TMI Blog1985 (5) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the expenditure incurred by the assessee on the construction of a chimney for its brick-kiln business is allowable as an item of revenue expenditure ?' The facts germane to the decision of these references succinctly are that the assessee was carrying on the business as a building contractor in the relevant assessment years, viz., 1967-68 and 1968-69. The assessee was also running a brick-kiln and deriving income therefrom. The assessee took on lease various parcels of land, total measuring 23 bighas and 8 biswas for excavation of earth for the manufacture of bricks and also for installation of brick-kiln. All the lease agreements were couched in identical terms and, therefore, the relevant terms and conditions of one such agreement which was dated October 31, 1966, have been extracted by the Tribunal in its order dated March 20, 1973. The assessee was entitled under the lease agreements in question to use the said land for the manufacture of bricks and establish a brick-kiln thereon on payment of a total amount of Rs. 44,822. He could excavate earth up to a total depth of 6 over a period of seven years and on the expiry of the said period, the land was to revert to the les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid as price of the earth to be extracted from the land in question in advance. In other words, the argument put forth was that the advance payment of so-called lease money constituted nothing but a revenue disbursement in lump sum for the raw material to be obtained over a period of seven years. The assessee also claimed that the expenditure on the installation of the chimney was in the nature of revenue expense and it was a permissible deduction. On a consideration of the matter, the Tribunal taking notice of certain observations made by the Supreme Court in Seth Moolchand Suganchand v. CIT [1972] 86 ITR 647, found that the so-called lease money was just an advance payment in lump sum for obtaining the raw material, viz., earth for manufacture of bricks and the quantity of earth to be so extracted was easily determinable in view of the fact that the area of the land had been specified and even the depth up to which earth could be excavated had been precisely mentioned in the agreement of lease itself. Thus, according to the Tribunal, what the assessee paid for was only cost of the quantity of the raw material worked out rationally in advance as possibly available to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all, and income expenditure is a thing which is going to recur every year was obviously not intended to be a decisive test in every case although it was often a material consideration. His Lordship further elucidated the point saying (at p. 192 of 10 TC): "........ it is easy to imagine many cases in which a payment, though made I once and for all, would be properly chargeable against the receipts for the year ........" Reference in this context may be made to Assam Bengal Cement Co. Limited v. CIT [1955] 27 ITR 34 (SC) and Pingle Industries Ltd. v. CIT [1960] 40 ITR 67 (SC). Several decisions, both of English and Indian courts, were noticed in these authorities and the various tests laid down by a Full Bench of the Lahore High Court in Benarsidas Jagannath, In re [1947] 15 ITR 185, were quoted with approval. (As shall be presently seen, the decision in Benarsidas Jagannath's case has a lot of bearing on the decision of the instant case). Bhagwati J., delivering the judgment of the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC), observed that (p. 45): " This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). " As stated above, this decision was approved by the Supreme Court in Assam Bengal Cement Co. Ltd. [1955] 27 ITR 34 (SC) but in Pingle Industries Ltd. [1960] 40 ITR 67 (SC) Hidayatullah J. (as his Lordship then was) sounded a note of caution that : " The approval given to Benarsidas' case by this court does not extend beyond the summary of the tests settled in it, and the tests have to be applied to the facts of each case in the manner indicated by this court. But the actual decision was not before this court, and cannot be said to have been approved. " Obviously, these observations were made by his Lordship in order to bring home the fact that the decision in each case must turn on its own facts although the broad tests summed up in Benarsidas Jagannath's case [1947] 15 ITR 185 (SC) should serve as guiding principles. However, on a careful examination of the facts in Benarsidas Jagannath's case and those in the case on hand, I am of the view that there is a lot of resemblance between the two. As pointed out by Mahajan J., who spoke for the court, and may say with respect, rightly so that : " If a man who is carrying on the business of selling earth purchases or takes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of ten years, he was to have no concern with the land which was to revert to the owner. Relying upon Benarsidas Jagannath's case [1947] 15 ITR 185 (Lah) [FB] their Lordships held that it was an acquisition of raw material for the purpose of manufacturing bricks and thus a revenue expense. In the instant case too, there is nothing on the record to suggest that any capital outlay was made by the assessee for the initiation of the business and the primary consideration basically was to ensure regular supply of earth for being used as a raw material in the manufacture of bricks over a sufficiently long period. On the other side of the borderline are several reported decisions of the Supreme Court pertaining to acquisition of mining/quarrying leases and in all those cases, the payments made by way of lease money, etc., were held to be in the nature of capital outlay in order to acquire capital asset of an enduring nature. In Assam Bengal Cement Co. Ltd. [1955] 27 ITR 34 (SC) the assessee-company had acquired from the Government of Assam for the purpose of carrying on manufacture of cement a lease of certain limestone quarries for a period of twenty years. It was held that (p. 47): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, one should avoid the temptation to decide cases (as said by Cordozo-The Nature of the Judicial Process, p. 20) by matching the colour of one case against the colour of another ...... 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." His Lordship, inter alia, took note of the fact that the said case was not as one of so much clay or so much salt-petre or a dump of tailings or leaves on the trees in a forest. The agreement was to reserve a source, where he hoped to find shells which, when found, became his stock-in-trade but which, in situ, were no more the firm's than a shell in the deepest part of the ocean beyond the reach of divers and nets. Reference may also be made in this context to a later decision of the Supreme Court in R.B. Seth Moolchand Suganchand [1972] 86 ITR 647 (SC) in which the assessee-firm had paid a sum of Rs. 1,53,800 to acquire lease of certain areas of land bearing mica for a period of twenty years. Those areas had already been worked for 15 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursement rather than capital outlay in order to acquire an asset of an enduring benefit. I now turn to some reported decisions of the Allahabad High Court which run counter to the decisions in Benarsidas Jagannath's case (1947) 15 ITR 185 (Lah) [FB] and Raj Singh Baldev Kishan's case [1969] 72 ITR 735 (P H). These are all cases of brick-kilns and, therefore, they need to be examined. In CIT v. Tika Ram Sons Ltd. [1937] 5 ITR 544 (All), the assessee-company was carrying on the business of manufacturing bricks. It owned as proprietor a part of the land from which earth was taken for manufacture of bricks and it also held a lease of the other portion of the land. It claimed that a sum of Rs. 2,500 representing the value of the earth used up in the manufacture of bricks during the year of account should be deducted in computing its income for the purposes of income-tax. On a reference, it was held by the Allahabad High Court that the assessee was not entitled to the deduction claimed. Their Lordships observed that (p. 548): " The case of a brickfield is very similar to that of a quarry or a mine and the proprietor of the land or the lessee is not a mere purchaser of raw materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant-company in the said case was formed for the purchase of acquiring the right to take away certain " dumps of tailings ", i.e., the residuals that remained after the extraction of gold from ore taken from certain gold mines and retreat the same for conversion into gold. It was found that the dumps were no longer in a natural condition but were in an artificial condition. So the case was considered analogous to one in which a gas manufacturer had bought a quantity of coal already extracted from the mine and stacked on the surface and the purchase price of the tailings was held to be an admissible deduction. Obviously, the said case lay on the other side of the borderline and the considerations which weighed with the High Court of Justice in coming to the aforesaid conclusion could have no bearing on the decision in Pingle Industries Ltd. [1960] 40 ITR 67 (SC), the facts in both these cases being totally different. It may be pertinent to notice here that in Tika Ram's case [1937] 5 ITR 544 (All), the assessee had obtained rights both as a proprietor as well as a lessee in the land itself and he was in possession of the land in exercise of such right. Thus, the said case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at p. 262: " What Lord Cave is quite clearly speaking of is a benefit which endures, in the way that fixed capital endures; not a benefit that endures in the sense that for a good number of years it relieves you of a revenue payment. It means a thing which endures in the way that fixed capital endures." Romer L.J. concurred in this view saying at p. 274 of 16 TC. " I agree with Mr. Justice Rowlatt that by 'enduring' is meant enduring in the way that fixed capital endures'. An expenditure on acquiring floating capital is not made with a view to acquiring an enduring asset. It is made with a view to acquiring an asset that may be turned over in the course of trade at a comparatively early date. Obviously, in taxation matters, emphasis must be placed upon the business aspect of a transaction rather than purely legal and technical aspect and the decision in each case must turn on its own facts. It bears repetition that the lump sum payment in the instant case represents the commutation of a series of annual revenue payments rather than a capital outlay for acquiring an asset of enduring benefit. Hence, I would answer the first question in the affirmative holding that the lump s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the Court still be bound to deal with the reference and answer the question referred ? I cannot imagine that the section purports to impose upon the court any such obligation. It seems to me that before the duty contemplated by the section to decide the questions of law referred to can arise, hearing of the case must take place, because the section opens with the words: 'The High Court upon the hearing of any such case', etc. Where the party, who has caused the reference to be made and who is in the position of a plaintiff, fails to appear, no hearing of the case can take place and in my view, since the preliminary condition of the sub-section is not satisfied in such a case, the consequent obligation of deciding the questions of law and delivering a judgment does not also arise. " These observations have been quoted 'With approval in the other decisions by various High Courts adverted to above. We are satisfied that this is the correct view and we find no reason why in this case we should take upon ourselves the burden of answering the references when the assessee has shown no interest. Hence, we refrain from answering this question because the assessee has not put in appeara ..... X X X X Extracts X X X X X X X X Extracts X X X X
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