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TMI Blog1972 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... face. 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 was filed to the Appellate Tribunal. The Tribunal, however, allowed Rs. 3,360 paid for mica scrap lying on the surface as a revenue expenditure incurred in the acquisition of stock-in-trade, but disallowed the claim for the balance of Rs. 1,53, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, 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 is a capital expenditure and what is a revenue expendiditure. That was also a case of mining where the assessee obtained leases for excavating Shahabad stones for a period of 12 years for which an annual payment of Rs. 28,000 was agreed upon. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 determination in any particular case is dependent on the character of the lease or agreement, the nature of the asset, the purpose for which the expenditure was incurred and such other factors as in the facts and circumstances of that case would indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 income-tax authorities. The learned advocate for the assessee contends that the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, each of them had given different findings for coming to the conclusion that the expenditure was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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 to be stock-in-trade. The sum represents the price that was paid by the assessee for obtaining the right to extract and win emerald and mica in an area which had already been worked and developed by a predecessor for 15 years. If the assessee had to start runnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 embedded in the land. If the private companies before the mica was exposed had taken the lease, they would have paid a much lesser amount which none the less would have been a capital expenditure. It is the labour and expense which the private companies expended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 interest in the land. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal have all held that the fee paid for prospecting licence was not of a revenue nature. It was submitted before the Tribunal that under a prospecting licence issued under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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