Rajasthan State Mines
& Minerals Ltd. Vs. Commissioner of Income Tax, Jaipur  INSC 1427 (25
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIIL APPEAL NO. 5327 OF 2008 (Arising
out of SLP(C)No.3192 OF 2008) RAJASTHAN STATE MINES AND MINERALS LTD. ...
WITH CIVIIL APPEAL
NO. 5328 OF 2008 (Arising out of SLP(C)No.4509 OF 2008) ORDER Leave granted.
These appeals are
directed against the judgment and order dated 3.8.2007 passed by the High Court
of Judicature at Rajasthan, Jaipur Bench, Jaipur in Income Tax Appeal No.270 of
2005 whereby and where under the appeal preferred by the appellant herein has
been dismissed holding that no substantial question of law arose for its
appellant is a Public Sector Undertaking of the Government of Rajasthan. In the
assessment orders in question, which are for the assessment years 1998-99 and
1999-2000 respectively, the Assessing Officer noticed the status of the appellant
and proceeded to assess the returns filed by it, treating 2 the expenditure
towards development and prospecting charges amounting to Rs. 14,60,729/- and
Rs. 16,14,445/-, as against the expenditure of Rs. 33,58,241/- and
Rs.53,84,505/- respectively in the preceding year, as capital expenditures.
The Assessing Officer
of the assessee have been considered. However, from the past records of the
assessee it is seen that this expenditure is held to be purely as capital
expenditure and disallowed. Therefore, in view of the past history of the case,
the expenditure towards development and prospecting charges amounting to Rs.
1460729/- is treated as of capital nature and disallowed."
Although no provision
of the Income Tax Act has been referred to by the Assessing Officer in his
order, the Commissioner of Income Tax (Appeals) by its order dated 20.8.2003
opined as under:
"From the above
discussion it can be noted that the development and prospecting charges are
incurred for prospecting and development of the mining area, sub-section (2) of
section 35E specifically provides that any expenditure incurred wholly and
exclusively on any operation relating to prospecting for any mineral or on
development of a mine in the year of commercial production and any one or more
of the 4 years immediately preceding that year shall be allowed as deduction
equal to one tenth of the amount of expenditure stating from the year of
assessee is specifically covered u/s 35E(2). In fact, assessee has claimed
write off over a period of time as against 10 years provided in the Act and
therefore the claim of the asseesee should be more. So far as the observation
of the assessing officers that in past, such expenditure is disallowed, ld. AR
has mentioned that in earlier years no such disallowance was made except in
A.Y. 1995-96 & A.Y. 1996-97 claim of development expenses was disallowed on
the ground that assessee has not been able to prove that the expenses on
development falls in the category of exploring, locating or providing deposits
of any mineral so as to quality for deduction u/s 35E."
3 The Income Tax
Appellate Tribunal also took into consideration the application of the
provisions of Section 35E(2) of the Income Tax Act, opining:
"We have heard
the rival submissions and perused the materials available on record. This issue
has been discussed by the ld. CIT(A) at page 5 in para 4.4 of his order for the
assessment year 1998-99 wherein he observed that prospecting expenses were
included on expenditure of corporate plan which does not pertain to prospecting
expenses and, therefore, he upheld the disallowance. The ld. AR contended that
this expenditure was incurred for orientation of the administrative set up and
this was in the nature of revenue receipt whereas the ld. DR contended that
this expenditure was of the capital nature because the corporate plan
expenditure was of enduring benefit to the assessee company."
The High Court,
however, by reason of the impugned judgment proceeded to invoke the provisions
of Section 37(1) of the Income Tax Act. It is not in dispute that had the High
Court considered the claim of the appellant in the light of Section 35E(2), it
might have arrived at a different conclusion. We, therefore, set aside the
impugned judgment and order and remit the matter to the High Court for
considering the appellant's appeal afresh on merit.
The appeals are
disposed of accordingly.
AUGUST 25, 2008.