1977 (10) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Whether the expenditure of Rs. 1,50,000 incurred by the assessee-firm on earth cutting in the Dukkar Hurki Mine is allowable as revenue deduction u/s 10(2)(xv) of the Indian Income-tax Act, 1922.

Summary:

1. Facts and Initial Assessment:
The assessee, a firm engaged in mining manganese and coal, incurred an expenditure of Rs. 1,50,000 on earth cutting in the Dukkar Hurki Mine during the assessment year 1958-59. The Income Tax Officer (ITO) treated this expenditure as capital in nature, allowing only Rs. 10,611 as revenue expenditure. The main dispute centered on the earth cutting wages amounting to Rs. 1,43,101.

2. Appellate Assistant Commissioner (AAC) Decision:
The AAC upheld the ITO's decision, reasoning that the mine had been abandoned for a long period and the heavy expenditure was incurred to restart mining operations, thus classifying it as capital expenditure.

3. Tribunal's Reversal:
The Tribunal reversed the decisions of the income-tax authorities, holding that in the open-cast system of mining, earth cutting expenditure should be regarded as revenue expenditure. The Tribunal found that the mine had been operational since the assessment year 1952-53 and the expenditure was not for making the mine fit for operation but was part of the ongoing mining process.

4. Revenue's Argument:
The revenue contended that the large scale of earth cutting operations intended to put the assessee in a position to obtain ore should be considered capital expenditure. They relied on cases such as Morant v. Wheal Grenville Mining Company, Bonner v. Basset Mines Ltd., and United Collieries Ltd. v. IRC.

5. Assessee's Argument:
The assessee argued that the expenditure was not for proving or exploring the mine, nor did it result in any permanent structure. It was incurred for the purpose of business to win manganese ore, and the large amount did not change its nature from revenue to capital expenditure.

6. High Court's Analysis:
The High Court analyzed whether the expenditure was capital or revenue in nature. It noted that the mine had been operational since 1952-53 and the expenditure was part of the mining process, specifically for removing the over-burden in the open-cast system. The court referred to the Supreme Court's principles in Assam Bengal Cement Co. Ltd. v. CIT and Gotan Lime Syndicate v. CIT, emphasizing that the expenditure should be viewed from the business point of view.

7. Conclusion:
The High Court concluded that the expenditure on earth cutting was an intrinsic part of the mining operations and thus constituted operational expenditure. The Tribunal's decision to allow the expenditure as revenue deduction was upheld. The question was answered in the affirmative and in favor of the assessee, with the revenue bearing the costs.

8. Case References:
The court distinguished the present case from Morant v. Wheal Grenville Mining Company, Bonner v. Basset Mines Ltd., and United Collieries Ltd. v. IRC, noting that those cases involved different facts and circumstances.

9. Final Judgment:
The expenditure of Rs. 1,50,000 on earth cutting in the Dukkar Hurki Mine was held to be allowable as revenue deduction u/s 10(2)(xv) of the Indian Income-tax Act, 1922.