1972 (9) TMI 8 - SC - Income Tax

Whether the prospecting licence fee of Rs. 3, 200 is allowable as revenue expenditure - Whether on the facts and in the circumstances of the case the appropriate part of Rs. 1, 53, 800 was allowable as revenue expenditure- questions having been answered against the assessee

Summary

Issues Involved:
1. Whether the prospecting licence fee of Rs. 3,200 is allowable as revenue expenditure.
2. Whether the appropriate part of Rs. 1,53,800 was allowable as revenue expenditure.

Detailed Analysis:

1. Prospecting Licence Fee of Rs. 3,200 as Revenue Expenditure:

The primary contention was whether the fee paid for the prospecting licence could be considered revenue expenditure. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal all concluded that the fee was not of a revenue nature. The Tribunal noted that under Chapter 3 of the Mineral Concession Rules, 1943, a prospecting licence allowed the licensee to win and carry away minerals for commercial purposes. However, this did not change the nature of the fee, which was paid to initiate business operations. The Tribunal emphasized that the fee was not based on the quantity of minerals obtained and was paid irrespective of the quantity, indicating its purpose was to initiate the business. The Tribunal's finding that the fee was paid for initiating mining operations was a factual determination, and it was concluded that the fee was of a capital nature. The High Court agreed with this conclusion, and the Supreme Court upheld this view, stating that the fee could not be equated to a payment made for stock-in-trade. Thus, the first question was answered in the negative.

2. Appropriate Part of Rs. 1,53,800 as Revenue Expenditure:

The second issue involved whether the amount of Rs. 1,53,800 paid for pillars of mica standing in the land leased was a revenue expenditure. The Income-tax Officer initially rejected the claim, stating that the payment was for the value of the land acquired, as the mine had already been worked by other companies. The Appellate Assistant Commissioner upheld this view, noting that the payment was for acquiring a capital asset and not for stock or ores. The Tribunal allowed Rs. 3,360 paid for mica scrap lying on the surface as revenue expenditure but disallowed the remaining Rs. 1,53,800 as capital expenditure.

The Tribunal's findings indicated that the amount paid was for obtaining the right to extract and win emerald and mica from an area already worked by a predecessor. The Tribunal concluded that the amount represented capital expenditure incurred for obtaining benefits of a capital nature. The Supreme Court referred to the principles established in Pingle Industries Ltd. v. Commissioner of Income-tax, which distinguished between capital and revenue expenditure based on the nature of the right acquired and the operations required to extract the mineral. The Court noted that the payment for acquiring a right to extract minerals embedded in the land was of an enduring nature and thus capital expenditure. The Supreme Court upheld the Tribunal's finding that the expenditure was of a capital nature, and the second question was also answered in the negative.

Conclusion:

Both questions were answered against the assessee. The prospecting licence fee of Rs. 3,200 and the appropriate part of Rs. 1,53,800 were both determined to be capital expenditures and not allowable as revenue expenditures. The appeal was dismissed with costs.