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1990 (10) TMI 2 - SC - Income TaxMining Lease - Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of Rs. 3 lakhs to the Northern Railway was a revenue expenditure and was a deduction allowable under the Income-tax Act, 1961 - High Court, in our opinion, failed to appreciate the true nature of the expenditure - High Court committed an error in interfering with the findings recorded by the Income-tax Appellate Tribunal
Issues Involved:
1. Whether the payment of Rs. 3 lakhs to the Northern Railway was a revenue expenditure and deductible under the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Nature of Expenditure: The primary issue was whether the payment of Rs. 3 lakhs made by the assessee to the Northern Railway for shifting the railway station and other constructions constituted a capital expenditure or a revenue expenditure. The High Court had held that the payment was a capital expenditure, as it resulted in an enduring benefit to the assessee by acquiring a new asset. However, the Supreme Court analyzed various precedents and principles to determine the nature of the expenditure. Relevant Precedents and Principles: - The Court referred to the test laid down in *Assam Bengal Cement Co. Ltd. v. CIT* [1955] 27 ITR 34, which distinguishes capital expenditure from revenue expenditure based on whether the expenditure was made to acquire an asset or advantage of enduring benefit for the business, or merely to facilitate the running of the business. - In *K. T. M. T. M. Abdul Kayoom v. CIT* [1962] 44 ITR 689, the Court emphasized that the nature of the business, the nature of the expenditure, and the nature of the right acquired must be considered. - The Court also considered *Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT* [1965] 56 ITR 52 (SC), which held that if the expenditure is integral to the profit-earning process and not for acquiring an asset of a permanent character, it is revenue expenditure. - *British Insulated and Helsby Cables Ltd. v. Atherton* [1926] AC 205, 213, was cited where Lord Cave's test for enduring benefit was discussed, but it was noted that this test is not conclusive and must be considered in the context of special circumstances. Application to the Present Case: - The Court noted that the assessee had a mining lease over the entire area, including the railway area, and had the right to extract minerals. The payment of Rs. 3 lakhs was made to remove the obstruction caused by the railway constructions, which hindered the mining operations. - The payment was not for acquiring a new right or asset but for removing an obstacle to facilitate the existing business operations. - The Court distinguished this case from *R. B. Seth Moolchand Suganchand v. CIT* [1972] 86 ITR 647 (SC), where the payment was for acquiring a lease and prospecting rights, which were capital in nature. Conclusion: - The Supreme Court concluded that the payment of Rs. 3 lakhs was a revenue expenditure, as it was made to remove an obstruction to the assessee's business operations and did not result in the acquisition of a new asset or enduring benefit. - The High Court's view that the payment resulted in an enduring benefit was not sustainable in law, as the payment was for facilitating the business and not for acquiring a capital asset. - The appeal was allowed, the High Court's order was set aside, and the order of the Income-tax Appellate Tribunal, which treated the expenditure as revenue expenditure, was restored. Judgment: - The Supreme Court allowed the appeal, set aside the High Court's order, and restored the order of the Tribunal. The appellant was entitled to its costs. - Appeal allowed.
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