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TMI Blog2010 (1) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. 3. The interconnected and common issues in this appeal of the revenue and Cross Objection of the assessee is against the order of CIT(A), revenue is against allowing depreciation without considering the provisions of section 35E of the Act and assessee is 2 ITA 788/K/2010 Integrated Coal Mining Ltd.& CO 60/K/2010 A.Y.03-04 against disallowing additional depreciation. For this, the revenue raised following ground nos. 1 and 2: "1) That Ld. CIT(A) has erred in law as well as on facts, in allowing depreciation of ₹ 66,00,000/- claimed by the assessee on Geographical Report, without considering that this is an expenses covered well within the provisions of Sec. 35E. 2) That Ld. CIT(A) has erred in law as well as on facts, in allowing depreciation claim of the assessee without considering that as per the second proviso to Sec. 32(1)(iia) depreciation is to be allowed in respect of any plant & machinery installed for the purpose of business in any office premises whereas the Geographical Report is neither a plant or machinery for it was installed in the office premises." For this, assessee raised the following ground nos. 1 and 2: "1. That the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graphical report' if at all it can be considered a 'plant' is certainly be said to 3 ITA 788/K/2010 Integrated Coal Mining Ltd.& CO 60/K/2010 A.Y.03-04 be 'installed' in the office premises. Therefore, the assessee is not entitled to claim additional depreciation u/s. 32(1)(iia) of the Act." 5. The CIT(A) allowed depreciation but disallowed additional depreciation by holding as under: "I have gone through the submissions of the appellant and also the order of A.O. The A.O. has treated the expenditure incurred on purchasing the geographical report within the ambit of section 35E of the Act. I agree with the decision of the A.O. that by acquiring 'geographical report' the assessee has not acquired the right over the Mining area. The acquisition of report is only a condonation in acquiring rights over the mine as per submissions of appellant. The Ld. A/R has not furnished any document to prove that by acquiring geographical report the assessee has acquired the right over the mining area. In normal course, the mine or coal block is allotted depending on the tender quotations. The argument of the appellant that purchase of report amounts to acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of deposit and whether mining activity can be carried on in that location. In my opinion it is know-how and is intangible asset u/s 32(1)(ii) of I. T. Act. Regarding additional depreciation claim of 15% as per section 32(iia) of the Act, appellant is not eligible for the same. The second proviso to section 32(1)(iia) states that no depreciation shall be allowed in respect of any machinery or plant installed in any office premises. The 'Geographical report' is basically an office document and is treated as intangible asset and not as a plant. The appellant is not entitled to claim additional depreciation u/s 32(1)(iia) of the I. T. Act. I agree with the A.O. on this issue. The AO is directed to allow depreciation at the 4 ITA 788/K/2010 Integrated Coal Mining Ltd.& CO 60/K/2010 A.Y.03-04 applicable rate by treating the Geographical Report as an intangible asset. This ground of appeal is partly allowed. Aggrieved, now both are in cross appeals. 6. We have heard rival contentions and gone through facts and circumstances of the case. Before us assessee contented that GR is a document, which gave right to the assessee to win and commercially exploit the deposits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out coal seams for exploration in Sarshtali block, which proved the existence of 6 index seams in the formation and describe the individual seams also. This report co-relates seams/sections. Even this report contains description and quality of coal seams generating coal. This means that this GR is a document which gives general description 5 ITA 788/K/2010 Integrated Coal Mining Ltd.& CO 60/K/2010 A.Y.03-04 of the geography, location of the mine and technical details of coal seams and quality of coal available in that coalfield. We have seen from the contents of the GR, that it contains general description of the mining area and the knowhow of the mine. The report also mentions the mineable potentiality of the block and technical description of different layers of the coal seams in Sarshtali coal block. Accordingly, this GR is a fundamental document to assess the feasibility of the mine, evaluate economics of mine and also contain mine plan according to which mining activity is to be carried on. This report gives an idea of the nature of deposits i.e. minerals i.e. coal and whether mining activity can be carried in this location or not. It means that this GR is not a source for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various documents such as drawings, designs, charts, plans, processing data and other literature included in documentation service, the supply whereof was undertaken by the foreign collaborator, more or less formed the tools by using which the business of manufacturing the instruments was to be done by the appellant and for acquiring such technical know-how through these documents, a lump sum payment was made. This expenditure was incurred by the appellant as and by way of purchase price of the drawings, designs, charts, plans, processing data and other literature, etc. comprised in "documentation service" and was of a capital nature as a result whereof a capital asset of technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature was acquired by the appellant. (iii) That "plant" was not necessarily confined to an apparatus which was used for mechanical operations or process or was employed in mechanical or industrial business. But in order to qualify as "plant ", the particular article had to have some degree of durability. The test to be applied was: Did the article fulfill the function of a plant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003, which is only inclusive definition and in order to ascertain whether a particular item falls within the category of plant or not, various principles which emerges from the various decisions of Hon'ble Supreme Court and Hon'ble High Courts can be summarized as under:- (i) The functional test is a decisive test. (ii) An item which falls within the category of 'building' cannot be considered to be 'plant'. Buildings with particular specification for atmospheric control like moisture temperature are not 'plant'. (iii) In order to find out as to whether a particular item is a plant or not, the meaning which is available in the4 popular sense, i.e. the people conversant with the subject-matter would attribute to it, has to be taken. (iv) The term 'plant' would include any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to any apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. The article must have some degree of durability. (v) The building in which the business is carried on cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in law as well as on facts, in allowing ₹ 3,57,45,560/- as Capital Expenditure without considering that the same was incurred by the assessee in respect of an Asset which is a Govt. property and the assessee has only limited right to such property along with other entities, hence such expenditure is revenue in nature as per Sec. 17(1). 9. The brief facts leading to this issue are that the assessee's coal mines are located at Sarsathali in the district of Burdwan, West Bengal and the location is near to Barabani Railway Station, which is about 10.5 km. from mines. Accordingly, to facilitate transport of coals from its mines, assessee incurred expenditure of ₹ 3,57,45,560/- as contribution to Burdwan Zilla Parishad for up-gradation/construction of a link road from Barabani Railway Station to mines at Sarasathali. The Assessing Officer by noting that this expenditure is incurred by the assessee and it gives advantage of enduring nature and hence, he disallowed the entire expenditure. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by giving following finding: "I have gone through the submissions of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee under the Sugarcane Development Scheme towards meeting the cost of construction of roads in the area around the factory. Now, there can be no doubt that the construction of roads in the area around the factory was considerably advantageous to the business of the assessee, because it facilitated the running of its motor vehicles for transportation of sugarcane so necessary for its manufacturing activity. It is not as if the amount of ₹ 50,000 was contributed by the assessee generally for the purpose of construction of roads in the State of Uttar Pradesh, but it was for the construction of roads in the area around the factory that the contribution was made and it cannot be disputed that if the roads are constructed around the factory area, they would facilitate the transport of sugarcane to the factory and the flow of manufactured sugar out of the factory. The construction of the roads was, therefore, clearly and indubitably connected with the business activity of the assessee and it is difficult to resist the conclusion that the amount of ₹ 50,000 contributed by the assessee towards meeting the cost of construction of the roads under the Sugarcane Development Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contribution of ₹ 3.57 crores during the relevant previous year to Burdwan Zilla Parishad for the purpose of up-gradation/construction of a link road from its mines at Sarasthali to the Barabani railway station in order to facilitate transportation of coal mined so that the business of the assessee could be conducted more efficiently and profitably. There is also no dispute to the fact that the said road is a public road and belongs to the Burdwan Zilla Parishad and the assessee is not owner of the road. In view of the settled position on the issue, we find that the sum of ₹ 3.57 cr. incurred during the relevant previous year by the assessee towards contribution for up-gradation/construction of the link road belonging to the Burdwan Zilla Parishad is allowable as revenue expenditure in the year under appeal having been incurred wholly and exclusively for the purpose of the business of the Company. We, accordingly, uphold the order of CIT(A) allowing the claim of deduction of the sum of ₹ 3.57 cr. as revenue expenditure. This issue of the revenue's appeal is dismissed. 12. In the result, appeal of revenue and C.O. of assessee, both are dismissed. Order pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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