9911796707
TMI Blog1987 (7) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessees and made the references. The facts relevant for the present purpose may be shortly stated thus: The assessee, a partnership firm, entered into two agreements oft December 14, 1971, with Shri Jagannath Temple Managing Committee whereby it was permitted to quarry stones, namely, washed gravels, morum earth, genguti and raw stones from the quarries detailed in the schedules to the agreements, for a total sum of Rs. 16,000, for a period of three years from October 1, 1971, up to September 30, 1974, unless determined earlier. Fifty per cent. of the aforesaid amount was paid on September 3, 1971, and the balance was to be paid in one instalment on or before September 30, 1972. Under the agreement, the licensee could make use of a crusher machine and undertake blasting operations with the help of dynamite after obtaining necessary permission from the competent authority, for the sole purpose of quarrying and carrying on such other operations necessarily connected with quarrying. The agreement also permitted the licensee to enter into arrangements with third parties in regard to quarrying operations subject to written permission of Shri Jagannath Temple Managing Commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscuss some of the cases cited by learned counsel for the parties. The Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 considered a case where the appellant-company acquired from the Government of Assam, for the purpose of carrying on the manufacture of cement, a lease of certain limestone quarries for a period of twenty years for certain half-yearly rents and royalties. In addition to the rents and royalties, the appellant agreed to pay the lessor annually a sum of Rs. 5,000 during the whole period of the lease as a protection fee and in consideration of that payment, the lessor undertook not to grant to any person any lease, permit or prospecting licence for limestone in a group of quarries without condition that no limestone should be used for the manufacture of cement. The appellant also agreed to pay Rs. 35,000 annually for five years as a further protection fee and the lessor in consideration of that payment gave a similar undertaking in respect of the whole district. The question was whether in computing the profits of the appellant, the sums of Rs. 5,000 and Rs. 35,000 paid to the lessor by the appellant could be deducted under section 10(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... large number of trees growing on the company's land. He acquired the right to " mark, fell and carry away all the said trees and complete all the operations authorised at such times as he ...... shall consider convenient, " no time limit being fixed. The trees had not been selected or identified. The House of Lords by majority held that in computing the timber merchant's income-tax liability, the sums payable should be treated as capital expenditure and not as the price for stock-in-trade and accordingly should not be debited in calculating his trading profits. His only right was to fell and carry away the trees which remained the vendor's property till severance. In the case of Pingle Industries Ltd. v. CIT [1960] 40 ITR 67, the Supreme Court considered a case where the assessee-company which carried on the business of selling Shahabad flag stones obtained from jagirdar under a contract the right to extract stones from quarries situated in six named villages for a period of twelve years on an annual payment of Rs. 28,000. To safeguard payment, a sum of Rs. 96,000 was paid in advance as security of which Rs. 8,000 was to be adjusted annually against Rs. 28,000 and the balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of land drains, etc. In 1958, the company made two further agreements with the landowner in substantially the same terms. The payments for the right of entry and for diminution in value of the land provided for in all three agreements were a normal and recurrent incident in the trade of opencast coal mining as carried on by the company and others in the industry. It was held that no distinction could be drawn between the payments for the right of entry and the payments for diminution in value, and that, since the company in making the payments were not buying circulating capital, i.e., coal, but were acquiring rights which enabled them to obtain circulating capital, the whole of the payments were marked as being of a capital nature and, notwithstanding that the transactions were transient and recurrent, fell to be disregarded in computing the profits or gains of the company for profits tax purposes. In another case reported in the same volume at page 689, K. T. M. T.. M. Abdul Kayoom v. CIT [1962] 44 ITR 689 (SC), wherein the assessee-firm which carried on business in purchase and sale of conch (chank) shells took on lease from the Government " the exclusive rights, liberty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Lahore High Court in Benarsidas Jagannath, In re [1947] 15 ITR 185. Now, some of the decisions cited at the Bar taking the other view may be noticed. In the case of Mohanlal Hargovind of Jubbulpore v. CIT [1949] 17 ITR 473 (PC), the assessees carried on business at several places as manufacturers and vendors of bidis. The bidis were composed of tobacco rolled in leaves of a tree known as tendu leaves, which were obtained by the assessees by entering into a number of short-term contracts with the Government and other owners of forests. Under the contracts, in consideration of a certain sum payable in instalments, the assessees were granted the exclusive right to pick and carry away the tendu leaves from the forest area described. The assessees were allowed to coppice small tendu plants a few months in advance to obtain good leaves and to pollard tendu trees a few months in advance to obtain better and bigger leaves. The picking of the leaves, however, had to start at once or practically at once and to proceed continuously. It is clear from the aforementioned facts that the tendu leaves were one of the raw materials for manufacture of bidis, the business in which the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure for acquiring the leasehold premises. Moreover, the expenditure would have been the same even if the lease was for a shorter duration provided the period of the lease was more than one year. Merely because the period of the lease was for a longer duration, it could not be regarded as decisive of the circumstance as to whether the asset or advantage secured was of an enduring nature. Therefore, the sum of Rs. 10,700 was allowable as revenue expenditure. From the facts stated above, it is apparent that the amount in dispute was spent for drawing up a proper and effective lease deed, the amount was not spent directly for acquisition of any benefit/advantage of a permanent nature. It was an amount spent for facilitating business transactions of the assessee. As such, the case was of a nature different from that under consideration here. In the case of CIT v. M. B. Umbrella Industries [1984] 145 ITR 292 (MP), the assessee-firm which derived income from the business of manufacture of umbrellas, paid a sum of Rs. 25,001 towards "tank" trade mark commission to another firm (old firm) which was manufacturing umbrellas with that trade mark. Under an agreement between the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee as a tenant. The expenditure was made for proper and efficient management of the business of the assessee. As such it was clearly in the nature of revenue expenditure and not capital expenditure. Coming to the facts of the present case, as noticed earlier, in the agreements entered into between the assessee and Shri Jagannath Temple Managing Committee, the former was given the right to win, raise and remove stones from quarries specified in the agreements. The lessee was further permitted to engage third parties for the purpose of the operation and undertake blasting for the said purpose. The arrangements were operative for a period of three years. From the orders of the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal, the exact nature of business carried on by the assessee is not clear. But it is clear that the arrangement under the agreements could not be construed to mean that it enabled the assessee to acquire stock-in-trade or raw materials as in the case of purchasing the same from a shop. As observed in some of the cases discussed earlier, it may be said that the assessee acquired the right to carry on quarrying operations and pic ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
