Capital or revenue
expenditure — Development and prospecting expenditure — The question is to
be considered in the light of the provisions of S. 35E(2) and not in the
context of S. 37(1).
[Rajasthan State Mines
and Minerals Ltd. v. CIT, (2009) 313 ITR 366 (SC)In the assessment orders
passed for the A.Ys. 1998-99 and 1999-2000 in the case of the assessee, a
public sector undertaking of the Government of Rajasthan, the Assessing
Officer disallowed the expenditure towards developments and prospecting
charges treating it as capital in nature. The Commissioner of Income-tax
(Appeals) referred to the provisions of S. 35E(2) which provide 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 four years immediately
preceding that year shall be allowed as deduction equal to one tenth of the
amount of expenditure starting from the year the assessee is specifically
covered u/s.35E(2). The Commissioner of Income-tax (Appeals) observed that
the assessee had claimed write off over a period of time and therefore the
claim should be more. It appears that Commissioner of Income-tax (Appeals)
had upheld the disallowance for the reason that prospecting expenses were
incurred on expenditure of corporate plan which did not pertain to
prospecting expenses. Before the Tribunal it was contended by the assessee
that this expenditure was incurred for orientation of the administrative set
up and this was revenue in nature, whereas, the Departmental Representative
had contended that this expenditure was of capital nature because corporate
plan expenditure was of enduring benefit to the assessee company. It appears
that Tribunal rejected the assessee’s appeal. On a further appeal, the High
Court, also appears to have rejected the appeal of the assessee with
reference to the provisions of S. 37(1) of the Act. The Supreme Court, on
assessee’s appeal, observed that it could not be disputed that, had the High
Court considered the claim of the appellant in the light of S. 35E(2), it
might have arrived at a different conclusion. The Supreme Court, therefore,
set aside the judgment of the High Court and remitted the matter back to the
High Court for considering the assessee’s appeal afresh on merits.