CHINTALAPUDI RANGANAYAKULU Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 66 (1) of the Indian Income-tax Act, 1922. The assessee is a firm engaged in the business of extracting iron ore and selling it. THIS case relates to the assessment year 1956-57, the corresponding accounting year being the 1st January, 1955, to 31st December, 1955. The assessee entered into lease agreements with ten different land-owners in respect of ten plots of land. One of the leases was for a period of one year, two for two years and the remaining seven from three years each. The assessee made two lump sum payments of Rs. 10,980 for the right to enter upon the land and extract the iron ore after carrying on mining operations and Rs. 4,246 as crop compensation for not delivering back the land for cultivation during the season to the landowners. The assessee also paid a further sum of Rs. 1,775 as brokerage to persons who negotiated the said lease agreements. All these payments were made during the accounting year and these were claimed by the assessee as revenue expenditure. But this claim is disallowed by the department and also by the Income-tax Appellate Tribunal, Hyderabad Bench, which referred the following question to the High Court :

(2.) THE relevant clauses in one of the lease agreements are as follows :

(3.) ON the other hand, the point appears to be concluded by the decisions of the Supreme Court in Pingle Industries Ltd. v. Commissioner of Income-tax and K. T. M. T. M. Abdul Kayoom v. Commissioner of Income-tax. In the former case, the assessee company, which carried on the business of selling Shahabad flag stones, obtained from a jagirdar under a contract the right to extract stones from quarries situated in six named villages for a period of 12 years on the annual payment of Rs. 28,000. Under the contract, a sum of Rs. 96,000 was paid in advance as security of which Rs. 8,000 was to be adjusted annually against Rs. 28,000 and the balance of Rs. 20,000 was payable in monthly instalments of Rs. 1,666-10-8. The assessee had only the right to excavate stones. There was also a similar lease taken from the Government for a period of five years under which the assessee had to pay Rs. 9,000 per year in monthly instalments of Rs. 750 each. The question was whether the amounts paid by the assessee to the jagirdar and the Government each year were revenue expenditure allowable under section 10 (2) (xii) of the Hyderabad Income-tax Act corresponding to section 10 (2) (xv) of the Indian Income-tax Act, 1922. It was held by the majority consisting of Kapur and Hidayatullah JJ. that :