TMI Blog1993 (10) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. It appears that some times prior to 31-3-1988, the State Govt. proposed to undertake prospecting or mining operations of rock phosphate at Jhamar Kotda Mines (JKM) near village Jhamar, Distt. Udaipur, Rajasthan. The State Govt., therefore, entered into some contract with the assessee-company to undertake the prospecting or mining operations at JKM. The assessee-company, accordingly worked as a Contractor to the State Govt. till March 31, 1988. The assessee-company used to take out rock phosphate from the mines and get its remuneration from the State Govt. It appears that with a view to achieve the overall objective of the scientific and economic development and exploitation of Jhamar Kotda rock phosphate, the assessee-company got prepared through its consultants a Definitive Feasibility Report (DFR). This DFR formed the basis of formulating the Jhamar Kotda Integrated Project (JIP) by the State Govt. The JIP incorporated, inter alia, removal of substantially large quantities of both high grade and low grade rock phosphate ore, and simultaneous beneficiation of low grade ore through a plant with a total estimated cost of Rs. 205.80 crores. After having considered the JIP in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "In consideration of concessions and privileges granted by the Govt. of Rajasthan, the assessee shall pay special lease money of Rs. 7.5 crores for the first year and thereafter Rs. 6 crores per annum for the lease period in addition to royalty/dead rent/land tax." 5. In the said letter it was clarified that the order given thereunder be treated as a working permission with effect from 1-4-1988 in lieu of mining lease till a formal lease deed was executed. 6. Thus with effect from 1-4-1988, the assessee-company took out the rock phosphate and sold the same of its own for which the assessee-company paid annual rent of Rs. 6 crores to the State Govt. in addition to the royalty as per rules. 7. For the assessment Year under consideration, for which the previous year ended on 31-12-1990, the assessee-company returned nil income and claimed a deduction of Rs. 6 crores under the head "lease money". The DC (Assessment) took the view that deduction of Rs. 6 crores could not be allowed to the assessee as revenue expenditure. In this behalf, he mainly relied upon the decision of the Supreme Court in the case of R.B. Seth Moolchand Suganchand V. CIT [1972] 86 ITR 647. The DC (Asst.) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the DC (Asst.). 9. The learned counsel for the assessee vehemently urged that the CIT(A) has recorded some what contradictory findings. It was pointed out that the CIT(A) had held that the Supreme Court decision in M.A. Jabbar's case was distinguishable, because the said decision was passed on the basis of the terms of the lease deed, while in the present case, there was no such agreement or lease deed executed between the assessee-company and the State Govt. and the payment was being made simply on the basis of order dated 1-3-1988. But at the same time, the learned CIT(A) also held that the decision of the Supreme Court in R.B. Seth Moolchand Suganchand's case was fully applicable to the case of the assessee. The learned counsel further, submitted that in the instant case what had been granted to the assessee was simply a temporary licence to excavate rock phosphate from a particular area and in lieu of the aforesaid licence, the assessee had agreed to pay, and in fact, paid the amount of Rs. 6 crores in addition to the royalty as per law. It was submitted that there was no agreement of whatsoever nature between the assessee-company and the State Govt. and that as per permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law as also the cited cases, we are clearly of the opinion that the expenditure in question is required to be treated as revenue expenditure on the facts and in the circumstances of the case. 12. In order to understand the nature of the expenditure, it is necessary first to determine as to whether a lease was granted to the assessee in the instant case or whether the assessee-company worked as a licensee to take out the rock phosphate from mine. The regulation of mines and the development of minerals is under the control of the Central Govt. as has been declared in section 2 of the 1957 Act. Prospecting or mining operations in any area can be undertaken by a person under licence or a lease. The terms and conditions of such prospecting licence or mining lease are regulated by the provisions of the 1957 Act. In fact, entry No. 54 of List I of Sch. I of the Constitution of India clearly contemplates that the Central Govt. shall have the control over the regulation of mines and development of minerals in any area. The Phosphatic ore is included in the First Schedule to the 1957 Act and, therefore, the mining lease in respect of the said ore would be governed by the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contract which has been made in contravention of Article 299(1) would be absolutely void, not capable of being rectified by the Govt. It is thus clear that even if there is a lease in a given case, but if it is found that such lease has not been executed in accordance with the provisions contained in Article 299 of the Constitution of India, such a lease would be quite ineffective and no enforceable contract would come into existence. In this context it may be observed that a label which the parties might put upon a transaction is never decisive of the very nature of such transaction and that the substance of the transaction shall have to be examined. Even where a mining lease is executed by an Officer of the Mining Deptt. who is not duly authorised by President of India or Governor of the State, such a lease would be void and not binding on the Govt. (Vide State of Appellant v. Roopa AIR 1966 Raj. 101 and State of Rajasthan v. Raghunath Singh AIR 1974 Raj. 4). It is thus clear that a lease in order to be valid and effective as per provisions of 1957 Act and the rules framed thereunder must be a lease executed in accordance with and in compliance of the provisions of Article 299 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Govt. vide letter dated 1-3-1988 and in consideration of the concessions and privileges granted to it by the State Govt. by the aforesaid letters, it paid a sum of Rs. 7.5 crores for the first year and Rs. 6 crores for the year under consideration. It was also not disputed before us at the time of hearing that the special lease money (as is the name given to the annual rental for the concessions and privileges granted by the State Govt. to the assessee-company) of Rs. 7.5 crores paid by the assessee-company to the State Govt. for the first year was allowed on revenue head by the I.T. Deptt. It is clear that the relationship between the State Govt. and the assessee-company was certainly not that of a lessor and lessee as the term 'has been' used in the relevant provisions of the 1957 Act. 15. Here the question necessarily arises is as to what is then the relationship between the parties in the absence of a lease deed required to be issued as per provisions of the 1957 Act and the Mineral Concession Rules, 1960. In this behalf, it would be useful to refer to the provisions contained in rule 75 of the Mineral Concession Rules, 1960 which runs as under:--- "75. Prospecting or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of B.M. Lall v. Dunlop Rubber Co. AIR 1968 SC 169 a label which the parties put upon a transaction is never decisive of the true character of the transaction and to determine its true character, the substance of the transaction is required to be considered. Therefore, the nomenclature given by the parties would not affect its true character. We have already found that the relationship between the parties was that of a licensor and licensee. With this finding, we hold that whatever was paid by the assessee-company in the year under consideration in consideration of the concession and privileges granted to it by the State Govt. for taking out rock phosphate from the Jhamar Kotda rock phosphate deposit was in reality a licence fee and not a lease money. The assessee had not acquired any right over or in the land in question and what it was allowed to do by the State Govt. was to enter the land having the rock phosphate deposit as a licensee. The very character of such payment, namely, that it was payable on yearly basis and as consideration of the concessions and privileges granted by the State Govt. to the assessee-company suggests that it was neither in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in other cases relied upon by the I.T. authorities. But in the instant case, we have found that no lease had ever been executed and that the relationship between the assessee-company and the State Govt. was that of a licensee and licensor. That apart, in the instant case, the assessee-company, in its earlier capacity as a mining contractor for the State Govt. had already won the mines. What the State Govt. had granted to the assessee-company in the instant case was to take rock phosphate from the Jhamar Kotda rock phosphate deposit, in consideration of annual payment of Rs. 6 crores. The assessee-company, was thus to obtain stock-intrade for a consideration of yearly licence fee of Rs. 6 crores. That amount was not paid by the assessee-company for acquiring a right of enduring nature to extract and remove the rock phosphate for a specified period. The fees paid by it was towards obtaining the licence or in other words, "the concessions and privileges for" taking out the raw-material which was the stock-in-trade for the assessee-company. We are, therefore, clearly of the view that the expenditure incurred in the instant case was a revenue expenditure and should have been allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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