TMI Blog2014 (1) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, forest management, protection, infrastructure development, wildlife protection and management, supply of wood and other forest produce saving devices and other allied activities. Such payments of NPV as compensation were levied for rendering service which the state considers beneficial in public interest - It is a fee which falls in entries 47 of List-III of 7th Schedule of the Constitution - The fund set up is a part of economic and social planning which comes within Entry 23 of List III and the charge which is levied for that purpose would come under Entry 47 of List III - Levy of NPV is a fee that means every mining agency using and converting forest land to non-forest purpose has to pay a fee for continuing carrying on of the business. The said payment is not a voluntary one and it is a payment on the basis of the direction given by the Government of India, Ministry of Mines, under which the assessee-company comes - When a payment is made as per specific direction of Government of India, it is in the business interest of the assessee-company - This payment is a statutory requirement and the expenditure has been considered wholly and exclusively for the purpose of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively. During the assessment proceedings, Assessing Officer observed that the assessee debited a sum of Rs.3,95,56,500/- on account of Net Present Value (NPV) paid by the assessee to the State Government as per direction of Hon ble Supreme Court of India and as per the guidelines issued by the Ministry of Environment Forest to enable the assesese for utilization of land for mining purposes. The assessee claimed the said amount as revenue expenditure. The assessee stated that the said expenditure was incurred by the assessee not for the purpose of obtaining any asset but for smooth running of the business of mining and it was obligatory in nature. That on failure of payment of NPV, no approval would be granted by the Government to the assessee for operations of the Mines. Thus the expenses incurred towards NPV are for the purpose of business and revenue in nature. That, no enduring benefit is being obtained by assessee-company. 5. It is relevant to state that the Government while giving such land for mining is to keep close watch whether any environmental imbalances are being occurred in the said area. The Net Present Value is charged by the State Government from the User Agency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture incurred towards NPV is for the purpose of business and revenue in nature and no enduring benefit is being obtained by the assesseecompany. Reliance was placed before ld. CIT(Appeals) on the decision of Hon ble Patna High Court in the case of CIT vs.- Kirkend Coal Co. [(1966) 60 ITR 537], which was affirmed by the Hon ble Apex Court reported at (1970) 77 ITR 530, wherein the expenditure incurred by a coal mine owner company in carrying out stowing operations under the directions of the Department of Mines, and receded depillaring operations although the advantage gained there from might continue for a number of years for better extractions, but it was held that the expenses was incurred for keeping environmental/ ecological balance in the surrounding area of mine as per need and agreement with the Government of India. Similarly, reliance was also placed on the decision of the Hon ble Madhya Pradesh High Court in the case of Steel Tubes of India Pvt. Ltd. vs.- CIT (1996) 130 CTR 547, wherein the expenditure incurred for developing the garden in front of the factory had been held to be revenue expenditure as the plantation on garden was necessary to avoid pollution of environ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing benefit to the assessee. Ld. DR submitted that ld. CIT(Appeals) has reversed the order of Assessing Officer on the basis of Hon ble Supreme Court decision in the case of Bikaner Gypsums Ltd. on the ground that assessee did not acquire any additional capital asset. He submitted that assesese has got the right to use the forest land for non-forest purposes and the said payment is charged as a compensation for creating imbalances of forest land and hence, the said payment is rightly considered as capital expenditure. 10. On the other hand, ld. AR supported the order of ld. CIT(Appeals) and made his submissions on the lines of the submissions made before the authorities below. He further submitted that assessee paid NPV for utilization of land for mining purposes as a contribution towards damage, repair in the duration of future years. The assessee was faced with the jeopardy of closure of business unless it had paid the said sum accepting the liability for the sum levied by the State Government. He submitted that the said payment was made as a statutory requirement and the expenditure had been incurred wholly and exclusively for the purpose of business. The expenditure was incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any capital asset. He submitted that the order of ld. CIT(Appeals) be confirmed. 11. We have carefully considered the submissions of the ld. representatives of the parties and the orders of authorities below. We have also gone through the cases cited before us by the ld. representative of the parties. 12. The question before us is as to whether the payment being NPV made by the assessee for obtaining forest clearance for mining on the forest area/ land under the Forest (Conservation) Act, 1980 is allowable as revenue expenditure or not. It is relevant to state that Hon ble Apex Court in the case of T.N. Godavaram Thirumalpad (supra) has observed that forests are vital components to sustain life support system on the earth. Therefore, there is an absolute need to take all precautionary measures when forest lands are sought to be directed for non-forest use. Hone ble Apex Court stated that when forest land is used/ diverted for nonforest purposes and there is consequential loss of benefits accruing from the forests, the User Agency of such land be required to compensate for the diversion. Hon ble Apex Court observed that the User Agency be required to make payment of Net Present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said payment is a pre-condition to enable the assessee to carry on its mining activities and as such it is not a voluntary one. That payment was made on the basis of direction given by the Divisional Forest Officer working in the Ministry of Environment and Forests, Government of India. Since the said payment of NPV being a statutory requirement and has to be paid by the assessee to continue to carry on its mining activities, we are of the considered view that the said payment is wholly and exclusively for the purpose of carrying on its business. Hence, incurring of such expenses should be considered as having direct nexus with the business activities of the assessee. By making this payment of NPV, the assessee has not got any fresh right to mining, but the said payment has been made to overcome any restriction or obstruction or disability that has arisen in continuing of mining business. We are of the considered view that since it is a one-time payment, it could not be considered as capital in nature. Hon ble Apex Court has held in Empire Jute Company Ltd. vs.- CIT [124 ITR 1] that there may be cases where expenditure, even if incurred for obtaining an advantage of any enduring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the same was allowable as business expenditure under section 37(1) of the Act. Special Bench, ITAT, Kolkata in Peerless Securities Limited vs.- Joint Commissioner of Income Tax [93 TTJ 325(SB)] held that if the advantage consists of merely in facilitating the assessee s trading operations or enabling the management and conduct of assessee s business to be carried on more efficiently or more profitability while leaving the fixed capital untouched, expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Ahmedabad Bench, ITAT in Joint Commissioner of Income Tax vs.- Dewerson Industries Limited [2005 TIOL 236 (AHD.)] held that payments of similar nature to Ministry of Forest and Environment, Government of Gujarat were allowable as business expenditure. ITAT, Mumbai Bench in Industrial Development Bank of India vs.- Deputy Commissioner of Income Tax [91 ITD 34] held that expenditure by assessee in accordance with statutory guidelines is allowable business expenditure. Hon ble Kolkata High Court in CIT vs.- Rungta Mines Pvt. Ltd. [205 ITR 335] held that where a trader, in his capacity as a trader, by compulsion of statutory obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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