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TMI Blog2017 (8) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred while defending certain writ petitions filed by M/s. JSW Steels Ltd., and M/s. Sathavahana Ispat Ltd., in which, the aforesaid parties had sought for quashing of Government notifications granting mining lease to the assessee. The Assessing Officer intended to disallow the claim of legal expenditure on the ground that it was a capital expenditure. But the assessee replied that the expenditure incurred was to protect the lease that was granted by the Government to the assessee, who was defending a claim made by third parties and not for the purpose of perfecting a mining lease. That the lease was granted by the Department of Mines and Geology in the year 2006 to the assessee, which was assailed in writ petitions filed by the aforesaid parties. Reliance was placed on the decision of the Hon'ble Supreme Court, in Dalmia Jain & Co. Ltd. v. CIT [1971] 81 ITR 754 [Dalmia Jain & Co. Ltd.] and Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207 [Meenakshi Mills Ltd]. The Assessing Officer not being satisfied with the contention of the assessee, held that the expenditure had to be construed to be capital expenditure, as it was an expenditure having nexus to earning of prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a threat of litigation, the payment would be capital payment and not revenue payment. 8. Per contra, learned counsel for respondent - assessee, supporting the order of the Tribunal, contended that no substantial question of law would arise in this appeal, as the question as to whether the litigation expenditure incurred in the instant case is a revenue expenditure or a capital expenditure is not a question of law or for that matter, a substantial question of law, but it is purely a question of fact which cannot be gone into in an appeal under Section 260-A of the Act. 9. In support of his submission, respondent's counsel placed reliance on a decision of the Hon'ble Supreme Court in case of Mangalore Ganesh Beedi Works v. CIT [2015] 378 ITR 640/62 taxmann.com 400, [M/s.Mangalore Ganesh Beedi Works], wherein it has been held, where the Tribunal has held that where legal expenses incurred by the assessee were for protecting its business, then such a finding would not be a finding in law, but a pure finding of fact and no appeal could be filed on that aspect on such a finding before this court. 10. Respondent's counsel also relied upon decisions of the Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et or create any capital asset. Therefore, the question, is, whether, the expenditure has to be attributed to be revenue expenditure or capital expenditure. 13. Before we proceed further, we shall refer to the following judgments cited at the Bar:- (a) In Dalmia Jain & Co., Ltd., it has been observed thus:- "The question for decision is whether the litigation expenses incurred by the assessee were for the purpose of creating, curing or completing the assessee's title to capital or whether it was for the purpose of protecting its business. If it is the former then the expenses incurred must be considered as capital expenditure. But, on the other hand, if it is held that the expenses were incurred to protect the business of the assessee, then it must be considered as a business loss. The principle which has to be deduced from decided cases is that, where the expenditure laid out for the acquisition or improvement of a fixed capital asset is attributable to capital, it is a capital expenditure but if it is incurred to protect the trade or business of the assessee then it is a revenue expenditure. In deciding whether the particular expenditure is capital or revenue in nature, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture as property attributable not to revenue but to capital. 7. In Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1964] A.C. 948 [1965] 58 I.T.R. 241. Lord Radcliffe observed at page 960: .... courts have stressed the importance of observing a demarcation between the cost of creating, acquiring or enlarging the permanent (which does not mean perpetual) structure of which the income is to be the produce or fruit and the cost of earning that income itself or performing the income-earning operations. Probably this is as illuminating a line of distinction as the law by itself is likely to achieve...." (d) In Mangalore Ganesh Beedi Works, it has been observed at Paragraph No.17, that on a consideration of the issues placed before the Tribunal, including the decision of this Court in Dalmia Jain, it is held that the expenses incurred by the Assesee were honest and reasonable and were incurred for the purpose of protecting the business of the firm as a going concern. (e) In M/s. ITC Hotels Ltd., it has been observed that on a consideration of the facts in detail, the Tribunal has recorded a finding that the litigation expenses were incurred not to protect the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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