TMI Blog1984 (12) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... entire period of fifteen years aggregating to Rs. 1,61,280. According to clause 2 of the agreement, the monthly rental is adjustable against the deposit made by the assessee initially. In connection with the income-tax assessment years 1973-74 and 1974-75, the assessee claimed as business expenditure the annual rental of Rs. 10,752 paid to the lessor. During the course of the assessment enquiry, the Income-tax Officer elicited that the lease was taken for the purpose of excavating the lessor's land to win manganese ore. The Income-tax Officer held that the lease amount claimed by way of deduction could not be allowed as revenue expenditure as, in his opinion, the expenditure was incurred for acquiring an asset or an advantage of an enduring benefit to the business of the assessee and consequently the expenditure was on capital account. Aggrieved by the disallowance of the expenditure in the tax assessments, the assessee filed appeals before the Appellate Assistant Commissioner of Income-tax who confirmed the disallowance. The second appeal filed by the assessee before the Income-tax Appellate Tribunal was also unsuccessful. The Tribunal held that the rent having been paid for exca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to win the manganese ore. Apparently, the assessee had secured rights from the mining department to explore the deposits of manganese ore lying in the land in question and obviously it was for that purpose that the lease agreement was entered into by the assessee with the lessor. The deposits of manganese ore under the earth did not belong to the lessor and he could not have granted any rights to win the ore, as that right can be conferred only by the Government through its mining department in whom the deposits lying under the earth vest. Nevertheless, the deposits lay under the land belonging to the lessor, a private Individual, and unless an agreement to excavate the land was entered into with the lessor, the assessee would not be in a position to effectuate the arrangements otherwise made for winning the manganese ore lying deposited under the land. It was the assessee's case throughout that the lease of the land was for the purpose of excavating the land to win manganese ore and it was, on that basis, that the Income-tax Officer as well as the lower appellate authorities dealt with the matter. It is not stated that the land was taken for any purpose other than mining. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent. The rent was also paid to the jagirdar in a lump sum for the lease of the quarries taken. It was urged in that case that the rent paid to the Government partook of the same character as the royalty, which was held to be business expenditure, and there was no justification to treat the rent as capital in nature. The Supreme Court rejected that contention. It was held that under the lease, the assessee acquired a right to excavate the quarries and obtain the flag stones. The rent paid for acquiring such a right was held to be not the price paid for securing the raw material. The Supreme Court held that the raw material was the flag stones which were dressed after due processing. In that view, the Supreme Court held that the rent paid could not be held to be the price for securing the raw material or stock-in-trade. It was further held that the rent paid was for acquiring an asset or advantage of an enduring character to the business of the assessee in that case and, in that view, the expenditure was held to be capital in nature. In our opinion, the above principle directly applies to the facts of the present case also. We also find that the principles set out by the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. (iii) What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency. " Relying on the above observations, learned counsel urged that the character of the expenditure incurred in the present case must be viewed from a commercial point of view and the object for which the expenditure was incurred would be a decisive factor in determining whether the assessee obtained an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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