TMI Blog1977 (10) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure incurred therefor was disclosed at Rs. 1,60,611. The break-up of this amount is as follows : Rs. Wages for manganese extraction (920 tons) 6,117 Earth cutting wages 1,43,101 Sundry wages 5,694 Engine work wages for pumping out water 4,414 Wages for mates 1,285 _________ Total 1,60,611 _________ The ITO treated only a sum of Rs. 10,611 as being of revenue nature and the balance of expenditure of Rs. 1,50,000 was considered as expenditure of capital nature in respect of the mine. It is not possible to ascertain as to which expenditure, other than the expenditure on earth cutting amounting to Rs. 1,43,101, was treated as capital expenditure. But the main dispute admittedly related to the amount which was shown by the assessee to have been spent on account of wages in respect of earth cutting. The ITO took the view that the assessee had started working a new pit described as the mine in question and since it was a new pit that was being dug, the expenditure of earth cutting was of a capital nature. What weighed with the ITO was that the mine in question which was purchased by the assessee from the Tatas was put into operation in 1952 and some ore was ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is involved in the case of Basset Mines. The Tribunal consequently found that the amount of Rs. 1,50,000 which was disallowed should be allowed as revenue deduction. In view of this decision against the revenue, the question reproduced above has been referred at the instance of the revenue. Mr. Joshi appearing for the revenue has contended that this was not a case of a simple removal of earth and that having regard to the largeness of the expenditure involved, the earth cutting operations also could have been carried on a large scale which according to the learned counsel was intended to put the assessee-company in a position to obtain the ore and the expenditure, therefore, partook of capital expenditure and not revenue expenditure. Mr. Joshi has heavily relied on the decisions in Morant (Surveyor of Taxes) v. Wheal Grenville Mining Company [1894] 3 TC 298 (QB), Bonner (Surveyor of Taxes) v. Basset Mines Ltd. [1912] 6 TC 146 (KB) and United Collieries Ltd. v. IRC [1929] 12 TC 1248. We shall deal with these cases later in the judgment. On the other hand it is contended by Mr. Thakkar appearing for the assessee that, on the findings of the Tribunal, the expenditure which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt fixture or structure. It may be helpful to refer to what is meant by open-cast working so far as the winning of ore is concerned. A publication styled as Monograph on Manganese Ore (July 1974 edition) issued by the Indian Bureau of Mines, which is a part of the Ministry of Steel and Mines of the Government of India, has been made available to us by the learned counsel for the assessee. Regarding open-cast working it is stated as follows on page 119 : Workings of manganese mines in India can be broadly classified into 3 groups, viz., (a) open-cast, (b) underground and (c) dump workings. Open-cast workings :--As already mentioned, a vast majority of the mines in India are worked by open method. All the mines are labour intensive. In a manually worked pit, the height of the benches formed is commonly 1.5 meters. In the case of a soft over-burden, mining consists of loosening the earth by crow-bars only. It is not in dispute that the expenses in respect of deduction as claimed were on account of manual labour employed for loosening the earth. It may be important to point out that the above quoted description of the operation seems to include the removal of the over-burden as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling with the expenditure incurred while the business is going on, the Supreme Court observed as follows : " The question however arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. 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. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure... The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure ... It has been rightly observed that in the great diversity of human affairs and the complicated nature of business ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r several years ". The Supreme Court referred to the observations of Viscount Cave and observed thus : " Viscount Cave acknowledged that in certain cases an expenditure for obtaining an enduring advantage need not be capital expenditure for he inserted the words 'in the absence of special circumstances leading to an opposite conclusion' within brackets. " Now, it cannot be seriously disputed in this case that, in the strict sense of the terms, no new asset which can be said to be a tangible asset has been brought into existence as a result of cutting the earth. What appears to be the escape for the learned counsel for the revenue is that it was cutting of the earth which enabled the assessee to reach the ore and it was this advantage which must be construed as an enduring advantage and, therefore, the expenses must be treated as capital expenditure. It is difficult for us to accept this contention. Cutting of earth is a very necessary part of the mining operations, because unless you remove the over-burden it will not be possible to reach the mine. In the present case the undisputed facts show that because of geological factors or situation the reef from which the ore was bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perational expense has in fact resulted in the coming into existence of some advantage which is going to enure for several years is also of no consequence. In the present case, it is, no doubt, true that, as a result of the stowing, it had become possible for the assessee-company to continue to extract coal for a number of years to come. But, in view of the object and the purpose with which the stowing was undertaken in the present case, we do not see how the mere fact that, as a result of the stowing, the assessee-company would be able to win coal for a number of years would transform what was essentially an operational expenditure into an expenditure of a capital nature. There is nothing to suggest that the stowing would have been done to any lesser degree if it was meant to be effective for the accounting year alone. " We have referred in extenso to the paragraph from the judgment because this test has been affirmed by the Supreme Court and the reported decision does not give the facts in detail. In appeal by the revenue, the Supreme Court held that the High Court was justified in holding that the expenditure in dispute was revenue expenditure and then observed as follows : ([ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " These observations have our respectful concurrence. Now, the decision relied upon by the learned counsel for the revenue admittedly did not deal with the facts similar to those appearing in the instant case. In the first case of Morant (Surveyor of Taxes) v. Wheal Grenville Mining Company [1894] 3 TC 298 (QB), the question was whether the expenditure incurred on the construction of a new shaft altogether when it was found that the area of ground which had been worked from one shaft will become impossible to work any farther from that shaft was revenue expenditure and the court held that it was capital expenditure. Apart from the fact that the expenditure incurred in the instant case on account of earth cutting which we have held was intrinsically one part of the mining process, cannot be equated with the expenditure incurred on the construction of a shaft which has to be newly constructed. It is important to point out that in the same case Wright J. has taken a view that in the given case if the shafts are shallow, expenditure for sinking such shafts could properly be treated as part of mining expenditure. These observations again highlight the fact that the question whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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