Calcutta High Court
Principal Commissioner Of Income ... vs M/S. Feegrade & Company Pvt. Ltd on 4 January, 2022
1
OD-23
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
IA No.GA 2 OF 2018
(OLD NO: GA/399/2018)
In
ITAT 25 OF 2018
PRINCIPAL COMMISSIONER OF INCOME TAX - CENTRAL-1, KOLKATA
VS.
M/S. FEEGRADE & COMPANY PVT. LTD.
BEFORE:
The Hon'ble JUSTICE T. S. SIVAGNANAM
AND
The Hon'ble JUSTICE HIRANMAY BHATTACHARYYA
Date : January 04, 2022.
Appearance:
Mr. Smarajit Roychowdhury, Adv.
for the appellant
Mr. Subhas Agarwal, Adv.
for the respondent
The Court : This appeal by the revenue under Section 260A of the
Income Tax Act, 1961 (the Act in brevity) is directed against the order dated
5th April, 2017 passed by the Income Tax Appellate Tribunal "C" Bench,
Kolkata (the Tribunal) in IT(SS) No. 3836/Kol/2015 for the assessment year
2010-11, 2011-12 and 2012-13 respectively.
The revenue has raised the following substantial questions of law for
consideration :
a) Whether as per the explanation (i) of Section 37 of the Income
Tax Act, 1961, punitive charges paid to the Railways in violation
of the provision of Indian Railway Act 1989 are not allowable
expenditure and no deduction shall be made in respect of such
expenditure.
b) Whether on the fact and circumstances of the case, the Learned
Income Tax Appellate Tribunal erred in deleting the addition
made under section 37 of the Income Tax Act on account of
Railway Punitive charges.
c) Whether on the fact and circumstances of the case, the Learned
Income Tax Appellate Tribunal erred in law in deleting the
disallowance as the overloading charges is nothing but penalty as
per Provision of Section 73 of the Indian Railway Act 1989.
d) Whether on the fact and circumstances of the case Net Present
Value (NPV) paid to Forest department is a non-recovering outlaw
whose benefit was/would be consumed for several years and it
was one time/lump sum payment and such NPV paid by the
assessee as statutory obligation for maintenance of environment
for mining purpose and therefore it is capital expenditure and
cannot be deducted as revenue expenditure.
e) Whether on the fact and circumstances of the case, the Learned
Income Tax Appellate Tribunal erred in treating the Net Present
Value (NPV) as revenue in nature and not capital in nature.
We have heard Mr. Smarajit Roychowdhury, learned Counsel for the
appellant/revenue and Mr. Subhas Agarwal, learned Counsel for the
respondent/assessee.
The substantial questions of law (a), (b) and (c) above deal with
whether the punitive charges paid to the Railways for alleged violation of the
provision of Indian Railway Act could be allowable as expenditure and
whether deduction can be claimed by the assessee in respect of such
expenditure. This issue has been decided in favour of the
respondent/assessee by following the decision of the Hon'ble Supreme Court
in Prakash Cotton Mills Pvt. Ltd. reported in 201 ITR 684 wherein it was held
that the payment made to the Railway for overloading of wagons is
compensatory in nature and can be allowed under explanation to Section
37(1) of the Act. Furthermore, on facts the Tribunal noted that when the
respondent/assessee loads the goods for dispatch through railway wagons
actual measurement of weight cannot be done due to absence of weighing
bridge at the originating station. Thus, we find that the Tribunal rightly
decided the issue in favour of the respondent/assessee. Accordingly, the
substantial questions of law (a), (b) and (c) all are answered against the
appellant/revenue. So far as substantial questions of law (d) & (e) above are
concerned identical issue was decided in assessee's group company's case in
ITAT 133 of 2015 dated 21 st June, 2018. This decision was followed in
another assessee's group company's case in PCIT -VS- M/s. Rungta Sons Pvt.
Ltd. in ITAT 295 of 2017 dated 10 th December, 2021. Operative portion of
the order reads as follows;-
"We have heard Mr. Smarajit Roychowdhury learned counsel for the
appellant/revenue and Mr. Subash Agarwal, learned counsel for the
respondent/assessee.
It is not disputed before us that identical substantial questions of law
were considered by this Court in the case of group company of the
respondent/assessee in ITAT/133/2015 and by judgment dated 21 st June, 2018
the appeal filed by the revenue was dismissed. The operative portion of the
judgment reads as follows:
"Both the Commissioner (Appeals) and the Appellate Tribunal have referred to a
judgment reported at 107 ITR 39 (Bikaner Gypsums Ltd. vs. CIT), where a similar
question arose. A licence in respect of a certain area had been granted in favour of the
assessee in that case for undertaking mining operations. The railways purported to set
up railway tracks and even a station on the land without reference to the assessee and
unmindful of the assessee's underground rights in respect thereof. The dispute
between the assessee and the railways was resolved upon the relevant stakeholders
including the assessee, the railways and the State Government agreeing to share the
additional expenses for removing the railway station and tracks to allow the area to be
mined by the assessee. The payment made by the assessee in that case fell for
consideration of the Supreme Court. The Supreme Court observed that since the
assessee was entitled to carry on mining operations and such payment had been made
for the removal of the difficulty in the assessee carrying on its business in accordance
with its licence, the expenditure had to be regarded as a revenue expenditure and could
not be treated as a capital expense.
The dictum in Bikaner Gypsums Ltd. is squarely applicable in the present case.
This is not a case where the assessee, upon payment of the NPV, obtaind a fresh right
to undertake any business. That right of the assessee was covered by the licence
previously granted in its favour by the State of Odisha. The NPV payment is a king of a
compensation for using forest land for non-forest purpose pursuant to an order of the
Supreme Court. The payment of the NPV in this case, like in the case of Bikaner
Gypsums Ltd., has to be regarded as a revenue expenditure in accordance with the
ration in the Bikaner Gypsums Ltd. case, since it was a one-time payment made to
remove an obstacle from the path of the assessee carrying on its business operations.
On behalf of the Revenue, a judgment reported at 86 ITR 647 (R.B.Seth
Moolchand Sugachand v CIT) has been cited where a prospecting licence fee was found
to be a capital expenditure. However, as is evident from paragraph 11 of the report, the
fee was paid for obtaining a prospecting licence and it was such fee that entitled the
business to be conducted in the relevant area. The distinction between the judgment in
R.B.Seth Moolchand Sugachand and the judgment in Bikaner Gypsums Ltd. is that in
Bikaner Gypsums Ltd. there was a pre-existing right and the expenditure was incurred
not to assert a new right but to exercise a pre-existing right. In the present case, it is
the same as in Bikaner Gypsums Ltd. since the mining licence was previously issued in
favour of the assessee and the payment of the NPV did not extend the area of the
assessee's mining operations, it merely removed an impediment in the carrying on of
the operations in terms of the original licence.
In R.B.Seth Moolchand Sugachand a fee was paid to obtain a prospecting
licence. In other words, the right to carry on any prospecting or mining business was
conditional upon the fee being paid. Even if the assessee in that case had been
conducting mining or prospecting operations prior to obtaining the relevant licence, it
was relevant licence which gave the assessee the right in respect of a particular area
and that is the distinguishing feature.
For the reasons aforesaid, the concurrent findings of the Commissioner
(Appeals) and the Appellate Tribunal based on a long-standing judgment of the
Supreme Court does not call for any interference."
Thus, following the above decision, the appeal filed by the revenue is
dismissed. In the result, the substantial questions of law are answered against
the revenue."
Thus, following the above decision substantial question of law Nos.
(d) and (e) are answered against the revenue.
In the result, the appeal filed by the revenue is dismissed and the
substantial questions of law are answered against the revenue.
Consequently, the application stands also dismissed.
(T. S. SIVAGNANAM, J.)
(HIRANMAY BHATTACHARYYA, J.)
pa/GH.
