NPEER SAHIB Vs. COMMISSIONER OF INCOME TAX MYSORE

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 Tribunal in their further agreed statement of case under section 66(4) of the Act, have stated that the Government is the owner of the sub-soil rights including the right to minerals in the lands in question, and the ryotwari pattadars holding the said lands own the right of cultivation and have a claim for compensation for the loss they may sustain in the course of mining operations. Mining leases in favour of the assessee were granted by the Government, but before such leases were granted, the assessee entered into agreements with the pattadars, who in consideration of the sums paid by the assessee, permitted the assessee to carry on mining operations in their lands during the period specified in the agreements.