TMI Blog1972 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... an invitation to tender for mica mining in accordance with the terms and conditions prescribed in the Mineral Concession Rules, tendered for certain areas for Rs. 1,57,150 of which Rs: 3,360 was payable towards the mica scrap lying on the surface. The lease was for 20 years and the areas which were offered had been worked by other private companies for 15 years. This offer of the appellant was accepted and the lease was granted to it. In the relevant assessment year 1952-53 for which the previous year for the head office ended on October 30, 1951, and for the branch ended on March 30, 1952, the appellant claimed Rs. 7,857 being the 1/20th of the tender money as revenue expenditure incurred during that year. The claim of the assessee was rejected by the Income-tax Officer on the ground that the money was paid for the value of the land which it had acquired because the mine granted to the assessee had already been worked by the private companies. In an appeal against this order, the Appellate Assistant Commissioner confirmed the disallowance of the expenditure as, in his view, it was of a capital nature expended for the acquisition of a capital asset. Against this order, an appeal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was a revenue expenditure because the tender which was given and accepted was on the basis of the calculations in the Indian Mining Hand Book for a specific quantity of mica in the mines which was the assessee's stock-in-trade. The revenue, however, submits that the amount of the lease was a capital outlay incurred for the initiation of the business, and that the pillars of mica cannot be stock-in-trade unless the mica was excavated and brought to the surface. A large number of cases decided in this country and in England, dealing with different topics, were referred to and arguments addressed before us, dealing with many analogies of one kind or other, tendu leaves, mangoes, apples, sand, brick-earth, lime and other commodities all with a view to persuade us to ascertain what is the true test to be applied to the particular facts of this case. We do not, however, propose to refer to cases dealing with variety of topics except perhaps to determine the nature of the expenditure incurred in this case by the assessee. This court in Pingle Industries Ltd. v. Commissioner of Income-tax had occasion to examine exhaustively the relevant Indian and English cases for determining what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation, inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." The determining factor will depend largely on the nature of the trade in which the asset is employed. The several cases which do not deal with the mining leases but are concerned with different assets are of little help in the same way as in Mohanlal Hargovind v. Commissioner of Income-tax, cases relating to the purchase or leasing of mining quarries or deposits of brick earth were considered not to be of assistance by the Privy Council in the case of a contract for collecting and removing tendu leaves. The principles enunciated for determining the nature of the expenditure have been sought to be applied to different situations arising on the facts of each case, but the difficulty in matching them with the seeming irreconcilability are perhaps explicable only on the ground that the deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparing that case with the case of Kauri Timber Co. Ltd. v. Commissioner of Taxes, where the company's business consisted in cutting and disposing of timber and it had in some cases acquired timber-bearing lands and in other cases it purchased the standing timber, the lease itself being for 99 years, the Privy Council observed: " In the present case the trees were not acquired: nor were the leaves acquired until the appellants had reduced them into their own possession and ownership by picking them. The two cases can, in their Lordships' opinion, in no sense be regarded as comparable. If the tendu leaves had been stored in a merchant's godown and the appellants had bought the right to go and fetch them and so reduce them into their possession and ownership it could scarcely have been suggested that the purchase price was capital expenditure. Their Lordships see no ground in principle or reason for differentiating the present case from that supposed." The analogy referred to in the above passage is sought to be applied to the facts of this case but in our view there is hardly any justification for such a conclusion having regard to the findings of the Tribunal and the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also broadly the extent thereof. Acquisition in either case would be of a capital asset and payment therefor, small or large, a capital expenditure. " Earlier the Appellate Assistant Commissioner had stated that when the lease was allotted to the appellant by the mining department "it was made clear that any mica scrap left by the predecessor, exploiters, M/s. Duduwala Co., on the surface would be removed either by these exploiters within three months or if not so removed it would stand forfeited to the Rajasthan Government; in any case it was not to come to the appellants." In the light of what has been stated it is clear that the Appellate Assistant Commissioner made a distinction between mica that has been excavated and brought to the surface and the mica which was still embedded and had to be excavated even though it was more easily available because of the labour already expended in the working out of the mine by the other private companies. The conclusions of the Tribunal are set out in the following passage: "In our opinion, the amount paid cannot be equated to payment for raw materials. The raw materials have to be won and extracted before they could be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not to say that the conclusion that the amount was a capital expenditure was not based on the finding that mica had to be extracted and brought to the surface before it could be considered as the assessee's stock-in-trade. In our view the principles which have been applied in the Pingle Industries' case are equally applicable to the facts and circumstances of this case. The test for ascertaining whether the amount spent is of a capital nature is, whether it was spent for obtaining a right of an enduring character which in the case of mining leases is to acquire rights over land for winning the mineral. In other words, where the mineral is part of the land and some mining operations have to be performed to extract it from the earth, the amount paid to acquire a right over or in the land to win that mineral is of an enduring character and, hence, a capital expenditure. In this case the mica pillars which have been exposed by the mining operation of other private companies had no doubt enhanced the value of the right which was leased to the appellant but none the less the appellant still had to carry out some mining operations to extract the mineral from the pillars which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation to the facts of this case as found in the case stated, and upon the law relevant to them." This passage at once indicates the difficulties which he in common with other judges have felt when called upon to determine the nature of the expenditure. The lease in this case was for a long period : it conferred a right to excavate the mica because on the findings of the Tribunal mica had to be extracted from the mine though the earlier working out of those mines by other companies had made it much easier to perform the final operations and because of it a higher amount had to be paid. None the less the amount paid was for acquiring a right of enduring nature to extract and remove the mica to bring it to the surface, grade it and pay royalty to the Government in accordance with the quality of each grade of mica extracted. We, accordingly, hold that the expenditure incurred is a capital expenditure and that the second question has been rightly answered. On the first question whether the prospecting licence fee of Rs. 3,200 is allowable as revenue expenditure, the contention on behalf of the assessee is that it is a licence fee, not a lease amount nor does it create an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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