TMI Blog1975 (7) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ee sums, respectively, of Rs. 82,830, Rs. 1,96,012 and Rs. 2,01,104 on account of expenses incurred for removal of overburden. The assessee claimed that the said expenses were of a revenue nature and, therefore, the assessee was entitled to claim deduction for the said sums. At the assessment the ITO was informed that the process of removal of overburden was a continuous process and was likely to increase from year to year on account of the seam being deeper with the advancement of mining operations. The ITO considered the cases where shafts were sunk in mines through which coal surface was reached. In such cases, the expenditure was considered to be in the nature of capital expenditure. On analogy, the ITO came to the conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he coal surface but was an expenditure which necessarily had to be incurred for the purpose of raising coal. On the basis as above, he held that such expenditure for the said three assessment years were allowable deductions. The revenue went up on appeal from the order of the AAC to the Tribunal. The Tribunal found that the ITO had been influenced by the quantum of expenditure for removal of overburden in relation to the net profit earned. The Tribunal held that it was well established that in open quarry working, the earth covering the coal seam was removed, and, thereafter, the coal itself, so that the total expenditure incurred on removing the overburden as well as the coal would represent the actual cost of recovering the coal or of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in allowing the same? " Mr. Suhas Sen, learned counsel appearing on behalf of the revenue, has cited before us the English decisions which were considered by the authorities below as also another English decision not cited earlier. First, he cited the decision in the case of Coltness Iron Company v. Black [1881] 1 TC 287 (HL). The facts of this case were that the colliery company concerned had spent during the year of assessment a sum of money for the purpose of sinking new pits and in the background of the relevant fiscal statute they claimed that they were not assessable to tax. The House of Lords held that for expenses of sinking pits, deduction was not allowable. In his judgment Earl Cairns observed as follows : " I am not pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court, in this case, sent back the matter to the Commissioner for the purpose of determination as a question of fact whether the expenditure incurred was a capital expenditure or not In his judgment, Wright J. observed as follows : " One can very well imagine in cases of mines, where the minerals lay at shallow depths, and where it was necessary to open them out from time to time frequently by shallow shafts, that in those cases it might well be that the sinking of shafts would be properly treated as part of the ordinary working expenditure. On the other hand, you have a case, such as I suppose the present case is, where a large area of ground has been worked from one shaft, and it is apprehended that it will soon become impossible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne owners. Under certain agreements they were obliged to deepen one of the two pits which were being worked by them under a lease to reach certain lower seams of coal and to work such seams. The sinking operations were completed and a small part of the seam was worked. Thereafter, the work in the deepened pit was abandoned and water accumulated in the pit right up to the upper seams. After nine years the lower seams were again freed from water and the assessee claimed a deduction in the computation of profits for the cost of this dewatering. It was held that the expenditure of the second dewatering was of capital nature. It was held that the second dewatering was no part of the ordinary working expenses of the colliery and that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit on the mine and can be used for winning coal at different seams and for the purpose of reaching new seams. The overburden resting on the surface of a particular area, if removed, could enable the company only to reach the coal under that and not any further. If any further surface had to be exposed, further overburden had to be removed. It appears to us that if the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. On the other hand, if such an expenditure is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working ..... X X X X Extracts X X X X X X X X Extracts X X X X
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