Income Tax Appellate Tribunal - Kolkata
Income-Tax Officer vs Manoj Kumar Chatterjee on 23 October, 1986
Equivalent citations: [1987]21ITD19(KOL)
ORDER
S.K. Jain, Judicial Member
1. This departmental appeal and cross-objection of the assessee thereto against the order of the AAC relating to the assessment year 1973-74, arise under these facts and circumstances.
2. The assessee for the purpose of taking out and selling sand purchased lands and right to take out sand from some other lands for certain period and also took certain lands on lease for the same purpose by entering into seven transactions and thereby incurred expenditure of Rs. 2,19,998, during the accounting period from 1-4-1972 to 31-3-1973 relevant to the assessment year 1973-74. After taking out and selling sand from those lands he valued the cost of the lands together with his right to take out sand at Rs. 2,06,000 at the end of the accounting year and thus claimed the difference of Rs. 13,998 as revenue expenditure. In the opinion of the ITO it was capital expenditure. He, therefore, disallowed the same and added (it) back to the profit of the assessee. The assessee took up the appeal before the AAC who held that the said amount was allowable as revenue expenditure. Aggrieved by the said order of the A'AC the department has come up in appeal, supporting the order of the ITO that the said amount should not be taken as revenue expenditure. The assessee on the other hand in the cross-objection claimed that the entire amount of Rs. 2,19,998 should have been taken as revenue expenditure incurred for acquiring stock-in-trade. Thus, his cross-objection is in excess of his claim in appeal before the AAC. His claim in appeal before the AAC was limited to the amount of Rs. 13,998 disallowed by the ITO.
3. In order to appreciate the controversy it is necessary to examine the nature of seven transactions in which the assessee incurred expenditure of Rs. 2,19,998. There was outright sale of certain pieces of land in favour of the assessee and others for consideration of Rs. 36,000, Rs. 30,000 and Rs. 19,393.65 by virtue of three sale deeds dated 1-8-1972, 1-8-1972 and 19-3-1973. The assessee and the co-purchasers named in those sale deeds acquired absolute right, title and interest in those lands purchased for taking out sand therefrom. Total amount spent on those lands was Rs. 85,393.65. The other set of two transactions was by virtue of two lease deeds dated 13-3-1973 corresponding to 29th Falgoon, 1379 Baisakh Samvat and dated 14-3-1973 corresponding to 30 Falgoon, 1379 Baisakh Samvat. By these two lease deeds certain pieces of lands were taken on lease for a period of eight years ending on 30 Chaitra, 1387 Baisakh Samvat for a consideration of Rs. 19,878.44 and Rs. 44,847.70. The said consideration has been described in the document as compensation money. The lease as mentioned in the documents is in respect of raising sub-soil sand, for storing the same, for movement of vehicles and for construction of houses for the employees. The total amount spent on those two leases was Rs. 64,726. Yet there is a third type of transaction which was entered into by the indentures dated 5-4-1972 arid 5-8-1972. By those two documents right, title and interest for raising sub-soil sand on digging surface of the lands was purchased for a period of 9 years and 11 years and 11 months respectively for consideration of Rs. 24,878 and Rs. 30,000 respectively, total Rs. 59,978.
4. Contention of learned departmental representative is that the entire expenditure incurred by the assessee was in the capital field. According to him, by virtue of three documents effecting outright sales the assessee acquired capital asset. Further, it is contended by him that by the remaining four documents the assessee acquired leases of the lands which too according to the common law were capital assets. Any loss in the value of the capital assets due to extraction of sand was capital loss and, therefore, the assessee was rightly disallowed Rs. 13,998 as revenue expenditure.
5. Purchase of right, title and interest to take out sand for a period of 9 years and 11 years and 11 months by virtue of two documents dated 5-4-1972 and 5-8-1972 is taken by learned counsel for the assessee same as lease. According to him, the assessee took four leases by the documents dated 5-4-1972, 5-8-1972,13-3-1973 and 14-3-1973. His contention, is that the assessee is entitled to deduction of lease money spent by him. for acquiring stock-in-trade. On the same parity of reasoning his further contention is that the sale consideration spent on three lots of lands should also be deductible. Alternatively, it is also contended by him that the deductions allowable may be spread over a number of years for which the assets are utilizable. He in support placed reliance upon Golan Lime Syndicate v. CIT [1966] 59 ITR 718 (SO), M.A. Jabbar v. CIT [1968] 68 ITR 493 (SO) and Associated Stone Industries (Kotah) Ltd. v. CIT [1971] 82 ITR 896 (SO).
6. By the three transactions of outright purchase of lands evidenced by the deeds of conveyance dated 1-8-1972, 1-8-1972 and 11-3-1973 the assessee incurred expenditure of Rs. 85.393. This expenditure is plainly capital expenditure. In this connection reference, may be made to judgment of the Hon'ble Supreme Court in the case of Madnani Development Corporation (P.) Ltd. v. CIT [1986] 161 ITR 165.
7. The other set of transaction is acquisition of two leases for a period of eight years each which is evidenced by the lease deeds dated 13-3-1973 and 14-3-1973. These leases, as the lease deeds mention, were in respect of raising sub-soil sand, for storing the same, for movement of vehicles, for construction of houses for the employees of the sand pits and for purchase and sale of sand (sic). The cases of M.A. Jabbar (supra) and Golan Lime Syndicate (supra) are not applicable to such a situation. The Hon'ble Supreme Court considered the cases of M.A. Jabbar (supra) and Madnani Development Corporation (P.) Ltd. (supra) [and] observed as under:
Learned counsel for the assessee relies on M.A. Jabbar v. CIT [1968] 68 ITR 493 (SC), but that was a case where the land was taken on lease for a limited period of 11 months with the right to enter, occupy and use for quarrying purpose and to render marketable and carry away sand within or on the land. This court held that the lease money paid by the assessee was deductible as revenue expenditure. The court referred to the short period of the lease which indicated that the lease was not an asset of an enduring nature, that the only right under the lease was to take away the sand lying on the land, and, in fact, as the sand lay on the surface, no question arose of digging and excavating for the sand and no operations were to be performed on the land...(p. 167)
8. What is significant is that sand to be excavated was not on the surface of the land but was to be raised from sub-soil and for that purpose pits were to be dug. The Hon'ble Supreme Court considered their earlier judgments in the cases of Pingle Industries Lid. v. CIT [1960] 40 ITR 67, K.T.M.T.M. Abdul Kayoom v. CIT [1962] 44 ITR 689 and M.A. Jabbar's case (supra) in the case of R.B. Seth Moolchand Suganchand v. CIT [1972] 86 ITR 647 (SC). Following observations of Hon'ble Mr. Justice Jaganmohan Reddy in the case of R.B. Seth Moolchand Suganchand (supra) are pertinent :
. . .The principles enunciated for determining the nature of the expenditure have been sought to be applied to different situations arising on the facts of each case, but the difficulty in matching them with the seeming irreconcilability are perhaps explicable only on the ground that the determination in any particular case is dependent on the character of the lease or agreement, the nature of the asset, the purpose for which the expenditure was incurred and such other factors as in the facts and circumstances of that case would indicate. If we confine our attention to the mining leases, what appears to us to be an empirical test is that where minerals have to be won, extracted and brought to surface by mining operations, the expenditure incurred for acquiring such a right would be of a capital nature. But, where the mineral has already been gotten and is on the surface, then the expenditure incurred for obtaining the right to acquire the raw material, that is, the mineral, would be a revenue expenditure laid out for the acquisition of stock-in-trade. An expenditure incurred for acquiring a right to take away sand from the surface of river beds has been treated as if the sand was stock-in-trade- M.A. Jabbar v. CIT [1968] 68 ITR 493 in the same way as tendu leaves have been treated by the Privy Council in Mohanlal Hargovind's case [1949] 17 ITR 473...(p. 651)
9. In. this view sand in the sub-soil of the lands taken by the assessee on lease were not a stock-in-trade in business sense but a capital asset from which, after excavation he converted the sand into his stock-in-trade. The expenditure incurred on obtaining leases was, therefore, capital expenditure.
10. There was yet a third type of transaction. The assessee by two sale deeds dated 5-4-1972 and 5-8-1972 purchased right, title and interest for raising sub-soil sand on digging surface of the lands mentioned in the said sale deeds for consideration of Rs. 24,878 and Rs. 35,000 respectively for a period of 9 years and 11 years and 11 months respectively. Such right is definitely a benefit to arise out of land and [land] is immovable property within the meaning of Section 3(26) of the General Clauses Act, 1897. Since the right is to extract sub-soil sand, it cannot be placed on a different footing than that under the lease considered above.
11. Thus, the entire expenditure was capital expenditure and the assessee is not entitled to deduction of any part of it as revenue expenditure. The order of the AAC is, therefore, reversed and that of the ITO is restored.
12. In the result, the appeal is allowed and the cross-objection is dismissed.