In a major relief to M/s Birla Corporation Ltd., Kolkata, the Kolkata ITAT held that the amount of compensation paid in connection mining activity by the assesse-Company, for the damaged caused on infringement of land owners’ right can be treated as revenue expenditure under the Income Tax Act, 1961.
The assessee, in the instant case, in addition to the rent/ royalty, paid compensation to the persons whose rights are infringed because of the mining activity, as required by the local authority in terms with the mining lease and the relevant State Land Revenue Law.
For the year under consideration, the assesse claimed deduction the above said rent amount and compensation paid by treating the same as revenue expenditure. However, the assessing Officer rejected the claim by observing that in earlier years, such claims were disallowed treating it as capital in nature as a part of acquisition of the leasing right over and above the fees paid to Government.
The assessee submitted that compensation was paid in connection with the mining activity for obtaining limestone used as raw material for manufacture of cement.
Dismissing the departmental appeal, the bench observed that the assessee required to pay compensation as determined by the local authority/ court to the persons whose rights are infringed because of the mining activity.
“We also observe that Ld. CIT(A) has properly analyzed the facts of the present case and distinguished the facts decided by the Hon’ble Apex Court in the case of Enterprising Enterprises vs. DCIT (supra) and then only had come to a conclusion that the compensation was paid for the damaged caused on the infringement of right of the land owner. He has also analyzed that the payments are progressively distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. He, therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. We, therefore, find no infirmity in the order of the Ld. CIT(A) on this issue and confirmed the same. Ground no. 1 of the Revenue’s appeal is thus dismissed.”
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