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TMI Blog1984 (7) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... orking various mines in the State of Maharashtra under various lease deeds. The lease deeds are executed in model form of mining leases (Form K) as provided under rule 31 of the Mineral Concession Rules. The assessee claimed that the value of the various mining leases held by it during the year was about Rs. 5 crores as per the report of the Chief Geologist and General Manager as derailed on page 59 of the compilation. The assessee claimed deduction at the rate of 6 per cent on the said value. The ITO determined the capital employed for the purpose of section 80J at Rs. 44,34,605 and allowed deduction at 6 per cent on the said capital, i.e., he allowed deduction of Rs. 2,66,076 by his order dated 19-6-1979 for the assessment year 1976-77. The view expressed by the ITO in the said order was that the capital employed in business means some concrete asset put into the business and it does not mean any intangible asset or rights of similar nature and on that basis he held that the leasehold rights cannot be said to be a capital asset employed in the business or industrial undertaking of the assessee. As against the said order of the ITO, the assessee appealed to the Commissioner (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market value of those mining teases. He held that no consideration passed between the company as the lessee and the Government of Maharashtra as lessor when these leases were granted, except money paid as application fee as security deposit as per rule 32 of Mineral Concession Rules, and the compensation for evacuation of persons occupying the leased area. The assessee in its books of account had shown all these expenses at Rs. 1,02,458 and hence, he came to the conclusion that it is this amount of Rs. 1 lakh and odd that is to be taken into consideration for determining the capital employed by the assessee. He was of the view that if these leasehold rights were to be transferred, the assessee would not get any thing more than what it has expended because according to him there was a ban on accepting any premium on transfer. He also held that there was no revaluation of these leasehold rights in the account of the assessee. If the value of the asset was much more, then it can be reasonably expected that the valuation suggested by the assessee should figure in the financial account of the assessee. Since this was not done, he came to the conclusion that the leasehold rights had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the industrial undertaking. It classifies the assets into two parts, namely, the assets entitled to depreciation and the assets not entitled to depreciation. The assets entitled to depreciation has to be valued at its written down value. The asset not entitled to depreciation is again classified into two parts: (1) the assets which are acquired by purchase, and (2) the assets which are acquired otherwise than by purchase. The asset acquired by purchase and not entitled for depreciation has to be valued at their actual cost to the assessee ; while the value of the assets acquired otherwise than by purchase has to be taken at the value of the asset when it became the asset of the business. In case of assets being debts due to person the nominal amount of those debts has to be taken as its value and in case of asset being cash or bank balance the face value of the amounts are to be taken. The word 'cost' is explained in Explanation 4. It says that when the cost of any asset has been satisfied otherwise than in cash the then value of consideration actually given for the asset shall be treated as the actual cost of the asset. It was contended that section 80J(1A)(II) speaks of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms." According to him, on a careful reading of the aforesaid provisions it will be clear that in sale the entire right in the property including the possession is transferred to the transferee, while in the case of lease only the possession is transferred to the transferee. A lease is an outcome of a rightful separation of ownership and possession. The word 'purchase' goes with the word 'sale'. The person who transfers the property is called the 'seller' and the person who acquires the said property is called the 'purchaser'. Transfer in relation to the seller is called 'sale' while the transfer in relation to the purchaser is called 'purchase'. Thus, when asset is acquired by purchase the actual cost has to be taken for the purpose of section 80J. The lease is not equivalent to purchase. The lease has got a definite connotati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the lease deed and it was pointed out that there is no ban as assumed, by the Commissioner (Appeals). The mining leases could be assigned, sublet or mortgaged with the previous consent in writing of the State Government. Our attention was drawn to clause (17) of the lease deed and also proviso to that clause which reads as follows : "Provided that the State Government shall not give its written consent unless : (a) the lessee has furnished an affidavit along with his application for transfer of the mining lease specifying therein the amount that he has already taken or proposes to take as consideration from the transferee." From the aforesaid clauses, it is clear, according to him, that there is no ban either on transfer or on taking consideration ; the only thing is that before the transfer the previous consent in writing has to be taken from the State Government. It was further contended that leasehold rights are valuable rights and they do constitute assets. It was also contended that it is well accepted principle of valuation that to ascertain the value of particular commodity one has to assume that the commodity is a saleable commodity ; there is a market for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tried to challenge the finding of the Commissioner (Appeals) that the mining agreements are the leasehold rights and not mere licences, by contending that the assessee has got right to extract mineral ores from various mines as per the document styled as 'lease deed'. The document does not create any right of the assessee in land itself and, hence, they are not leases but are merely licences. The assessee is merely permitted to extract certain specified ores only. He cannot extract the ores other than the one specified in the documents. The licence does not constitute an asset and, hence, it cannot be considered for the purpose of section 80J. Even assuming that the rights of extraction of ore which the assessee has got under various documents, amount to lease and such leasehold rights constitute assets of the assessee's industrial undertaking, how they are to be valued whether under sub-clause (ii) or under sub-clause (iii) is a point to be considered. It was contended that the leasehold rights are the assets acquired by purchase and they are not entitled to depreciation and, hence, the same has to be valued at cost. He contended that the Commissioner (Appeals) was, therefore, ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration in the aforesaid appeals are, (1) what are the assets employed in the industrial undertaking of the assessee, i.e., (a) whether it is the mine itself, or (b) it is the leasehold right in respect of the mine, or (c) it is none at all (it merely being a licence and not a lease) and (2) what is the mode of valuation of the assets, i.e., whether (a) it is to be valued at cost, or (b) it is to be valued at prevailing market value. 10. We will first consider whether the mine itself can be considered as an asset of the industrial undertaking for the purpose of section 80J. The contention of the learned counsel for the assessee is that in interpreting the provisions dealing with exemption, we have to keep in view certain canons of interpretation, viz., the words are used in the Act of Parliament correctly and exactly and not loosely ; if the taxpayer is within the plain terms of the exemption he cannot be denied its benefit by calling in aid any supposed intention of the exempting authority or the object of granting such exemption and that the yardstick of exemption is not to be confused with the object of the exemption. Keeping in view these canons of construction it is argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of the business and not the assets of the assessee. But that does not mean that the assets belonging to some one else could be taken into consideration for determining the capital employed in an industrial undertaking. If we read clause (II) and its sub-clauses as a whole this aspect would be clear. Clause (II) says that the aggregate amounts representing the value of assets of the undertaking should be ascertained as provided in sub-clauses (i) to (v). Sub-clause (i) deals with assets entitled to depreciation. Sub-clause (ii) deals with acquisition of asset by purchase. Sub-clause (iii) deals with the asset acquired otherwise than by purchase, but nonetheless it talks of acquisition of asset. Sub-clause (iv) deals with debts due to the person carrying on the business and clause (v) deals with cash on hand and bank balances. On a reading of all the aforesaid sub-clauses it is clear that they refer to the assets of the assessee's undertaking in which the assessee has some proprietary interest. If an asset does not at all belong to the assessee then such asset cannot be taken into consideration for working out the capital employed for the purpose of section 80J. The nature of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding. The learned departmental representative has relied on rule 27 of the Tribunal Rules. We are for the present not entering into that controversy because we are of the opinion that the lease deeds executed in Form K of Mineral Concession Rules, by the State Government in favour of the assessee under which the assessee's industrial undertaking is extracting ore are definitely leasehold rights and such leasehold rights constitute a valuable asset of the assessee's undertaking. The Mining Act and the Mineral Concession Rules have used the terms such as 'lease' and 'licence' at various places. They are the legal terms and it has acquired definite legal connotations. When the legislative authorities use these terms in any enactment they know the exact and definite meaning of those terms. The documents executed by the State in Form K of Mineral Concession Rules are described as 'lease deed' and not as 'licence'. There is, therefore, no reason to treat the lease deeds as licences as suggested by the departmental representative. Further, it is seen that the lease deeds are for 30 years in respect of coal, iron ore and bauxite and for 20 years in respect of other minerals. The long t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled a 'purchase'. In short, the words 'sale' and 'purchase', 'cost', etc., have definite legal connotation. They are the legal terms and they signify and convey definite legal meaning. The Parliament when uses these legal terms, it is presumed that they are aware of the exact meaning thereof. It is, thus, clear that sub-clause (ii) refers to the assets acquired by purchase and it excludes all other modes of acquisition. If the asset is acquired by gift, exchange, possessory mortgage, lease, licence, etc., it is not covered by sub-clause (ii). All these modes of acquisition would be covered by sub-clause (iii) only. We are, therefore, of the opinion that sub-clause (ii) of clause (II) of section 80J(1A) covers only such assets which are acquired by purchase, while the assets which are acquired otherwise than by purchase are covered by sub-clause (iii) only. 15. The next question which is incidentally to be considered is whether Explanation 4 to section 80J is an Explanation to sub-clause (ii) or sub-clause (iii) or whether it should be read as an independent provision, as contended by the learned departmental representative. The main purpose of an Explanation is to explain some w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, geology and other practical and legal aspects connected therewith, can property determine the valuation of the various leasehold rights. No doubt, the assessee did file a valuation report prepared by Chief Geologist and General Manager who valued the leasehold rights at Rs. 5 crores. He estimated the reserves of minerals in each mine, the selling prices of different ores, the cost price of extracting the ores and on that basis he arrived at the valuation of leasehold rights. We find that neither the ITO nor the Commissioner (Appeals) have applied their mind to the aspect of valuation, nor they found any fault with the valuation report filed by the assessee. They neither accepted the report nor have they attempted to get the said asset valued by their valuer nor have they examined the valuer who prepared the valuation report and which is filed by the assessee. We, therefore, in the fitness of things feel it necessary that the matter should be remitted back to the file of the ITO for proper determination of the value of leasehold right in question. The assessee as well as the ITO will be free to get the said assets, viz., leasehold rights properly valued by expert valuers and addu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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