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Issues:
1. Interpretation of Sec. 10(2)(ix) of the Indian Income-tax Act regarding deduction of expenditure on earth used in manufacturing bricks. 2. Determination of whether the expenditure claimed by the company should be treated as depreciation or capital expenditure. 3. Comparison of the company's position to that of a mining company or an ordinary manufacturer for tax assessment purposes. Analysis: The judgment pertains to a reference by the Commissioner of Income-tax under Sec. 66(2) of the Indian Income-tax Act regarding the deduction claimed by Tika Ram & Sons Ltd., a company engaged in manufacturing bricks, for the value of earth used in the manufacturing process. The company argued that the amount should be deducted as depreciation under Sec. 10(2)(ix) of the Act. The High Court was tasked with determining whether the claimed expenditure on earth used for manufacturing bricks should be deducted from total profits as depreciation or as a business expense. The Court noted that the company, owning a part of the land and holding a lease for the rest, had both proprietor's and lessee's rights in the land, allowing it to dig up earth for brick manufacturing. It distinguished the company's position from that of a standard manufacturer purchasing raw materials, stating that the earth used was not completely consumed in the process, with fresh earth being available for use. The Court likened the company's position to that of a mining company or quarry rather than a typical manufacturer buying raw materials. Referring to English cases, the Court highlighted that the value of materials found in a brickfield is considered capital expenditure, not deductible from total income. Citing the Alianza Company v. Bell case, the Court emphasized that when the process exhausts the material, the expenditure is akin to capital investment. The judgment also referenced the case of John Smith & Son v. Moore, where the House of Lords ruled that certain assets, like coal contracts, should not be deducted from business profits for tax purposes. Moreover, the Court discussed the Golden Horse Shoe (new) Limited v. Thurgood case, where the distinction between fixed and circulating capital was explained. It was clarified that the purchase of a mine or land for resource extraction is considered fixed capital, not subject to depreciation in profit and loss accounts. The judgment concluded that the company, as a lessee of the brickfield, had acquired rights in the land, making the expenditure capital in nature under Sec. 10(2)(ix) of the Act. In light of the analysis, the Court answered the reference in the negative, directing the assessee to pay the costs of the Government and assessing the Crown counsel's fee. The judgment highlighted the company's position as a lessee of the land, emphasizing the capital nature of the expenditure and the inapplicability of claiming the earth's value as a deduction.
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