COMMISSIONER OF INCOME TAX Vs. RAMAL AMMAL S

JUDGEMENT

(1.) CERTAIN villagers in Mitratti village and Kattampatti village in Udumalpet Taluk, Coimbatore District, sold their lands to the assessee with an option to repurchase. The lands contained deposits of gypsum. The sales were under registered conveyances. The option to repurchase was by separate agreements. After the purchase of the lands, the assessee entered into an agreement with her husband. Under this agreement, the husband was to do the mining operation in those lands after obtaining the requisite mining licence. The consideration under this agreement was that the husband should pay to the assessee a royalty at the rate of Rs. 2 per ton of gypsum won and Re. 1 per ton as and towards the cost of land, compensation for damages caused to land and the like. The dues payable to the Government on account of mining operations were also to be paid by the husband.

(2.) THE assessee's husband began mining operations in the accounting year relevent to the asst. yr. 1966-67 and began paying the amounts which he owed under the agreement to the assessee on the basis of the gypsum extracted by him from the lands. The assessee accounted for the amounts received from her husband at the aggregate rate of Rs. 3 per ton. As against these receipts, the assessee set off many items of expenses. The chief item of expenditure which she sought to set off against the receipts from the mining operations was the price which the assessee paid to the villagers in Mitratti village and Kattampatti village for purchasing the lands containing gypsum deposits. As a matter of accounting, the assessee did not set off the entire price paid by her for those lands; but she applied some formula to distribute and spread over the total cost price of the lands among the several account years, claiming only a portion of the purchase price as expenditure properly debitable in any given year as against the receipts from mining from her husband for that year. Having done so, the assessee claimed the cost of purchase of the lands or portions thereof to be more accurate, as admissible deductions in the computation of her business income. The claim for allowance was made in all the assessment years during which the assessee had received moneys from her husband.

(3.) ON appeal by the assessee, the AAC observed that he was unable to discover the basis on which the assessee had distributed the total cost of the lands as between the several account years for the purpose of claiming portions of that outlay as revenue expenditure. He, however, took the view that although the transactions in question had been effected by way of a strange combination of outright purchase and simultaneous agreement for resale, nevertheless the transaction must be regarded as an agreement of lease. The AAC took note of the fact that under the agreement for reconveyance, if the option came to be exercised by the villagers, the assessee had to reconvey the lands within a period of seven years. The AAC regarded that the advantage from a transaction of this kind should not be treated as being of a permanent nature having regard to the option to repurchase given to the villagers and the period within which it had to be exercised. On the basis of this reasoning, the AAC held that the expenditure claimed in respect of portions of the outlay on the purchase of land in the relevant years must be regarded as revenue expenditure. In this view, he allowed the appeals and granted the assessee's claim for deduction.