1967 (11) TMI 4 - SC - Income Tax

Payments made under the lease deed were expenditure of revenue nature - expenditure incurred by the assessee was not related to the acquisition of an asset or a right of a permanent character - Assessee s appeal is allowed

Issues Involved:

1. Nature of the expenditure (capital vs. revenue expenditure)
2. Rights acquired under the lease deed
3. Findings of fact by the Appellate Assistant Commissioner and Tribunal
4. Jurisdiction and role of the High Court in reviewing findings of fact
5. Precedent cases and their applicability

Issue-wise Detailed Analysis:

1. Nature of the Expenditure (Capital vs. Revenue Expenditure):
The primary issue was whether the payments made by the assessee under the lease deed were capital expenditure or revenue expenditure. The Income-tax Officer initially held that the payments were capital expenditures because the lease granted the assessee a right to quarry sand, which was considered a capital asset. However, the Appellate Assistant Commissioner and the Tribunal concluded that the payments were revenue expenditures, as the lease was for a short period of 11 months, and the sole right acquired was to remove sand lying on the surface, which did not involve any excavation or skilful extraction. The Supreme Court affirmed this view, stating that the decisive factor is the object with which the lease is taken and the nature of the payment made when obtaining the lease. The expenditure was deemed revenue in nature as it was for obtaining stock-in-trade and not for acquiring an enduring capital asset.

2. Rights Acquired Under the Lease Deed:
The lease deed granted the assessee the exclusive right to enter, occupy, and use the land for quarrying purposes and to remove sand. The Supreme Court noted that although the lease mentioned an exclusive right to enter and occupy the land, this did not necessarily make the payment a capital expenditure. The key consideration was that the lease was for a short period and aimed at removing sand lying loose on the surface, which was the assessee's stock-in-trade. The Court emphasized that the nature of the right acquired under the lease was not for acquiring a capital asset but for obtaining raw material for the business.

3. Findings of Fact by the Appellate Assistant Commissioner and Tribunal:
The Appellate Assistant Commissioner conducted a personal investigation and found that the lease was a short-term contract for removing sand lying on the surface without any excavation. These findings were affirmed by the Tribunal. The Supreme Court held that the High Court erred in not accepting these findings of fact and instead recording a different finding. The Tribunal's findings were binding, and the High Court should have proceeded on that basis.

4. Jurisdiction and Role of the High Court in Reviewing Findings of Fact:
The Supreme Court criticized the High Court for exceeding its jurisdiction by not accepting the findings of fact recorded by the Appellate Assistant Commissioner and affirmed by the Tribunal. The High Court's role was to examine the legal position based on the established facts, not to re-evaluate the evidence or record new findings. The Supreme Court emphasized that the High Court should have accepted the factual findings and determined the legal question accordingly.

5. Precedent Cases and Their Applicability:
Several cases were referenced to illustrate principles related to capital and revenue expenditure. The Supreme Court noted that each case must be decided on its special facts. The Court referred to its decision in Gotan Lime Syndicate v. Commissioner of Income-tax, where lease payments for obtaining raw material were considered revenue expenditure. The Court also discussed Bombay Steam Navigation Co. (1953) Private Ltd. v. Commissioner of Income-tax, which explained that expenditure related to the profit-earning process and not for acquiring a permanent asset is revenue expenditure. The distinguishing feature in K.T.M.T.M. Abdul Kayoom v. Commissioner of Income-tax was noted, where the lease involved operations in the sea, unlike the present case where sand was removed from the surface.

Conclusion:
The Supreme Court allowed the appeals, set aside the High Court's order, and answered the referred question in the affirmative, concluding that the payments made by the assessee under the lease deed were revenue expenditures. The Court emphasized the short-term nature of the lease and the specific purpose of removing sand as stock-in-trade, distinguishing it from acquiring a capital asset.

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