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TMI Blog1990 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... amsar. The lease was liable to be renewed after expiry of 20 years. The Natural Science (India) Ltd., by deed of assignment dated December 11, 1948, assigned the rights under the lease to Bikaner Gypsums Ltd., a company wherein the State Government owned 45 per cent. share. Bikaner Gypsums Ltd. (hereinafter referred to as "the assessee") carried on the business of mining gypsum in accordance with the terms and conditions stated in the lease. The assessee entered into an agreement with Sindri Fertilizers, a Government of India public undertaking, for the supply of gypsum of minimum of 88.5 per cent. quality. Under the lease, the assessee was conferred the liberties and powers to enter upon the entire leased land and to search for, win, work, get, raise, convert and carry away the gypsum for its own benefit in the most economic, convenient and beneficial manner and to treat the same by calculation and other processes. Clause 2 of Part 11 of the lease authorised the lessee to sink, dig, drive, quarry, make, erect, maintain and use in the said lands any borings, pits, shafts, inclines, drifts, tunnels, trenches, levels, waterways, airways and other works and to use, maintain, deepen or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous permission in writing of the Minister, or some officer authorised by him in that behalf or otherwise than in accordance with such instructions, restrictions and conditions either general or special which may be attached to such permission. The said distance of 100 yards shall be measured in the case of a railway reservoir or canal horizontally from the outer of the bank or of outer edge of the cutting as the case may be and in the case of a building horizontally from the plinth thereof." The above clause had been incorporated in the lease to protect the railway track and railway station which was situate within the area demised to the lessee. Clause 5 of Part VIII of the agreement stated as under: "Clause 5 : If any underground or mineral rights in any lands or mines covered and leased to the lessee in accordance with the provisions of those presents to be claimed by any 'Jagirdar', Pattedar, Talukdar", tenant or other person then and in all I such cases the Government shall upon notice from the lessee forthwith put the lessee in possession of all such lands and mines free of all costs and charges to the lessee and any compensation required to be paid to any such 'Jagird ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rs.3 lakhs paid to the Northern Railway for the shifting of the railway station for the assessment year 1964-65. The Income-tax Officer rejected the assessee's claim on the ground that it was a capital expenditure. On appeal by the assessee, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On further appeal by the assessee the Income-tax Appellate Tribunal held that the payment of Rs. 3 lakhs by the assessee-company was not a capital expenditure, instead it was a revenue expenditure. On an application made by the Revenue, the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") referred the question as aforesaid to the High Court under section 256 of the Income-tax Act, 1961. The High Court held that since, on payment of Rs. 3 lakhs to the Railways, the assessee acquired a new asset which was attributable to capital of enduring nature, the sum of Rs. 3 lakhs was a capital expenditure and it could not be revenue expenditure. On these findings, the High Court answered the question in the negative, in favour of the Revenue and against the assessee and it set aside the order of the Tribunal by the impugned order. Learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. The court laid down a simple test for determining the nature of the expenditure. It observed (at page 45) : " If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is Properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business, is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure." In K. T. M. T. M. Abdul Kayoom v. CIT [1962] 44 ITR 689, this court, after considering a number of Englis and India authorities, held that each case depends on its own facts, and a close similarity between one case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. The High Court has relied upon the decision of this court in R. B. Seth Moolchand Suganchand v. CIT [1972] 86 ITR 647, in rejecting the assessee's contention. In Suganchand's case [1972] 86 ITR 647 (SC) the assessee was carrying on a mining business, and had paid a sum of Rs. 1,53,800 to acquire lease of certain areas of land bearing mica for period of 20 years. Those areas had already been worked for 15 years by other lessees. The assessee had paid a sum of Rs. 3,200 as fee for a licence for prospecting for emerald for a period of one year. In addition to the fee, the assessee had to pay royalty on the emerald excavated and sold The assessee claimed the expenditure of Rs. 3,200 paid by it as fee to the Government for prospecting licence as revenue expenditure. The assessee further claimed that the appropriate part of Rs. 1,53,800 paid by it as lease money was allowable as revenue expenditure. The court held that while considering the question in relation to the mining leases, the empirical test is that where minerals have to be won, extracted and brought to surface by mining operations, the expenditure incurred for acquiring such a right would be of a capital nature. But, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 34, Abdul Kayoom [1962] 44 ITR 689 and Seth Suganchand [1972] 86 ITR 647, and several other decisions of this court. But, the test laid down by Lord Cave has been explained in a number of cases which show that the tests for considering the expenditure for the purposes of bringing into existence an asset or an advantage for the enduring benefit of a trade is not always true and perhaps Lord Cave himself had in mind that the test of enduring benefit of trade would be a good test in the absence of special circumstances leading to an opposite conclusion. Therefore, the test laid down by Lord Cave was not a conclusive one as Lord Cave himself did not regard his test as a conclusive one and he recognised that special circumstances might very well lead to an opposite conclusion. In Gotan Lime Syndicate v. CIT [1966] 59 ITR 718 (SC), the assessee, which carried on the business of manufacturing lime from limestone, was granted the right to excavate limestone in certain areas under a lease. Under the lease, the assessee had to pay royalty of Rs. 96,000 per annum. The assessee claimed the payment of Rs. 96,000 to the Government as revenue expenditure. This court after considering its earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance was suffering a progressive decline. The charter of the company placed a restriction on the company's borrowing powers and it placed restrictions on voting rights of certain members. The company decided to petition for a supplementary charter providing for the vesting of the management in a board of directors and for the removal of the limitation on the company's borrowing powers and restrictions on the issue and transfer of shares. The company's petition was contested by dissenting shareholders in court. The company settled the litigation under which it had to pay the cost of legal action and buy out the holdings of the dissenting shareholders and, in pursuance thereof, a supplementary charter was granted. In assessment proceedings, the company claimed deduction of payments made by it towards the cost of obtaining the charter, the amounts paid to the dissenting shareholders and expenses in the action. The Special Commissioners held that the company was entitled to the deductions. On appeal, the House of Lords held that since the object of the new charter was to remove the obstacles to profitable trading, and the engagement of a competent manager and the removal of restriction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Jamsar, under which it had right to win, dig, drive, quarry and extract mineral, i.e., gypsum and in that process, it had a right to dig into the surface of the entire area leased out to him. Clause 3 of Part III of the lease, however, placed a restriction on its right to mining operations from the railway area, but that area could also be operated by it for mining purposes with the permission of the authorities. The assessee had, under the lease, acquired full rights to carry on mining operations in the entire area including the railway area. Under clause 3, it could carry on mining operations only after obtaining the permission of the authorities which had been granted by the railway authorities. The payment of Rs. 3 lakhs was not made by the assessee for the grant of permission to carry on mining operations within the railway area, instead the payment was made towards the cost of removing the construction which obstructed the mining operations. The presence of the railway station and railway track was operating as an obstacle to the assessee's business of mining and the assessee made the payment to remove that obstruction to facilitate the mining operations. On payment made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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