TMI Blog2017 (8) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... lease deed is not a capital expenditure and deduction is allowable within the meaning of Section 37 of the Act, as it is revenue expenditure. - Decided in favour of assessee. - It Appeal Nos. 200003 of 2015, And C/W NO. 200004 OF 2015 - - - Dated:- 10-7-2017 - MRS. B. V. NAGARATHNA AND MR B.A. PATIL, JJ. For The Appellant : Ameet Kumar Deshpande., Adv. For The Respondent : Chaithanya K.K.., Adv. JUDGMENT Mrs. B.V. Nagarathna, J. - The Department of Income-tax, represented by the Commissioner of Income-tax, Gulbarga, has preferred these appeals, assailing order dated 28/08/2014, passed in I.T.A.Nos.1053 1054 (Bang) 2012, pertaining to Assessment Years 2008-09 and 2009-10, by raising the following substantial question of law:- Whether, in the facts and circumstances of the case, the tribunal is justified in holding that the legal expenditure incurred by the assessee to defend the writ petition filed to quash the government notification and lease deed, is capital expenditure and is a deduction allowable within the meaning of section 37 of the Income tax Act? 2. Briefly stated, the facts are that the assessee had debited certain legal expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had disclosed legal expenditure of ₹ 2,35,64,266/- and ₹ 98,11,890/- and had sought for allowing the said expenditure as revenue expenditure. The said expenditure was incurred in order to defend a claim made by third parties in respect of a mining lease granted to the respondent - assessee. That the purpose of incurring the aforesaid expenditure towards litigation was for defending grant of mining lease and not merely a business expenditure or expenditure arising during the course of business. Such an expenditure cannot be treated as revenue expenditure, but it is a capital expenditure. Therefore, the expenditure cannot be treated wholly and exclusively incurred to protect the interest of business or for the purpose of business within the meaning of Section 34 of the Income Tax Act, 1961 [hereinafter, referred to as the 'Act]. 7. In support of his submission, appellant's counsel placed reliance on a judgment of the Hon'ble Supreme Court in case of V. Jaganmohan Rao v. CIT Excess Profits Tax [1970] 75 ITR 373 [Jaganmohan Rao]. Appellant's counsel contended that where money is paid to perfect a title or as consideration for getting rid of a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is mining of iron ore by taking lands on lease from the State Government. That certain lands were leased out to assessee for the purpose of mining iron ore by the Department of Mines and Geology in the year 2006. The assessee was working on the said lease as a lessee of the State Government. The grant of lease to the assessee was challenged in writ petitions filed before this court by M/s. J.S.W. Steels Ltd., and M/s. Sathawahana Ispat Ltd. In the said writ petitions, the assessee was made a respondent. It is in order to defend and sustain the said lease that the assessee had to incur expenditure towards legal fee and other allied expenditure. The assessee was dragged into litigation before this court by writ petitions filed by third parties. The assessee had to resist the writ petitions in order to protect his mining rights in respect of the contentious lease. Therefore, the expenditure incurred towards legal fee and other litigation charges was to protect its business interests in relation to the mining lease. The expenditure was not incurred to acquire the mining lease or to get rid of a defect in the title. While resisting the writ petitions, the assessee did not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and carrying it from Court to Court and incurring expenditure is not a ground for disallowing the claim. (c) In B. Jaganmohan Rao, it has been held, it is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be capital payment and not revenue payment. What is essential to be seen is whether the amount was paid for bringing into existence a right or an asset of an enduring nature. In other words, if the asset which is acquired is in its character a capital asset, then any sum paid to acquire it must surely be capital outlay. Money paid in consideration of the acquisition of a source of profit of income is capital expenditure. In the aforesaid judgment, reliance has been placed on Atherton v. British Insulated and Helsby Cables Ltd. [1926] A.C. 205 (HL), wherein, Viscount Cave has said as under:- But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an oppos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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