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TMI Blog2017 (10) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head income from the other sources. Ground no. 2 of the assessee’s appeal is allowed for statistical purpose. Addition on account of disallowance of CSR expenses - whether for provisioning of certain expenses under the contract is allowable expenditure? - Held that:- A provision for expenditure is allowable if the assessee proves that such expenditure is required to be laid down on the basis of past experience and deduced scientifically. There is no dispute with regard to the fact that no expenditure is made during the year under appeal. The assessee has also not stated past history or the past experience. Therefore, there is no basis available for arriving at the figure of expenditure so claimed under these facts; we are unable to accept the contentions of the Ld. Counsel for the assessee. Hence, the finding of the Ld. CIT(A) is hereby affirmed on this issue. This Ground of the assessee’s appeal is dismissed. Disallowed amortization of expenses - Held that:- There is no dispute with regard to the fact that the assessee neither acquired title over the mines nor the rights into any fixed assets by making expenditure. The assessee has acquired absolute rights for mining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er giving opportunity to the assessee the AO would verify the nature of the rights and knowhow acquired by the assessee. In case the AO finds that by virtue of the agreement the assessee has acquired knowhow or any other business of commercial rights or similar nature, he would allowed the depreciation as claimed by the assessee. This ground of assessee’s appeal is allowed for statistical purposes. Disallowance of land tax - disallowance by the assessee due to non-payment u/s 43B - Held that:- Since, the land tax is allowable u/s 43B of the Act. Therefore, we do not see any reason to interfere into the finding of the Ld. CIT(A) same is hereby affirmed. This ground of Revenue’s appeal is dismissed. Allowing deduction in respect of mine closure expenses - Held that:- The mines closure liability is a ascertained liability notwithstanding principle as well as the mercantile system of accounting, the liability is applicable in principle under section 37 of the Act. - ITA No. 534/JP/2017 And ITA No. 510/JP/2017 - - - Dated:- 12-10-2017 - SHRI KUL BHARAT, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri P.C. Parwal(CA) For The Revenue : Smt. Rolly Agarwal(CIT) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in confirming the action of Ld. Assessing Officer in disallowing depreciation claim of ₹ 42,49,575 in respect of intangible asset in the nature of business rights. 8. The appellant craves leave to add, amend, alter or modify any ground of appeal. 9. The appropriate cost be awarded to the assessee. 3. Briefly stated the facts of the case are that, the case of the assessee was picked up for scrutiny assessment and the assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) was framed vide order dated 25.02.2015. While framing the assessment, the AO made addition of ₹ 63, 44,181/- on account of disallowance of land tax paid on the ground that the assesee himself had stated that the amount had been deposited under the direction of the court and the matter was sub-judice before the Hon ble Rajasthan High Court. Hence, the Assessing Officer made addition on account of disallowance of Mine Closure charges of ₹ 4,70,80,000/-, the Assessing Officer also made addition on account of Interest on Deposits of ₹ 13,40,90,000/-, the Assessing Officer made other disallowance in respect of Corporate Social Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / financial institutions at an average borrowing cost of 13% and the subordinated loan has been taken at a rate of 10%. 2. It is the above borrowed funds which have been utilised for depositing in Escrow Account for the purpose of acquiring land by RSMML and interest paid on such borrowing has been charged to CWIP. On the amount so deposited in the Escrow Account in the name of RSMML, the interest received is inextricably linked to the cost of the project and therefore, such interest income cannot be charged to tax as income from other sources but needs to be reduced from the cost of the project. Even the Government in its letter dt. 11.07.2011 (PB 193) has stated that expenditure related to LAO and expenditure incurred by RSMML can be adjusted against the interest accrued on the amount deposited by the assessee. Thus, it is a case of borrowed funds advanced to RSMML (the entity authorized to acquire the land for the assessee for its mining project as per Implementation Agreement) yielding interest income till it is utilized towards the project. The case of the assessee is therefore, directly covered by the ratio of decision of Supreme Court in case of CIT Vs. Bokaro Steels L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above decision, Hon ble Supreme Court distinguished the decision in case of Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT by giving the following findings at Para 7 of his order:- The appellant, however, relied upon the decision of this Court in Tuticorin Alkali Chemicals Fertilizers Ltd. vs. CIT (supra). That case dealt with the question whether investment of borrowed funds prior to commencement of business, resulting in earning of interest by the assessee would amount to the assessee earning any income. This Court held that if a person borrows money for business purposes, but utilizes that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilized by the assessee whichever way he likes. Merely because he utilised it to repay the interest on the loan taken, will not make the interest income as a capital receipt. The Department relied upon the observations made in that judgment (at p. 179) to the effect that if the company, even before it commences business, invests surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income. 4. The AO inspite of the decision of Bokaro Steel Ltd. cited before him has not given any finding as to how the ratio of this decision is not applicable to the facts of the assessee s case. Infact the AO himself has observed that there was no motive of the assessee to invest the funds with an intention to earn the income by way of interest though he has incorrectly mentioned that the escrow account is maintained by RSMML on behalf of the assessee. The Ld. CIT(A) though observed that in case of Bokaro Steel Ltd., interest received from contractors on advances given to him was held to deductible from the project cost because the same was directly relatable to the execution of the contract for the successful completion of the project but still did not place anything on record as to how the amount given to RSMML for acquiring the mining rights in the land on which interest is refunded by RSMML to the assessee is not inextricably linked to the project. 5. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness could not be classified as income from other sources. We also note a distinguishing feature in the instant case that the assessee is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals Fertilizers (supra) and the interest has to be used solely for the purposes of implementation of the specified projects only. The impugned interest receipt of ₹ 35,39,479/- on such borrowed funds relates to the mega road projects/stretches which were under construction and the completed road projects/stretches upto the date of commencement of commercial operations. Therefore, the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head Capital work in progress and the same cannot be brought to tax under the head income from other sources. 6. The decisions relied by Ld. CIT(A) reported in 31 taxmann.com 165 (Hyd.), 16 taxmann.com 242 (Bom.), 234 ITR 412 (SC) and 248 ITR 110 (SC) all related to the case of interest earned on sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such interest received is taxed as income from other sources, the interest expenditure incurred is allowable u/s 57. The Ld. CIT(A) without appreciating the evidences produced before her has incorrectly held that direct nexus of interest bearing funds to the specific deposits which earned interest has not been proved. In view of above, the addition of ₹ 12,64,01,627/- confirmed by Ld. CIT(A) by holding that interest income is to be taxed as income from other sources be directed to be deleted. 5.2 Ld. D/R opposed the submissions and supported the orders of the authorities below. Ld. D/R submitted that, admittedly, the interest is earned on unutilized amount lying with RSMML. As per the assessee s own sharing this amount is paid to the assessee on the direction of Rajasthan Government. 5.3 We have heard the rival contentions, perused the material available on record and gone through the order of the authorities below. The Assessing Officer made addition on the basis that the assessee earned interest on FDR of sum of ₹ 13,40,90,000/-. This amount was credited by the assessee company as capital work in progress on the ground that it is purely with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No. 2, it is contended by the assessee that in earning this income the assessee has incurred expenditure that which allowable u/s 57 of the Act. It is contended that the interest cost incurred by the assessee of such borrowing is ₹ 17.94 crores whereas the interest earned is only ₹ 12.64 crores. We have given our thoughtful consideration to this submission of the Ld. Counsel for the assessee has per Section 57 of the Act. As per section 57 of the Act income chargeable under the head Income from the other sources shall be computed after making the deductions of expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. Therefore, the asessee is required to demonstrate for the purpose of claiming deduction of expenditure that such expenditure was wholly and exclusively incurred or expended for earning such income. The assessee is required to prove nexus between the expenditure and the income so earned. Under these facts, we deem it proper and in the interest of justice to restore this issue to the file of the Assessing officer for verification of the claim of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down by the Ministry of Environment Forest. It is stated that expenditure is not in the nature of the CSR expenses as mentioned in the Section 135 of the Companies Act, 2013. 6.5 We have given our thoughtful considerations to the rival contentions, in our view, a provision for expenditure is allowable if the assessee proves that such expenditure is required to be laid down on the basis of past experience and deduced scientifically. There is no dispute with regard to the fact that no expenditure is made during the year under appeal. The assessee has also not stated past history or the past experience. Therefore, there is no basis available for arriving at the figure of expenditure so claimed under these facts; we are unable to accept the contentions of the Ld. Counsel for the assessee. Hence, the finding of the Ld. CIT(A) is hereby affirmed on this issue. This Ground of the assessee s appeal is dismissed. 7. Ground no. 4 5 are inter-related, therefore are being disposed of together. 7.1 Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. For the sake of clarity the submissions of the assessee are reproduced herein below:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The AO has observed that the land is not a depreciable asset and therefore, there is no question of allowability of depreciation over the same. In observing so he ignored that assessee has not claimed any depreciation but has claimed amortization so that the expenditure incurred on acquiring the surface right over the land for doing the mining is spread over the period of 30 years for which such right is available to the assessee. It may be noted that the sole purpose of the expenditure incurred by the assessee is for extraction of mineral resources and extraction of such mineral is the only economic use of the right which it acquired over the land. Therefore, the useful life of the right over the land, considering the matching concept of accountancy, has to be charged off over the lease period of such land to arrive at the correct profits for the year. Such amortization of right over the land is an expenditure incurred wholly and exclusively for the purpose of business and therefore, the same is allowable u/s 37(1). The concept of amortization of expenditure is also recognized by the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT 225 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate maintain basis. It is permitted to mine the lignite only to the extent it is required for power generation by the power plant. No sale of lignite by the assessee is permitted. Thus, the assessee has only a limited right and that too for a period of 30 years only. The CBDT in Circular No.9/2014 dt. 23.04.2014 with reference to treatment of expenditure incurred for development of roads/highways in BOT agreements has clarified in para 3 to 8 as under:- 3. In BOT arrangements for development of roads/highways, as a matter of general practice, possession of land is handed over to the assessee by the Government/notified authority for the purposes of construction of the project without any actual transfer of ownership and such assessee has only a right to develop and maintain such asset. It also enjoys the benefits arising from use of asset through collection of Toll for a specified period without having actual ownership over such asset. Therefore, the rights in the land remain vested with the Government or its agencies. Thus, as the assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred, it cannot therefore be treated as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. 5. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement. In view of the ratio laid down in the above circular, the expenditure incurred by the assessee for obtaining surface rights over the land for mining for a period of 30 years is required to be allowed on amortization basis over the said period. 7. It is further submitted that similar issue has arisen in case of Mangalam Cement Ltd. where the AO did not allowed the claim of the assessee in respect of compensation paid to the farmers for acquiring the land for mining over the period of lease. The Ld. CIT(A) allowed the claim of the assessee against which revenue filed before the ITAT. Hon ble ITAT in ITA No.425/JP/2014 dt. 29.06.2017 for AY 2010-11 at para 10.1 to 10.3 held as under:- 10. Ground No.1, is against directed the AO to allow expenditure in 20 annual instalments of compensation paid to the farmers. 10.1 Ld. Departmental Representatives supported the Assessment order and submitted that the Ld. CIT(A) was not just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specified period. Such right is an intangible asset as defined in section 2(11) of the IT Act where intangible asset is defined as being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. An intangible asset is eligible for depreciation u/s 32(1)(ii) of the Act. The ITAT Hyderabad Bench in case of NMDC Ltd. Vs. JCIT 43 CCH 491 in similar facts at para 20-22 of its order held as under:- 20. Before us, the learned AR of the assessee submitted that the accounting policy/method is consistently followed by number of years and, therefore, the same may be allowed as deduction. He relied on the following case laws: 1. East India Minerals Ltd. Vs. JCIT, ITA No. 224/CTK/2012. 2. Mysore Minerals Ltd. Vs. ACIT, ITAT, Bangalore 100% allowed as revenue expenditure. 3. Jitendra Pathiak Vs. DCIT, ITA No. 185/CTK/2010 21. The learned DR has relied on the order of the CIT(A). 22. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. Similar came up for consideration before the coordinate bench of ITAT, Cut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT(A) and direct the AO to delete the addition made in this regard. 9. The Ld. CIT(A) in this connection relied on the decision of ITAT, Bangalore Bench in case of M/s Cyber Park Development Construction Ltd. (supra). In this case assessee was engaged in business of development and maintenance of infrastructure facilities for software and related sectors. For this purpose, it had taken land on lease for period of 66 years from Software Technological Park of India (STPI). In consideration of granting leasehold rights, assessee-company developed 42,665 sq.ft. of space for use by STPI in terms of agreement entered into by it with STPI. Cost of development of this space was treated as cost of leasehold rights treating as intangible asset and depreciation was claimed on this. On these facts it was held that term 'intangible assets' had been defined being know-how, patents, copy rights, trade marks, license, franchises or any other business or commercial rights of similar nature. Obviously, leasehold rights on land did not fall in category of above categories. It did not fall even in residuary category of any other business or commercial rights of similar nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lignite Mines was granted to M/s RSMML for 30 years and the said mining lease was transferred to the appellant company with the prior approval of Government of Rajasthan. The expenditure incurred by M/s RSMML for the same was transferred by the appellant company. The appellant company commenced mining operation at Kapurdi Mines and amortized ₹ 8.18 crore of the total surface right expenses on proportionate basis of total lignite extracted from the mines during the financial year vis- vis the total lignite permitted to be extracted from Kapurdi Mines during the lease period of 30 years. The appellant has claimed that the deduction for acquisition of business rights has been made on a most rational basis and should be allowed. It was further submitted that the expenditure has been incurred to obtain the rights to conduct mining business and this expenditure amounts to payment for any other business or commercial rights and if the expenditure is treated as capital expenditure, then the same should be considered for 32(1)(ii) of the I.T. Act, 1961. An alternate plea was also taken that the expenditure was also allowable under section 35E of the I.T. Act, 1961. Reliance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business or profession shall be allowed in computing the income chargeable under the head profits and gains of business or profession . [ Explanation: For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.] [( 2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.] Section 37, therefore, contemplates that if the nature of expenditure is not the capital/personal in nature, and is laid out of expended wholly and exclusively for the purpose of business or profession, then it is required to be allowed by the authority. In our view, the expenditure, which was incurred for getting the mining land on leasehold basis or mining basis, is to be treated as capital expenditure because the lessee will have the enduring benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee will double taxed as the AO has already completed the assessment for the A.Y. 2011-12 on the basis on the written back of the amortization of the assets amounting to ₹ 5,79,10,137/-. In our view the assessee was taxed on the basis of the submission made by it before the AO before the assessment or the A.Y. 2010- 11 is finalized. The mere acceptable of the methodology by the AO for A.Y. 2011-12 will not withhold us to decided the issue on merit and in law for the . Authority and bound to follow the principle laid down by the Tribunal and not the vice versa. Therefore, the submission of the Ld. A/R for the assessee on this count is also rejected. However, it is made clear that the assessee would be entitled to all benefits as available in law and the assessee will not be subjected to double taxation for the A.Y. 2011-12. The AO is directed to give effect to the above said direction and nullify the effect of the double taxation, if any, as claimed by the assessee. In the light of the above, ground no. 2 of the assessee is dismissed. The issue of allowability of this expenditure u/s 37(1) and 32 of the IT Act, 1961 have been elaborately discussed. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the appellant in view of provisions of section 35E(3)(i) as a right has been acquired over the site of source of the mineral. In view of the above discussion the judgments relied on, the disallowance of land amortization charges is confirmed. This ground of appeal is dismissed. 7.3 We have heard the rival contentions, perused the material available on record. The issue requires to be adjudicated is whether the assessee has rightly claimed amortization of expenses of ₹ 8,18,38,172/-. The AO has decided the issue as under:- I have carefully considered the reply of the assessee but same is not acceptable because of contention of assessee to amortize the land u/s 37 over a period of 30 years worked out on the basis of total lignite extracted from the mines during financial year vis- -vis total lignite permitted to be extracted from Kapurdi mines is not correct. The assessee has the ownership right over the land though it has not been registered in the name of assessee. From the plain reading of the agreement, it is clear that the entire land acquisition would be done by RSMML and the funding would be provided by RWPL. The basic intent of funding by JV partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has incurred the expenditure. The contention of the assessee is that if the expenditure is treated as capital expenditure then it is entitled for claim of depreciation. Further, the expenses are incurred for business purpose, as per assessee the right which is acquired over the land mine lignite for 30 years to be used for power generation as per the letter dated 30.03.2011, Government of Rajasthan. It is stated that the assessee incurred a sum of ₹ 365.85 crores as surface right expenses to obtain business rights for conducting mining business at Kapurdi Mines for lease periods of 30 years without acquiring land or fixed assets. 7.5 Now, the issue requires consideration is whether such expenditure is allowable to amortize as claimed. Admittedly, both the authorities below have disallowed amortization of expenses. We find that, the Co-ordinate Bench held that the expenditure incurred is for enduring benefit is of capital in nature, therefore not allowable u/s 37 of the Act. It is contended by the Ld. Counsel for the assessee that the Bench however allowed the claim of depreciation. He submitted that Circular issued by the CBDT Circular No. 9/2014 dt. 23.04.2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure made by the company in acquiring this advantage which was certainly an enduring advantage was thus of the nature of capital expenditure and was not an allowable deduction under section 10(2)(xv) of the Income-tax Act. The further protection fee which was paid by the company to the lessor under clause 5 of the deed was also of a similar nature. It was no doubt spread over a period of 5 years, but the advantage which the company got as a result of the payment was to enure for its benefit for the whole of the period of the lease unless determined in the manner provided in the last part of the clause. It provided protection to the company against all competitors in the whole of the Khasi and Jaintia Hills District and the capital asset which the company acquired under the lease was thereby appreciated to a considerable extent. The sum of ₹ 35,000 agreed to be paid by the company to the lessor for the period of 5 years was not a revenue expenditure which was made by the company for working the capital asset which it had acquired. It was no part of the working or operational expenses of the company. It was an expenditure made for the purpose of acquiring an appreciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of amortization of the cost of surface rights. There is no dispute with regard to the fact that the assessee neither acquired title over the mines nor the rights into any fixed assets by making expenditure. The assessee has acquired absolute rights for mining lignite this is essentially for 30 years without any impediment. The moot question is whether such expenditure is for acquiring any capital asset or merely some business rights. It is not the case of acquiring fixed assets for enduring benefit but the assessee would have enduring business rights in respect of mining the lignite. Admittedly, the expenditure has been incurred through RSMML it is not clear whether the RSMML has also claimed such expenditure in the absence of same, we deem it proper to restore this issue to the file of the Assessing Officer for decision afresh. The AO would verify whether the RSMML has made any claim on the same expenditure which the assessee has claimed and ascertain the outcome of such claim whether such expenditure has been allowed. Then, the AO would decide in accordance with the law and the case laws as cited by the assessee. Thus, this ground of the assessee s appeal is allowed for st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all the licenses, approvals, consent required for operation of the mines and the mining project are valid and continued to be valid, subsisting and shall be renewed if required during the term of this agreement. Clause 3.1 which is relevant to decide the issue has not been reproduced by the Ld. CIT(A) at Pg 34 of the order while reproducing clause 3.2 3.3 of this agreement. In view of these clauses of the agreement, it is evident that assessee has obtained an intangible asset on which it is entitled to depreciation. 3. The Supreme Court in case of Techno Shares Stocks Ltd. Ors. Vs. CIT 327 ITR 323 held that membership card of BSE is a business or commercial right as it gives a right to access the Exchange and to participate therein to a non-defaulting continuing member and in that sense it is a licence or akin to licence in terms of s. 32(1)(ii) and therefore, depreciation is allowable on the cost of BSE Membership Card. The held part of this judgment is reproduced as under:- On the analysis of the rules of BSE, it is clear that the right of membership (including right of nomination) gets vested in the Exchange on the demise/default committed by the member; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein and in that sense it is a licence or akin to licence in terms of s. 32(1)(ii). Such a right vests in the Exchange only on default/demise in terms of the rules and bye-laws of BSE, as they stood at the relevant time. This judgment should not be understood to mean that every business or commercial right would constitute a licence or a franchise in terms of s. 32(1)(ii). On the facts and circumstances of these cases the Tribunal was right in holding that depreciation was allowable on the cost of the Membership Card under s. 32(1)(ii).-Vinay Bubna vs. Stock Exchange, Mumbai Ors. (1999) 155 CTR (SC) 519: (1999) 6 SCC 215 and Stock Exchange, Ahmedabad vs. Asstt. CIT (2001) 166 CTR (SC) 285: (2001) 248 ITR 209 (SC) relied on; CIT vs. Techno Shares Stocks Ltd. Ors. (2009) 225 CTR (Bom) 337: (2009) 28 DTR (Bom) 201 set aside. The Supreme Court again in case of CIT Vs. SMIFS Securities Ltd. 348 ITR 302 held that stock exchange membership card is an asset eligible for depreciation u/s 32. It further held that goodwill arising on amalgamation would fall under the expression any other business or commercial right of similar nature and is an asset under Explanation 3(b) to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. v. CIT, 327 ITR 323 wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a license or akin to a license which is one of the items falling in s 32(1)(ii) of the Act. In view of the above discussion, the specified intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in s 32(1)(ii) of the Act and were accordingly eligible for depreciation under that Section. In view of the above, it is not necessary to decide the alternative submission made on behalf of the assessee that goodwill per se is eligible for depreciation under s32(1)(ii) of the Act. The substantial question of law is decided in the affirmative and this appeal is allowed in favour of the assessee and again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion with the business which is being acquired. The right is acquired for carrying on the business and therefore it is a business right. The word 'commercial'' is defined in Black's Law Dictionary as related to or connected with trade and commerce in general', 'commerce' is defined as 'the exchange of goods, productions or property of any kind; the buying, selling and exchanging of articles'. A right by way of non-compete is acquired essentially for trade and commerce and therefore it will also qualify as a commercial right. A right acquired by way of non-compete can be transferred to any other person in the sense that the acquirer gets the right to enforce the performance of the terms of agreement under which a person is restrained from competing. When a businessman pays money to another businessman for restraining the other businessman from competing with the assessee, he gets a vested right which can be enforced under law and without that, the other businessman can compete with the first businessman. When by payment of non-compete fee, the businessman gets his right what he is practically getting is kind of monopoly to run his-business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to other business or commercial rights of similar nature . In the facts of the present case, a reading of the agreement between STL and the assessee clarifies that a specific amount, i.e., ₹ 9 Crores was paid by the assessee to the transferor who owned commercial rights towards the network and the facilities. The consideration was a specific value but for which the network would not have been otherwise transferred. In that sense, it constituted business or commercial rights which were similar to the enumerated intangible assets. In so concluding, however, this Court does not lay down the general or particular principle that every such claim has to be necessarily allowed as was apparently understood by the ITAT. The circumstance that the declaration of law in Smifs Securities (supra) envisions inclusion of goodwill as an asset and, therefore, entitled to depreciation, in other words does not necessarily mean that in every case the goodwill claim has to be allowed. In the present case, though termed as goodwill, what was actually parted with by STL was a commercial right, i.e., exclusivity to the network which would not have been otherwise available but for the terms of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment the assessee has acquired knowhow or any other business of commercial rights or similar nature, he would allowed the depreciation as claimed by the assessee. This ground of assessee s appeal is allowed for statistical purposes. 10. Ground no. 8, is general in nature and needs no separate adjudication. 11. Ground no. 9 is prayer for cost. After considering the submissions of the Ld. Counsel for the assessee we hold that parties bear their own cost. 12. In the result, appeal of the Assessee is partly allowed for statistical purposes. ITA No. 510/JP/2017. (Revenue) 13. Now, we take up Revenue s appeal in ITA No. 510/JP/2017 pertaining to the A.Y. 2012-13. The Revenue has raised the following grounds of appeal:- 1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in deleting the addition of ₹ 63,44,181/- made by the AO ignoring the fact that the expenditure was not incurred for business activity hence not allowable as revenue expenditure. 2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in allowing deduction of ₹ 4,70,80,000/- in respect of mines c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 2006 for the financial year 2011-12 for land acquired for Kapurdi Mines in the name of M/s RSMML. As per terms of JV agreement, the obligation to pay land tax being of the company, the same was accounted for and the levy of tax demand was challenged in the Rajasthan High Court. As per direction of the court, 30% of the demand was to be paid and stay was granted for the balance and subsequently the writ petition filed by the company was also dismissed by the court. In the present proceedings, it is submitted that as per the Rajasthan Finance Act, 2006, land tax is to be paid by the mine owner and land tax liability of ₹ 2,11,47,269/- pertaining to financial year 2011-12 is a crystallized statutory business liability. It was further stated that the Assessing Officer s observations that there was dispute of ownership of land is also not correct as the name of the M/s Rajasthan State Mines Minerals Ltd. is appearing in revenue records, the demand was raised on it but related to the company. Further, the writ petition was filed in the court by the company as the liability pertains to the company in terms of the implementation agreement and Joint Venture agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee supported the order of the Ld. CIT(A) and submitted that this issue is squarely covered in favour of the assessee. 15.3 We have heard the rival contentions, we find that Ld. CIT(A) has decided the issue in para 3.3. of the order read as under:- 3.3 I have considered the facts of the case, assessment order and the written submissions of the appellant. As noted, a sum of ₹ 4,70,80,000/- was debited toward min closure charges, was not allowed by the Assessing Officer, as the same had not been deposited to the mining department and only a provision had been made. The Assessing Officer, as the same had not been deposited to the mining department and only a provision had been made. the Assessing Officer further held that as per the mine closure plan the amount so deposited in the Escrow account is interest bearing and the interest is realizable after every five years, therefore, the sum is in the nature of a deposit and not expenditure, hence was not allowable. In the present proceeding, it has been stated that as per guidelines issued by Ministry of Coal, Government of India, it is mandatory for all coal mine owners to provide for an annual mine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount is ascertainable and discernable to be spent on the closure of the mines, in view of the formula given by the Ministry of Coal, therefore, in our view the liability is not a contingent liability and is required to be made provision in present and is required to be spent in a future date. The judgment referred by the Ld. A/R for the assessee in the matter of Kedarnath Jute Mfg Co. Ltd. (Supra) and also in the matter of Rotork Controls India Pvt. Ltd. (Supra) are squarely applicable to the facts and circumstances of the case. 30.4 When the above principles are applied to the facts of the present case it can be progressive or contingent mine closure plan and final mine closure plant. The assessee has operating lignite mines at Hiral, Nagor and Sonari. As a result of the mine closure plans issued by the Government of India the asessee has an present obligation to provide for the expenditure which it have to fund on closure of the mines and thus it has a present obligation as a result of the past events, it is certain that an outflow of resources would be required to settle the obligation and a reliable estimate can be made of the amount of the obligation which is ment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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