TMI Blog1973 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ded family. It owned rubber gardens and house properties in Malaya. It has also been dealing in the purchase and sale of immovable properties. In the year ended April 12, 1961, it acquired the leasehold rights on September 22, 1960, in four lots in respect of 40 acres of land in a place called Bidor for $ 27,363.68 from two China men, who had earlier acquired the leasehold rights from the Government of Malaya for a period of seven years by an agreement dated May 5, 1956. The assessee acquired the said leasehold rights for a period of four years out of the period of seven years fixed under the said agreement dated May 5, 1956. Thereafter, the assessee obtained the permission from the Malaysian Government for conversion of the rubber gardens in respect of which leasehold rights had been acquired from the China men into tin minings on October 22, 1961. The assessee after becoming the registered lessee of the four pieces of mining land by virtue of his acquiring the leasehold rights from the two China men sub-leased the same to another China man, Lee Kon Fan. The assessee acquired on January 23, 1960, another mining lease at another place called Tambun for $ 13,359.50 in respect of 58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quantity of ore extracted and that what was paid to the assessee was not for any limited quantity of ore but for the purchase of the source of supply itself. In this view the Tribunal concurred with the lower authorities in the disallowance of the claim for deduction. Before us, the learned counsel for the assessee has made a three-fold submission. One is that the assessee should be taken to be a dealer in leases, in which event the amount in question would be the loss in the value of the stock-in-trade. The second is that the assessee should be taken to be a dealer in tin and this will make the amount in question as the deficiency in the tin extracted which is the stock-in-trade. Thirdly, it is contended that in any event the expenditure in question should be taken to be revenue expenditure as the amount represents the cost of working the tin mines. It is also pointed out by the assessee's learned counsel that the profit from the assessee's half share in the exploitation of the mines has been offered for assessment by the assessee in the subsequent year on the basis that the leasehold lands are actually the stock-in- trade and that the tin tributes ($ 25,506.41) received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the above test whether the outgoing was for the acquisition of a business or of a fixed capital asset, an exception had to be made as regards the expenditure incurred for acquiring raw material for the purpose of the manufacturing business of an assessee, which has been held to be of the nature of revenue expenditure. The above decision has laid down the proposition that the acquisition is of the leasehold right in land in which the mining operations had been performed, the cost of acquisition will be a capital expenditure, but if the acquisition is of mineral that had already been won, then the cost of acquisition will be a revenue expenditure. In Pingle Industries Ltd. v. Commissioner of Income-tax , the Supreme Court also has considered a somewhat similar question. In that case the assessee-company which carried on, inter alia, the business of selling Shahabad flag stones which had to be extracted from quarries, dressed and then sold, took on contract the right to excavate stones in certain quarries in six villages for a period of 12 years from a jagirdar. The contract provided that the jagirdar should be paid a sum of Rs. 28,000 annually in consideration for extracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a coasts for a period of three years on a consideration of an annual rent of Rs. 6,111. The assessee claimed that in computing the annual income from the sale of chanks it was entitled to deduct the annual rent paid to the Government as business expenditure under section 10(2)(xv). The revenue held that it was capital. The High Court held that the expenditure was not of a capital nature and the assessee was entitled to deduct the amount claimed as business expenditure. The Supreme Court disagreed with the view taken by the High Court and held that the yearly rent paid by the assessee was an amount paid to obtain an enduring asset in the shape of an exclusive right to fish the conch shells, that the payment was not related to the conch shells which it might or might not bring to surface and, therefore, it was not an amount spent in acquiring its stock-in-trade but an amount for acquiring an asset from which it may collect its stock-in-trade. In that view the Supreme Court held that the expenditure is one of a capital nature though it was admittedly incurred for the purpose of the assessee's business. Referring to its earlier decision in Pingle Industries Ltd v. Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already pointed out, the sum of $15,328 represented a part of the amount spent on outlay in the course of the acquisition of the leasehold right in the mines and, therefore, there is no question of writing off the said sum as an expenditure incurred in the course of the assessment year. In all the decided cases referred to above, expenditure had been incurred during the assessment year and the only question was whether such expenditure was capital or revenue. But in this case the amount claimed has not been expended in the year of account. Therefore, it cannot be said to be an expenditure, whether it is capital or revenue, which could be considered for deduction under section 10(2)(xv). If at all, the amount can be considered as a depletion allowance which has not, however, been given as an item of deduction under the Income-tax Act of 1961 until 1971 when a new provision, section 35E, came to be added in the Income-tax Act of 1961 which specifically provided for a mine depletion allowance. As a matter of fact, from the enclosures filed by the assessee to its reference application before the Tribunal, it is seen that the assessee claimed the deduction in question only as a depletio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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