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TMI Blog1964 (3) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... med deduction as revenue expenditure the amounts specified in the question referred. The Income-tax Officer disallowed the claims holding that what the assessee purchased was not his stock-in-trade, but merely a right or means or source to get iron ore which, when excavated and taken into possession, will form part of his stock-intrade, and therefore the amounts paid to the land-owners constituted capital expenditure. On appeals by the assessee, the Appellate Assistant Commissioner held that as the terms of the lease deeds, except in the case of M. Bharmayya, did not give the assessee any interest in the land as such, but merely allowed him to collect the ore either from the surface of the land or by digging into it, the lease money paid was, in his opinion, to be allowed as revenue expenditure. He, however, held that under the agreement with Mr. Bharmayya the assessee acquired a permanent and proprietary interest in land, and, as such, the amount paid to her was capital expenditure and, therefore, disallowed the claim of the assessee to the extent of ₹ 2,500. The assessee and the department preferred appeals to the Tribunal. The Tribunal allowed the appeals of the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments undoubtedly constitute expenditure of a capital nature. Sri V. Krishnamurthy, learned counsel for the assessee, sought to bring his case within the principles of O'Grady v. Bullcroft Main Collieries Ltd. [1932] 17 Tax Cas. 93 and contended that the payments by the assessee were lump sums paid in advance for recurring items of surface damages and as such the expenditure items were wholly and exclusively laid for the purpose of the business and they are allowable as deduction under section 10(2)(xv) of the Act. In O'Grady's case [1932] 17 Tax Cas. 93 the assessee had taken leases of coal seams, under which, in consideration of covenants by the lessors indemnifying the assessee against liability for surface damage, the assessee undertook to make payments to the lessors on specified accounting dates in respect of each acre or part of an acre beneath which coal had first been worked since the previous accounting date, and payments were made by the assessee on the basis of the acreage beneath which coal had been worked. Rowlatt J. held that the payments were not capital payments for getting a right but were incidental payments in the working of the mine, for surfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducting your mine upon the principle of having to make incidental payments as you go along to enable you to conduct the mine? Not without some diffidence I think that the Commissioners' way of looking at it cannot be disturbed. I think that this really, looking at the matter fairly, was a series of payments which resulted from arrangements having been made to pay as they went along as a matter of income, rather than put their hands in their pockets and make a payment in the way of capital, and that the consideration--it is only chopping up into small pieces a big capital payment--is not one to which one ought to give effect. In Addie's case [1924] 8 Tax Cas. 671, 676, 677, under the terms of a mineral lease, the assessee-company was obliged to restore to an arable state all ground occupied by it or damaged by its workings, or, at its option, to pay the lessor for all such ground not so restored, at the rate of thirty years' purchase of the agricultural value thereof. In the exercise of its option, the assessee-company paid to the lessor a sum of ₹ 6,104, as representing the value of the damaged lands. It was contended by the assessee that such payment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its original condition, or by paying the value of the land if it was not restored........ A right to work the coal in such a manner as to sacrifice the value of the surface was a material asset for the company to possess, and, not unnaturally or unusually, the same principle was applied in the lease to the conferment of that right on the company as in the case of surface occupation by debris heaps and the like. The price of acquiring that right is a capital outlay. No distinction can, in my opinion, be drawn between the payment or consideration paid for permanent injury done by subsidence as the result of operations under the lease and permanent injury done by the depositing of debris as the result of those operations. Neither the expense of restoration, nor the compensation payable failing restoration, appear to me to fall within working expenses. They are, in my opinion, capital charges. In Chintalapudi Ranganayakulu v. Commissioner of Income-tax [1964] 51 I.T.R. 276, compensation paid by the assessee, who was a mining lessee for failure to restore and re-deliver the land during the crop season was held to be expenditure of a capital nature. Under the relevant agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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