Case: New India Mining Corporation Private Limited Vs. Commissioner of Income Tax

D.P. WADHWA, J. The application for exemption from filing one set of extra Court-fee refused. Deficiency of Court-fee may be met within four weeks This batch of appeals relate to the asst. yrs. 1961-62 to 1971-72 and arise out of judgments of the Bombay High Court, holding that the appellant-assessee was under no obligation to restore the lands to their original condition upon the determination of the lease and was thus not entitled to any expenditure being allowed for that purpose in computing its income The Government of Bombay on 23rd April, 1940, granted to the predecessor of the appellant, lease for a period of 30 years on the terms and conditions set out therein. These were mining leases. Clause 3 in Part V of the lease and cl. 17 in part VII are relevant for our purpose. These are Clause 3, Part V : The lessee shall pay to the Government in respect of all parts of the surface of the said lands which shall from time to time be occupied or used by the lessee under the authority of these presents rent at the rate of Re. 0-0-6 per annum per square yard of the area so occupied or used together with land revenue payable in respect of the land shown in Appendix A during the period from the commencement of such occupation or use until the area shall cease to be so occupied or used and shall be restored to its original condition which rent shall be computed and shall be paid on each of the half-yearly dates hereinabove appointed for payment of the said certain half-yearly rent provided that no such rent shall be payable in respect of the occupation or use of the area comprised in any roads or ways existing on the said lands at the commencement of the term of this lease. Clause 17, Part VII : The lessee will at the expiration or sooner determination of the said term deliver up to the Government all mines, pits, shafts, inclines, drifts, levels, waterways, airways and other works (now existing) hereafter to be sunk or made under the said lands (except such as may have been abandoned with the sanction of the Government in an ordinary and fair course of working) and all (engines, machinery, plant, buildings, structures and other works and conveniences which at the commencement of the said term were upon or under the said lands and all) engines, machinery, plant and fixtures set up by the lessee below ground level which cannot be removed without causing injury to any mines or works under the said lands (except such of the same as may with the sanction of the Government have become disused) and all buildings and structures of brick or stone erected by the lessee above ground level in good repair, order and condition and fit in all respects for further working of the said minerals. * It is not necessary for us to go into the various facets of the proceedings before the Revenue authorities except we note that the Income-tax Appellate Tribunal (the Tribunal, for short), held that the expenditure incurred by the appellant for the purpose of restoring the lease land to the original condition was permissible expense under s. 37(1) of the IT Act, 1961. This was on the basis of interpretation of the aforesaid two clauses. However, there is a clear finding that during the relevant years the appellant did not incur any expense to restore the lands to their original condition The following two questions of law as arising out of the judgment of the Tribunal were referred to the High Court for its opinion (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that both in terms of the lease agreement dt. 23rd April, 1940, between the assessee-company and the Government and under s. 108 of the Transfer of Property Act, 1882, there existed, during the relevant previous year, a liability on the company to restore the land leased to it to its original condition and that, therefore, the estimated liability for restoration charges was an eligible revenue expenditure under s. 37(1) ? (ii) On the facts and in the circumstances of the case, whether the Tribunal was correct in law in holding that the liability, if any, under the lease agreement towards restoration charges was not a part of the price paid for acquiring the lease and did not, therefore, constitute capital expenditure ? * The High Court answered the first question in the negative and against the assessee. The High Court did not give any answer to the second question Once it is held that no expense was incurred by the appellant, the question of any allowable expense being deducted in computing the income from the profits and gains of the appellant does not arise. However, the appellant is aggrieved by the observations of the High Court as well as of the Tribunal that on the interpretation of the clauses aforesaid there was no obligation on the appellant to restore the lands to its original condition. Mr. Bahuguna, learned senior counsel appearing for the assessee, refers to the aforesaid clauses of the lease and also to r. 14 of the Mining Concession Rules, 1960. He submits that it is obligatory in law on the lessee to restore the lands to its original condition after termination of the lease. Sub-clause (iv) to r. 14 of the Mining Concession Rules is as under Sub-r. (iv) to r. 14 : save in the case of land in respect of which the licensee is granted a mining lease he shall, within six months next after the determination of the licence or the date of abandonment of the prospecting operations, whichever is earlier, securely plug all bores and fill up or fence all excavations in the land covered by the licence. * We do not think we have to interpret either the clauses of the lease agreement or even sub-r. (iv) of r. 14 of the Mining Concession Rules, 1960, as in the present case, admittedly, no expense has been incurred by the appellant. The questions of law, therefore, do not arise in the present case. Any question of any allowable deduction can arise only if any expense is so incurred by the assessee. In these circumstances, we

Decision reasoning: 0[ds]We do not think we have to interpret either the clauses of the lease agreement or even sub-r. (iv) of r. 14 of the Mining Concession Rules, 1960, as in the present case, admittedly, no expense has been incurred by the appellant. The questions of law, therefore, do not arise in the present case. Any question of any allowable deduction can arise only if any expense is so incurred by the assessee.