1978 (4) TMI 21 - HC - Income Tax

Issues Involved:
1. Whether the sums of Rs. 90,000 and Rs. 33,987 were capital expenditure for the assessment years 1962-63 and 1963-64, respectively, under the Income-tax Act, 1961.

Detailed Analysis:

Background:
The assessee-company, engaged in the business of raising and selling coal, appointed Selected Satgram Collieries (P.) Ltd. as its raising contractor by an agreement dated October 5, 1959, for a period of 15 years. The ITO disallowed sums of Rs. 92,500 and Rs. 40,970 for the assessment years 1962-63 and 1963-64, respectively, on the grounds that these amounts were to be borne by the raising contractor.

Issue 1: Nature of Payments to New Beerbhum Coal Co. Ltd.
The AAC found that the assessee-company was appointed as a raising and selling contractor by M/s. New Beerbhum Coal Co. Ltd. by an agreement dated December 1, 1960. Under this agreement, the assessee was to pay Rs. 1,54,787 in advance profits and additional payments based on coal tonnage. The AAC disallowed payments of Rs. 90,000 and Rs. 33,967, considering them capital expenditure for acquiring a right to a source of income for 15 years.

Tribunal's Findings:
The Tribunal upheld the department's contention that the payments were not royalty on coal extraction but lump sum payments in instalments, calculated based on the area, not the raw material to be raised. The Tribunal concluded that these payments were for acquiring a new source of income and were capital expenditure.

Legal Precedents:
- Pingle Industries Ltd. v. CIT [1960] 40 ITR 67: The Supreme Court held that the assessee acquired an asset of enduring character and the payments were capital expenditure.
- R. B. Seth Moolchand v. CIT [1968] 70 ITR 245: The Supreme Court held that payments for acquiring a right to extract and remove mica for 20 years were capital expenditure.
- CIT v. Assam Oil Co. Ltd. [1977] 107 ITR 261: The Division Bench held that royalty payments under a lease for an enduring benefit were capital expenditure.
- Hirji & Co. Ltd. v. CIT [1978] 113 ITR 694 (Cal): The court held that acquiring a source of supply was a benefit of an enduring nature and hence a capital asset.

Court's Conclusion:
Having regard to the facts and the decisions discussed, the court concluded that the Tribunal was justified in holding that the sums of Rs. 90,000 and Rs. 33,987 were capital expenditure for the assessment years 1962-63 and 1963-64, respectively. The question was answered in the affirmative and in favor of the revenue.

Separate Judgment:
The contract stipulated payments described as advance profits on coal to be raised, without provision for adjustment or repayment. The Tribunal found that these amounts were paid as a premium for acquiring a new source of income and a benefit of an enduring nature. Therefore, the expenditure was capital in nature.

Final Decision:
The court affirmed the Tribunal's decision, holding that the sums in question were capital expenditure and not deductible as revenue expenditure. Each party was ordered to bear its own costs.

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