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TMI Blog1971 (9) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... h this authorization was granted by the assessee but we were told by the counsel for the assessee, and this was not disputed on behalf of the revenue, that the consideration payable by Messrs. Dalwadi and Company was Rs. 2 per thousand bricks manufactured out of the earth removed by them. Pursuant to this contract, Messrs. Dalwadi and Company dug and removed earth from the land of the assessee to the extent of the value of Rs. 9,060 during Samvat year 2017, being the relevant previous year for the assessment year 1962-63. The question arose in the assessment of the assessee to income-tax for the assessment year 1962-63, whether this sum of Rs. 9,060 received by the assessee from Messrs. Dalwadi and Company constituted income liable to tax in the hands of the assessee. The assessee claimed that it was not so liable and the contention put forward by him was a two-fold contention. In the first place, it was contended by the assessee that the receipt of the sum of Rs.9,060 was capital receipt and not revenue and the second contention was--and that was a contention in the alternative--that even if this receipt was income receipt, it bore-the character of agricultural income and was, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us and it raised the familiar question which arises all too frequently in cases under the Income-tax legislation, namely, whether a particular receipt sought to be taxed in the hands of the assessee constitutes capital recept or revenue receipt. There have been many cases where this question has been the subject matter of judicial decision. But experience shows that a large number of these cases fall on the borderline indeed, in many cases, as observed by Greene M.R., " the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons ". Here also we find ourselves in the same predicament and our predicament is heightened by the fact that there is no decided case which serves as a guide for determination of the question which has arisen before us. Now while dealing with this question it is necessary at the outset to clear the ground by pointing out that merely because the earth would be consumed and exhausted in the process of digging and removal that would by itself be no ground for holding that the consideration received for it is capital receipt and not income receipt. It is now well-settled since the decision of the House of Lords in Col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lessee to the lessor in respect of a mining lease on the basis of tonnage of coal extracted and removed was capital or revenue receipt. The mining lease contained covenants granting several benefits to the lessee which included, inter alia, liberties to do various things upon the land. Lord Wright, delivering the opinion of the Judicial Committee, analysed the nature of the royalties payable under the mining lease and observed: " These are periodical payments, to be made by the lessee under his covenants in consideration of the benefits which he is granted by the lessor. What these benefits may be is shown by the extract from the lease quoted above, which illustrates how inadequate and fallacious it is to envisage the royalties as merely the price of the actual tons of coal. The tonnage royalty is indeed only payable when the coal or coke is gotten and despatched: but that is merely the last stage. As preliminary and ancillary to that culminating act, liberties are granted to enter on the land and search, to dig and sink pits, to erect engines and machinery, coke ovens, furnaces and form railways and roads. All these and the like liberties show how fallacious it is to treat t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, shafts, borings and to remove, take away and appropriate samples and specimens of bauxite of every quality, kind and description and in reasonable quantities not exceeding one hundred tons in the aggregate. This right was, to use the words of Kapur J., " a right to a portion of the capital in the shape of a general right to the capital asset " and for grant of this right, a lump sum payment was made by the licensee to the owner of the land. The question arose whether this lump sum payment constituted capital or revenue in the hands of the owner. The Supreme Court, after referring to the test formulated by Lawrence J. observed : " The terms of the covenant in the present case which have been quoted above show that the transaction was not one merely of the user of capital assets but of their realisation. By this test, therefore, the receipts were on capital account and not revenue. " The lump sum received by the owner from the licensee for grant of the prospecting licence was thus held to be capital and not revenue receipt on the application of the test formulated by Lawrence J. We must, therefore, apply the test formulated by Lawrence J. for the purpose of determining whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y work to be done, by Messrs. Dalwadi and Company on the land of the assessee was digging and removal of earth. The record does not show that any other work was to be done by them on the land. It is difficult to see how in these circumstances the transaction could be regarded as one granting occupation and use of the land for the purpose of digging and removal of earth. The transaction was plainly and manifestly a transaction of sale of earth to be dug and removed by Messrs. Dalwadi and Company. It is not possible to equate this transaction with the complex contract which came up for consideration before the Privy Council in Kamakshya Narain Singh's case. If the nature of the transaction with Messrs. Dalwadi and Company had been such that it permitted them to set up a brick kiln on the assessee's land and make payment to the assessee against every lot of one thousand bricks manufactured in the kiln out of earth dug and removed by them, it might have been possible to argue with some degree of plausibility that it was a contract in which payment was to be made not merely for the value of the earth dug and removed but as rent or compensation for occupation and use of the land for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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