tribunal was justified in law in deleting the additions on expenses on Road belonging to Zilla Parishad amounting to Rs. 3,57,45,560/-. Issue-wise Detailed Analysis: 1. Depreciation on Geographical Report: The primary issue was whether the Geographical Report purchased by the assessee for Rs. 1,65,00,000/- could be considered an asset eligible for depreciation. The Tribunal evaluated the nature of the Geographical Report, which was essential for assessing the feasibility of mining operations, evaluating the economics of the mine, and containing the mine-plan. The Tribunal concluded that the Geographical Report was a fundamental document for the mining activity, involving exploring, locating, or providing deposits. Thus, the Tribunal agreed with the assessee's stand that the report was an intangible asset eligible for depreciation. However, the Tribunal did not agree with the assessee's claim for additional depreciation at 15%, which was not appealed by the assessee. 2. Depreciation as Intangible Asset vs. Section 35E: The Tribunal's decision to allow depreciation on the Geographical Report as an intangible asset was contested by the revenue, arguing it should be considered under Section 35E of the Income Tax Act, 1961. The Tribunal, after detailed examination, found that the report was a capital asset with enduring benefits, thus qualifying for depreciation. The Tribunal's view was supported by the Supreme Court's decision in Scientific Engineering House P. Ltd. vs. CIT, which held that technical know-how in the form of drawings, designs, charts, plans, processing data, and other literature constituted a "plant" and was a depreciable asset. The Tribunal's decision was affirmed as there was no perversity in its order. 3. Expenses on Road Development: The second issue involved the expenses incurred by the assessee for developing a road belonging to Zilla Parishad. The Tribunal noted that the expenses were wholly and exclusively for the business purpose of the assessee. The road facilitated the efficient and profitable transportation of coal from the mine to the railway station. The Tribunal agreed with the CIT (A) that the expenditure did not result in acquiring any asset for the assessee nor did it expand the profit-making apparatus. The Tribunal's decision was supported by the Supreme Court's ruling in Sugar Factory & Oil Mills (P.) Ltd. vs. CIT, which held that contributions towards road construction around a factory were allowable as business expenditure, as they facilitated business operations and did not result in acquiring a capital asset. Conclusion: The High Court upheld the Tribunal's decision, finding no error or perversity. The appeal filed by the revenue was dismissed, and the substantial questions of law were answered against the revenue. The Tribunal's detailed and reasoned analysis on both issues was affirmed, ensuring the decisions were just and proper. Judgment: The appeal filed by the revenue is dismissed, and the substantial questions of law are answered against the revenue. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)
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