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TMI Blog1965 (12) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... company agreeing to pay as royalty specified percentages of the price at which the " sleepers and scantlings " were supplied by the company to the Indian railways. By a letter dated January 16, 1950, addressed to the Dewan of Jeypore, the company offered to pay enhanced royalty for the period June 1, 1948, to June 30, 1950, in consideration of the Estate granting renewal of the agree ments which were about to expire. The Collector of Koraput, who was the authority to sanction the grant or renewal of the agreement under section 3(1)(a) of the Orissa Preservation of Private Forests Act, 1947, by order dated April 3, 1950, sanctioned renewal of the original agreements for one year from July 1, 1950, to June 30, 1951. A fresh agreement was ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs for assessment of income-tax in the assessment year 1953-54, the claim of the company to deduct Rs. 83,157 paid during the year of account in addition to the royalty stipulated to be paid under the agreement dated June 13, 1952, as an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act was rejected by the Income-tax Officer. The order of the Income-tax Officer was reversed by the Appellate Assistant Commissioner who held that the agreement to pay amounts of money in addition to royalty stipulated to be paid under the formal agreement were " additional royalty " solely for the purpose of acquiring logs to be converted into sleepers for sale and the payments represented " the prime cost of the company's stock-in-trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement was not stock-in-trade, but the right to acquire it and, upon the principle laid down by the House of Lords in Hood-Barrs v. Inland Revenue, Commissioners, the company acquired a capital asset of an enduring nature. In the alternative, the High Court observed, the additional amounts agreed to be paid in respect of the period under the original agreements which had expired were in consideration of the Estate granting extension of the agreement which came to an end in the month of June, 1950. Had the agreement not been extended, observed the High Court, the " business of the company would have been greatly affected and there could be no doubt that by the payment the company acquired a benefit of an enduring nature ", and since b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s its stock-in-trade, and money spent for acquiring stock-in-trade of the business is revenue expenditure. The Income-tax Officer did not disallow the royalty stipulated to be paid under the terms of the agreement dated June 13, 1952 : he only disallowed the additional amounts which related to what was called " back royalty " for the period July 1, 1948, to June 30, 1950. The question referred by the Tribunal also related to the amount of Rs. 83,157 which was paid as an additional amount over and above the royalty agreed to be paid. But we are of the view that the answer recorded on the alternative ground which appealed to the High Court must be sustained. The additional payments were worked out on the basis of total royalty paid during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offer to pay those amounts in addition to the stipulated royalty was made. There was no legal obligation to pay those amounts under the terms of the original agreements, and the company offered " as a special case to pay " those additional amounts " on the understanding that the Government will give approval " for renewal of the agreement. The amounts agreed to be paid did not form part of the price of the company's stock-in-trade, right to collect which was conferred by the agreement dated June 13, 1952. There is no doubt that payment of premium in consideration of the owner of property agreeing to grant a right to take and remove the stock-in-trade of the taxpayer is in the nature of capital expenditure. We, therefore, agree with the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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