TMI Blog1991 (6) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... set out therein. Thereafter, pursuant to the prospecting licence so obtained which empowered the assessee to enter upon the lands, to search for, win or carry away fluorspar mineral, prospecting operations were carried out by the assessee and a prospecting report was also submitted to the Government as per the licence and the Mines and Minerals (Regulation and Development) Act and the Mineral Concession Rules, then in force. Even some time prior to the submission of the prospecting report, the assessee has made an application for the grant of mining lease, but that application was rejected, which led to the preferring of a revision petition by the assessee to the Central Government. Meanwhile, the assessee had also filed Civil Suit No. 1552 of 1964 in the court of the Civil Judge (S. D.) at Baroda against the State of Gujarat for the grant of a mining lease to the assessee and for an interim injunction restraining the State of Gujarat from disturbing the possession of the assessee and obtained an order of interim injunction as well. While matters stood thus, the revision petition filed by the assessee to the Central Government against the order rejecting, its application for the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 3,00,000 from the Corporation in the course of its business and for withdrawing the court proceedings filed by the assessee against the Corporation and that no loss or damage had occurred to the assessee in mitigation of which the amount of Rs. 3,00,000 was demanded and paid and, therefore, the amount was not received for the loss of a capital asset, either tangible or intangible, nor as compensation for loss of any rights or advantages of a lasting or enduring character and not even for loss of any licence and was not a casual receipt as well. Aggrieved by this, the assessee preferred an appeal before the Appellate Assistant Commissioner and in an elaborate and carefully considered order, he found on a consideration of the facts and circumstances and the terms of the agreement dated November 12, l969, that no capital asset or property was parted with by the assessee and that the receipt of the sum of Rs. 9,00,000 by the assessee, though in a lump sum, was on grounds of business expediency and, therefore, the receipt was only revenue in nature and not a capital receipt and was also not a casual receipt. In that view, the order of assessment was affirmed and the appeal was dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue on the decisions in CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC), Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC) and CIT v. Lakshminarayana Mining Co. [1987] 165 ITR 326 (Kar). On the other hand, learned counsel for the assessee contended that the agreement had been entered into between the assessee and the Corporation for a specific purpose, viz., the avoidance of competition from the assessee in the matter of exploitation of fluorspar, and a receipt in that connection by the assessee cannot have the characteristics of a revenue receipt, arising out of trading transactions. Learned counsel further contended that the prospecting report would be in the nature of plant and that would be a capital asset and, therefore, at least a portion of the amount received by the assessee would partake of the character of capital receipt and the proportion of the revenue and capital receipt should be worked out. Reliance in support of these contentions was placed by learned counsel on the decisions in CIT v. Saraswathi Publicities [1981] 132 ITR 207 (Mad), Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86 (SC) and CIT v. Best and Co. (P.) Ltd.[1966] 60 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Survey No. 30, but it had failed in its attempt to secure a lease for the exploitation of minerals in that Survey number. Such failure on the part of the assessee had led to the institution of a civil suit and also the filing of a writ petition by the assessee. The situation in which the Corporation found itself may now be adverted to. It had obtained mining lease in respect of Survey No. 40 and had also constructed a factory for the purpose of working the mine and had erected a beneficiation plant. It then realised that fluorspar mineral was found in Survey No. 30, for which the assessee had been issued a prospecting licence and that the beneficiation plant erected by it could be profitably and more advantageously run for the desired number of years, only if the deposits in Survey Nos. 30 and 40 were both exploited and it was, therefore, necessary for the Corporation, from the point of view of its business activities, to secure Survey No. 30 also for its exploitation. It is in the context of this background that the terms of the agreement entered into between the assessee and the Corporation have to be carefully considered. Under clause 1, the Corporation had agreed to pay the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th reference to Survey No. 30, but all the steps taken by the assessee in that regard were intimately, directly and also inextricably bound with the business activities of the assessee. In other words, though for want of a lease in respect of Survey No. 30, the assessee could not be regarded as being engaged in the business of mining or exploiting fluorspar, yet, all the steps taken by the assessee in that regard could be regarded as steps which led to that business and intimately bound with the business activities of the assessee. It has already been noticed that the assessee had not acquired any right or interest in Survey No. 30 and in that sense, the assessee had not acquired any asset and, therefore, the amount paid by the Corporation to the assessee cannot be regarded as compensation in respect of loss of an enduring asset. Further, the assessee had already obtained licences to work mines in Madhya Pradesh, Andhra Pradesh, Karnataka and Tamil Nadu and the parting with possession of Survey No. 30 by the assessee did not in any manner affect the trading structure of the assessee. To put it differently, the assessee was free to carry on its business activities, released from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a normal incident of the business and such cancellation leaves him free to carry on his trade and the receipt is revenue, but, where by the cancellation of an agency, the trading structure of the assessee is impaired or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt. Even applying the aforesaid guidelines to ascertain the precise nature of the receipt by the assessee in this case, it is seen that the assessee had not been compensated by the Corporation either for the impairment of the trading structure of the assessee or for loss of a source of income to the assessee. CIT v. Lakshminarayana Mining Co. [1987] 165 ITR 326 (Kar), dealt with a case of transfer of a mining lease by the assessee and the nature of the receipt in the hands of the assessee. The Income-tax Officer as well as the Appellate Assistant Commissioner held that the receipts were of a revenue nature. But the Tribunal found that the receipt was a premium and in the nature of a capital receipt. On a reference, the Karnataka High Court pointed out that the receipt of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of enabling the assessee and the Government to ascertain the availability of minerals in the area and to apply for and grant a licence cannot form the basis of the actual business activities of exploitation of minerals, either by the Corporation or even by the assessee. We also find from the report that only after undertaking drilling and pitting operations and completing them, a complete and comprehensive idea could be gathered regarding the mineral potentiality of the tract and, therefore, the report cannot be considered to be either a plant or a tool. In any event, the prospecting preliminary report, which is neither complete nor comprehensive, cannot be regarded as technical know-how on the basis of which it can be stated that the assessee had parted with capital asset for consideration. We also find that the prospecting report had been obtained with a view to justify the making of an application by the assessee for the grant of a mining lease in its favour. We are, therefore, unable to accept the contention of learned counsel for the assessee that the prospecting report would be a capital asset in the nature of a plant or tool. We may also observe that, in the decision re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns so made in the agreement clearly spell out that the assessee, as a prudent business house, thought fit to put an end to the steps taken by it in the matter of securing a mining lease by withdrawing the proceedings and that too on receipt of consideration from the Corporation and this was achieved by the process of the assessee and the Corporation entering into an agreement after considerable negotiations, deliberations and thought. In other words, there was nothing casual or unexpected about either the entering into of the agreement between the assessee and the Corporation or even the withdrawal of the court proceedings initiated earlier by the assessee with reference to Survey No. 30. We do not see any scope whatever, on the available materials, for holding that the receipt of the amount of Rs. 3,00,000 by the assessee was in the nature of a casual receipt. We may refer to K. Ramaswami Gounder v. CIT [1987] 163 ITR 94 (Mad), relied on by the Revenue, where, with reference to section 10 (3) of the Act, it was pointed out that it refers to receipts which are of casual and non-recurring nature as a category of income to be excluded, unless they are (i) capital gains ; (ii) receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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