Direct Taxes

1. Interest awarded to the assessee by the High Court for illegal seizure of stock-in-trade of the assessee was converted to costs of Rs. 75,000/- towards the claim for interest

Director-General of Income-tax & Anr. vs. Diamondstar Exports Ltd. & Ors. [293 ITR 438 (SC)]

1. On a writ petition filed by the assessee challenging the seizure of certain jewellery and ornaments belonging to the assessee, the High Court held that the search and seizure were invalid and illegal. The High Court ordered that interest at the rate of 8% per annum should be paid on the value of diamonds and jewellery worth Rs. 84.68 lakhs from the date of seizure till payment.

2. Allowing the departmental appeal the Supreme Court held as under :

"Without going into the question as to the payability of interest on the value of goods found by the court to have been illegally seized, we hold that the appellants are liable to compensate the respondents at least by way of costs. The loss obviously suffered by the respondents during the pendency of the proceedings before the High Court was further aggravated by the delay in complying with the High Court’s decision. In the circumstances, we direct the appellants to pay a sum of Rs. 75,000/- to the respondents on account of costs which the respondents will accept in full and final settlement of the claim towards the quantum of interest under the impugned order. Such payment is to be made within a period of four weeks. In the event such payment is not made, this appeal will stand dismissed with costs."

2. Lease rent paid by the lessee for acquiring leasehold rights for ten years to extract minerals is a capital expenditure

Enterprising Enterprises vs. DCIT [293 ITR 437 (SC)]

1. The assessee, which had a taken a quarry on lease for ten years, claimed deduction of a proportionate part of the rent as deduction for the period January 10, 1991 to October 31, 1991.

2. When the matter reached the Supreme Court, it was held that the proportionate part of the lease rent was not deductible. The Supreme Court observed as under while disallowing the claim of the assessee:

" ….. Having considered the decisions of this court in Pingle Industries Ltd. vs. CIT [1960] 40 ITR 67 (SC), Gotan Lime Syndicate vs. CIT [1966] 59 ITR 718 (SC) and Aditya Minerals P. Ltd. vs. CIT [1999] 8 SCC 97, we are of the opinion that the distinction lies between a case where royalty or rent is being paid on the one hand and where the entire amount of lease is paid either at a time or in instalments. Whereas in the former case it would be a revenue expenditure in the latter it would be a capital expenditure. In this view of the matter, we are of the opinion that this not a case where the High Court could have interfered with the order of the Tribunal. The High Court was thus right to dismiss the appeal of the appellant."

Note:- In Aditya Minerals Pvt.Ltd. vs. CIT (239 ITR 817), the assessee had obtained lease in respect of a land for a period of 15 years at payment of certain amount calculated at the basis of the monthly rent, which was payable in advance and to be adjusted towards the rent for every month. The lease granted to the assessee was at the liberty to use the land for excavation purposes and subsidiary purposes. Considering the fact that there was payment once for all, the Constitution Bench of the Supreme Court came to the conclusion that the expenditure was capital expenditure.