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TMI Blog1982 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... o or in any way concerning such land and all rights, obligations and liabilities of the Government under any contract or agreement entered into by the Governor of West Bengal with any person, firm or company in relation to the said lands or assets. (2) To expeditiously develop forest by large scale harvesting to be followed by sales or disposal of production from such forest belonging to the company. (3) To plant, replant, afforest and reafforest in such forest land, waste land or other land. (4) To encourage mechanisation of logging and extraction operations in order to minimise wastage in logging and to develop a network of roadways or pathways for tapping the hitherto inaccessible forests. (5) To market various forest produce and to explore new markets for timber hitherto less known or in use and other forest produce exploited by the company or otherwise deal with the same. (6) To encourage and establish industries based on forest produce as raw material, by_ (i) erecting factory or factories in suitable places for the manufacture of articles from various forest produce ; (ii) promoting development of wood-based industries ; and (iii) generally undertaking supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned from the disposal of forest produce located in the demised areas and from other sources may be credited as revenue of the lessee (West Bengal Forest Development Corporation Limited) as the Corporation is authorised to issue its own pointed forms of receipts and permit, etc. for the purpose." By clause (5) the as was given full liberty and power to undertake all works in connection with the development of the area, extraction of Forest Produce and replantation subject to the restrictions imposed under Part III. These works will include, inter alia, construction and repairs to roads, mechanised and manual logging, construction of buildings, development of recreation facilities, etc., subject to availability of resources. 5. Part III of the agreement provided for restrictions and conditions as to the exercise of the liberties and privileges in Part II above. These restrictions, inter alia, provided that the assessee would undertake to supply all reasonable needs of the local population of small timber, firewood, charcoal and other minor forest produce at reasonable rate as per existing practice followed by the Forest Department and that the assessee would duly observe the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 5,67,909 1977-78 Rs. 4,15,810 Figure not available in records. The authorities below have allowed the royalty paid, but they have disallowed the dead rent as in their opinion the said amount represented capital expenditure. The reason given by the ITO for making the aforesaid disallowance was that (we are quoting from the assessment order for the assessment year 1975-76) "dead rent is payable by way of consideration money for obtaining the right of development, extraction of forest produce, replantation, etc., in the forest area of 83,162 hectares granted to the assessee by the Govt. of West Bengal. The dead rent to allowed to be paid annually during the subsistence of the lease is nothing but annual instalments towards the full consideration money for leasing out the entire forest area by the Govt. of West Bengal to the Corporation. Since the above dead rent is payable in consideration of the right to development, extraction of forest produce, replantation, etc., from the forest area granted to the assessee, the amount of (dead rent)............is a capital expenditure". The above was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income but to develop forest areas and this was, according to him, a charitable object. 10. In any case, he next contended, the finding of the Commissioner (Appeals) that the dead rent paid was on capital account was entirely erroneous and opposed to the ratios of the decisions of the Supreme Court in the cases of Gotan Lime Syndicate v. Commissioner (1966) 59 ITR 718 (SC) and Empire Jute Mills Ltd. v. Commissioner (1980) 124 ITR 1 (SC). He took us through various parts of the lease agreement, as enumerated above, and submitted that it could not be said in the light of the various terms and conditions of the lease deed that the assessee had acquired a capital asset. According to him, what the assessee had acquired was merely a right to collect forest produce and to sell the same. The royalty was being charged by the Government in two forms, one with reference to the area of the lease and another with reference to the forest produce extracted from the leased area. Simply because the first type of payment was related to the size of the leased forest land it did not cease to be a revenue expenditure. It was styled in the agreement as 'dead rent' and clearly suggested that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stellation of facts may be dissimilar and other factors may be present which may give a different view to the case". Similar was the view of Senior Bhagwati, J. In Assam Bengal Cement Co. Ltd. v. Commissioner (1955) 27 ITR 34 (SC). In K.T.M.T.M. Abdul Kayoom v. Commissioner (1962) 44 ITR 689 (SC), Justice Hidayathullah, as he then was, pointed out at p. 703 that though the decisions of the Supreme Court in the case of Assam Bengal Cement Ltd. reported in (1975) 27 ITR 34 (SC) and Pingle Industries Ltd.'s case reported in (1960) 40 ITR 67 (SC) have considered all the leading cases, and have also indicated the tests, which are usually applied in such cases, yet he warned that... none of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases....by matching the colour of one case against he colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessible areas. This was in other words, the cost of developing the said demised area, which would ultimately benefit the assessee in the varies forms for example, by increased production of forest products, inflow of tourist traffic, starting of various kinds of industries for logging and for the manufacture of articles from various forest products, etc. The aforesaid payment, therefore, on the face of it, appears to us to be related with the sole right to exploit the leased forest land. It had nothing to do with the extraction of the forest produce; for that, as we have noted above, separate royalty was to be paid. A payment made to acquire such right would, in our opinion be capital expenditure as the assessee acquires thereby the leasehold right and other rights mentioned above which constitute the profit-earning apparatus of the assessee-company. This right is not directly co-relatable with the right of procurement of raw materials simpliciter. It rather brings into existence the source where from and whereupon the varies profit-earning activities of the company will ensue and will be founded. Such an expenditure is prima facie of capital nature for it is incurred (i) to acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Mining Engineer had stated in his letter: "On checking the figures of export of lime-stone, lime-kali and lime-kachra for the settlement of royalty, the figures of royalty amount payable in the following year is as under : From 1st April to 31st March year Export figures Amount Paid 1953-54 13,511 tons 30,553 10 6 1954-55 13,308 tons 27,965 11 6 1955-56 18,033 tons 37,332 9 0 1956-57 18,383 tons 37,740 0 6 1957-58 6,14,946 mds 49,862 14 6 1958-59 6,04,498 mds 43,673 15 0 At the end of each financial year the accrued royalty amount is far less actually and as such as per the agreement the royalty payable is Rs. 96,000 in all the years above-written." The dead rent fixed in that particular case at the rate of Rs. 10 per acre for 15 sq. Miles was by way of minimum royalty payable. If the royalty payable on the basis of extraction was to be lower than the dead rent stipulated above, the assessee was obliged to pay royalty equal to the dead rent. In view of these provisions of the lease agreement a sum of Rs. 96,000 was fixed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the sole right to the demised forest land, the right to develop it and the right to open up industries, recreational facilities roads etc. in the demised forest area. Such a right is qualitatively different from the right acquired to extract forest produce simpliciter. The Commissioner (Appeals) was, in our opinion, justified in holding that the facts and the ratio of the decision of their Lordships of the Supreme Court in Gotan Lime Syndicate (1966) 59 ITR 718 (SC) had no relevance or relationship with the facts of the present case. 15. In Abdul Kayoom v. Commissioner (1962) 44 ITR 689 (SC), the facts were somewhat similar to those obtaining in the present case. The assessee-firm in that case carried on business of conch shells which are found on the bed of the sea all along the coastline of the South Arcot District (Tamil Nadu). The assessee took on lease from the Director of Industries Commerce, Madras, "the exclusive right, liberty and authority to take and carry away all "chank" found in the sea" for a period of three years ending on 30th June, 1947. The consideration was Rs. 6,111 per year payable in advance. The question for determination was whether the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also given to the assessee-company to develop the said forest area, making other uses of the demised forest land including development of recreational facilities, constructing roads, buildings and industries therein etc. The rights acquired in the demised forest area were, therefore, much more extensive in the present case than in the case of Abdul Kayoom v. Commissioner (1962) 44 ITR 698 (SC) referred to above. If acquiring a right to exclusive fishing was capital expenditure, the acquisition of so many rights in the present case did, without doubt, amount to acquiring capital structure. 17. The facts of Assam Bengal Cement Co. Ltd. v. Commissioner (1955) 27 ITR 34 (SC) have no similarity with the facts of the present case and, therefore, we do not propose to discuss them here. 18. Their Lordships of the Supreme Court have, of course, explained the various principles for determining capital expenditure and revenue expenditure in detail in that case and to that extent the said decision has been helpful to us in deciding the present appeals. The decision of their Lordships of the Supreme Court in the case of Empire Jute Co. Ltd. has been very helpful in understanding the underl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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