June 2010
Business expenditure : Expenditure on prospecting, etc. of minerals : Applicability of S. 35E of Income-tax Act, 1961 : A.Y. 2001-02 : Assessee in business of prospecting or exploration of ores and minerals and not in business of mining ores and minerals
By K. B. Bhujle | Advocate
New Page 1
Reported :
24 Business expenditure : Expenditure on prospecting, etc. of
minerals : Applicability of S. 35E of Income-tax Act, 1961 : A.Y. 2001-02 :
Assessee in business of prospecting or exploration of ores and minerals and not
in business of mining ores and minerals : No possibility of commercial
production : S. 35E not workable : S. 35E not applicable : Assessee entitled to
deduction of entire expenditure.
[CIT v. ACC Rio Tinto Exploration Ltd., 230 CTR 383
(Del.)]
The assessee company is engaged in the business of
prospecting and exploring ores and minerals. For the A.Y. 2001-02, the Assessing
Officer disallowed the claim for deduction of the expenditure on the ground that
the provisions of S. 35E of the Income-tax Act, 1961 were applicable to the case
of the assessee and that the expenditure will be allowable in the year of
commercial production. The Assessing Officer rejected the contention of the
assessee that the provisions of S. 35E are not applicable since the assessee is
engaged in the business of exploring and prospecting of ores and minerals and
that it was not engaged in commercial production of any mineral. The CIT(A)
found that the activity of exploration constituted a separate activity by itself
as different and distinct from commercial production and allowed the assessee’s
claim. The Tribunal upheld the decision of the CIT(A).
On the appeal filed by the Revenue, the Delhi High Court
upheld the decision of the Tribunal and held as under :
“(i) Upon a plain reading of the provisions of S. 35E, it
is apparent that unless and until there is commercial production, the
provisions of S. 35E(1) would be unworkable. The expression ‘year of
commercial production’ referred to in S. 35E(2) is defined in S. 35E(5)(b).
Unless and until there is actual commercial production, the phrase ‘year of
commercial production’, appearing in S. 35E(2), would be rendered meaningless.
(ii) The Tribunal has, on facts, come to the conclusion
that the assessee-company’s objects did not include mining of ores or minerals
or commercial production, in the sense understood within the meaning of S.
35E. Consequently, the Tribunal agreed with the assessee’s contention that
there would never be commercial production of any mineral or ore as a part of
the activities of the assessee.
(iii) Consequently, the provisions of S. 35E would not be
applicable to the facts and circumstances of the present case as there was no
possibility of any commercial production.”
