1934 (5) TMI 18

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..... , on the 29th June, 1930, for the excavation of lime shells from certain Government lands in the Nellore District. Under this agreement he was to have the exclusive privilege of excavating chunam shells within the area specified in the agreement from the 1st July, 1930, to the 30th June, 1933, that is to say, for three years. He also agreed to pay the sum of ₹ 27,750 for this privilege in 12 equal quarterly instalments payable in advance. The Income Tax Officer held that these payments were of a capital nature and were not therefore deductible in computing the income derived from the excavation and sale of lime shells and with that opinion the Commissioner of Income Tax agrees. The agreement in question is Exhibit A and it is tr .....

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..... itial expenditure without which the assessee could not have begun winning the shells. I do not think that the fact that the assessee had previously entered into a number of similar agreements affects the question. It seems to me that the observations made by Bowen, L.J., in City of London Contract Corporation, Limited v. Styles which are referred to in Alagannan Chetty v. The Commissioner of Income Tax, Madras are very much in point. In the former case the assessees took over a business of another company which had a number of unexecuted contracts on hand and the taking-over company paid a lump sum of money to the outgoing company to obtain the benefit of those contracts and claimed it as a deduction. Bowen, L.J., said: You do not use .....

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..... s to the purchaser. These coal contracts were valued at 30,000. The appellant claimed, in arriving at the amount of the profits duty under the Finance Act 1915, to deduct this 30,000 as representing part of the purchase price of the stock-in-trade. Viscount Haldane and Lord Sumber held that the deduction was not permissible upon the ground that it was in respect of a capital expenditure and on page 20 (of 2 A.C.) the former says: My Lords, in the case before us the appellant, of course, made profits with circulating capital by buying coal under the contracts he had acquired from his father's estate at the stipulated price of fourteen shillings and reselling it for more, but he was able to do this simply because he had acquired, .....

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