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TMI Blog1945 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1938-39, however, the Income-tax Officer concluded that the expenditure in question was in the nature of capital expenditure and rejected the assessee's claim in his assessment dated February 29, 1940. Similar claims in respect of 1939-40 and 1940-41 assessments were rejected on the same reasoning by relevant assessment orders dated April 19, 1940, and November 30, 1940, respectively. The Appellate Assistant Commissioner upheld the orders of the Income-tax Officer in respect to these assessments. The assessee preferred appeals to the Income-tax Tribunal and the Tribunal was of the opinion that the expenditure incurred on the leases in dispute amounted to no more than the purchase of raw material for the appellant's manufacturing business and as such the expenditure in question was in the nature of revenue expenditure and was, therefore, a legitimate deduction under Section 10(2), clause (xii), of the Income-tax Act. In the result the appeals were allowed and the assessee's contention was upheld. It was observed by the Tribunal that the facts of each case have to be subjected to the most suitable test that may be applicable to them and that the question of distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his business of saltpetre manufacture, the moneys spent in acquiring the leases of lands containing deposits of crude saltpetre have correctly been treated as expenditure in the nature of revenue expenditure allowable as a deduction under Section 10(2)(xii) of the Income-tax Act? In the case of Messrs. Parma Nand Haveli Ram v. Commissioner of Income-tax [1945] A.I.R. 1945 Lah. 137; 13 I.T.R. 157, at p. 169, the following question of law was referred to this Court and was decided by a Full Bench:- Whether the money called lease money paid to the owners of the lands from which saltpetre was extracted as a consideration for the licence granted by the said owners for the use of their lands for the purpose of such extraction during the year was a capital expenditure and could not be deducted as a legitimate expense incidental to the business? The Full Bench gave the answer that the money expended on the leases should not be regarded as a capital expenditure in the circumstances of the case. The principles on which the Full Bench arrived at its decision are enunciated at page 144 of the report in the following terms:- The present case is not one where the assessee's b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sites for the purposes of extracting crude saltpetre is not expended in acquiring the assessee's business but for the purpose of running it. The reference before us is covered by the principles enunciated by the Full Bench and must be answered on similar lines and the decision of the Tribunal must be affirmed. Mr. Sikri, learned counsel for the Commissioner of Income-tax, attempted to distinguish the Full Bench case from the case before us on the ground that the leases in the Full Bench case were short term leases while in the present case the leases ranged from five to ten years. He placed reliance on the following observations contained in the leading judgment of the Full Bench delivered by Munir, J.:- The assessee's business is an existing business in the course of which he has got to acquire sites for the purpose of extracting raw material and it cannot, therefore, be said that each lease into which the assessee enters constitutes an independent venture the profits of which must be worked out separately. It is thus impossible to hold that the expenditure in question was incurred by the assessee for the purpose of acquiring a business and not for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that the reference before us is concluded by that decision with which we are bound. Mr. Sikri contended that the real matter for decision in all such cases is whether the trader or the manufacturer has purchased raw material or acquired land under a lease for the manufacture of raw material itself; in other words if he acquires lease of land, i.e., something from which raw material can be got, that transaction cannot amount to the purchase of raw material and, therefore, the leasehold rights must be held to be capital expenditure. That contention of Mr. Sikri, if entertained, would compel us to go behind the Full Bench decision which we are not competent to do. On that argument the question of the term of the lease or its duration becomes wholly irrelevant. We cannot, therefore, entertain it. That being so, the answer to this reference must be in the affirmative and the Commissioner's contention must be repelled. It must further be stated that in the present case the Tribunal observed that on the facts of the case it was clear that the assessee by means of these so-called leases was obtaining raw materials and the object was not the extraction of ore from a mine. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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