PEER SAHIB N Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 66(1) of the Indian Income Tax Act, 1922, at the instance of the assessee and arises out of his assessments for the years 1953 -54, 1954 -55, 1955 -56 and 1956 -57. The question referred by the Income Tax Appellate Tribunal, Hyderabad Bench, for our decision is as follows :

(2.) THE assessee was carrying on iron are mining business. For the relevant assessment years, he claimed 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 are which, when excavated and taken into possession, will form part of his stock -in -trade, 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 assess 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 Rs. 2,500. The assessee and the department preferred appeals to the Tribunal. The Tribunal allowed the appeals of the department holding that the payments made under the relevant agreements by the assessee to the owners of the lands, constituted capital expenditure, as the said payments were made for acquiring the means of getting iron ore. The Tribunal also held that the character of the payment to Bharmayya was not different from the rest of the payments, and therefore dismissed the appeals preferred by the assessee.

(3.) THE contention of the assessee was that the payments made to the pattadars were allowable as revenue expenditure. The question whether an amount paid is capital expenditure or revenue expenditure is of some nicety and often presents difficulties. If the outgoing result in the acquisition of a fixed capital asset, or produce an advantage of a permanent and enduring nature, the outgoing are not allowable as revenue expenditure. After the decision of the Supreme Court in Abdul Kayoom v. Commissioner of Income Tax, it is no longer open to argument that payments made by a mining business man to acquire mining rights is allowable as revenue expenditure under section 10(2)(xv) of the Act. As observed by Rowlatt J. in Mallett v. Staveley Coal & Iron Co. Ltd., "When a colliery company acquire a lease, the expense of acquiring a capital asset and is a capital expenditure....and that receipts and payment in connection with the acquiring and disposing of leaseholds of minerals to be worked by collieries... are capital transactions..." If the payments by the assessee were made for acquiring the right to carry on mining operations in the lands of the pattadars, the said payments undoubtedly constitute expenditure of a capital nature.