1957 (8) TMI 38 - HC - Income Tax

Summary

Issues:
Whether the amount paid for surface land by the company for de-pillaring operations is an admissible deduction under section 10(2)(xv) of the Income-tax Act.

Analysis:
The case involved an incorporated company, Bharat Collieries Limited, which incurred an expenditure of &8377; 10,266 for compensating surface landowners during de-pillaring operations. The company claimed this amount as a deduction under section 10(2)(xv) of the Income-tax Act, stating it was for the purpose of its coal extracting business. However, the Income-tax Tribunal rejected the claim, deeming the expenditure to be of a capital nature and thus not deductible under the said section.

On behalf of the assessee, it was argued that the compensation paid was revenue expenditure, citing a case where similar payments were allowed as deductions. The judge distinguished the present case from the cited case, emphasizing that the nature of payments and the timing of acquiring surface rights differed significantly. The judge applied the test of whether the payment was for outright purchase of surface rights or for incidental payments during mining operations to determine the nature of the expenditure.

Referring to another case, the judge concluded that the expenditure incurred by the assessee was capital expenditure, falling within the principle of acquiring rights that necessitate capital outlay. The judge held that the amount paid for surface land was not a permissible deduction under section 10(2)(xv) of the Income-tax Act, as it was deemed to be capital expenditure in the circumstances of the case.

In a concurring opinion, the second judge agreed with the assessment and answered the question of law in favor of the Income-tax Department, ruling that the amount paid for surface land during de-pillaring operations was capital expenditure and not an admissible deduction under the Income-tax Act.

Therefore, the High Court held that the amount paid for surface land by the company for de-pillaring operations was capital expenditure and not eligible for deduction under section 10(2)(xv) of the Income-tax Act, ruling in favor of the Income-tax Department.