Amounts received as consideration for a licence to prospect for minerals are capital receipts and not revenue receipts.

Headnote:
INCOME TAX - Assessment - Licence granted to prospect for Bauxite - Whether amounts received as consideration for the licence are capital or revenue receipts - Held, capital receipts.
Fact of the Case:

The assessee, a Zamindar, granted licences to different parties to prospect for Bauxite on his land. The periods of the licences were comparatively short, ranging from 6 months to a year. The licensees were granted the right to enter upon the land, prospect for Bauxite, and remove samples up to 100 tons. The Income-tax Officer held that the amounts received by the assessee were revenue receipts and taxable as such. On appeal, the Appellate Assistant Commissioner held the amounts to be capital receipts, but this order was set aside by the Income-tax Appellate Tribunal, which held the amounts to be revenue receipts. The High Court upheld the Tribunal's decision.
Finding of the Court:

The Supreme Court held that the amounts received by the assessee were capital receipts and not revenue receipts. The Court found that the licences granted to the licensees were not merely for the use of the assessee's capital assets, but for the realization of a portion of those assets in the shape of a general right to the capital asset. The Court also found that the amounts received were not in the nature of rent or revenue, but were a consideration paid by the licensees for being let into possession with the object of obtaining a right to remove minerals.
Issues: Whether the amounts received by the assessee as consideration for the licences granted to prospect for Bauxite were capital or revenue receipts.
Ratio Decidendi: The Court held that the amounts received by the assessee were capital receipts and not revenue receipts. The Court found that the licences granted to the licensees were not merely for the use of the assessee's capital assets, but for the realization of a portion of those assets in the shape of a general right to the capital asset. The Court also found that the amounts received were not in the nature of rent or revenue, but were a consideration paid by the licensees for being let into possession with the object of obtaining a right to remove minerals.
Final Decision: The Supreme Court allowed the appeal, set aside the judgment and order of the High Court, and answered the question in favour of the appellant.

Judgment

KAPUR, J. : This is an appeal by special leave against the judgment and order of the High Court at Patna answering the question referred to it by the Income-tax Appellate Tribunal against the assessee who is the appellant before us. The appeal relates to three assessments made on the appellant for the respective assessment years 1945-46, 1946-47 and 1947-48.

2. The appellant is a Zamindar and owns considerable properties. In the accounting years he granted licences to different parties to prospect for Bauxite. The particulars of the licences are :

Received from Date of the Licence. Period of Licence. Assessment Year Amount Received.

Rs.

1. Aluminium Coroporation of India Ltd. 20-1-1945 6 months 1945/46 15,290/-.

2. Indian Aluminium Co. Ltd. 26-5-1945 1 year 1946/47 1,24,789/-.

3. Dayanand Modi 7-5-1945 6 months 1947/48 1,500/-

4. Indian Aluminium Co. Ltd. 14-8-1945 1 year 1947/48 70,146/-.

The Income-tax Officer held that these amounts were received as revenue payments and were therefore taxable. On appeal to the Appellate Assistant Commissioner the amounts were held to be capital receipts but this order was set aside by the Income-tax Appellate Tribunal which held the amounts to be revenue receipts and taxable as such. At the instance of the appellant the case was referred to the High Court under S. 66(1) of the Income-tax Act and the following question was stated for the opinion of the Court :

"Whether in the facts and circumstances of these cases the sums of Rs. 15,209, Rs. 1,24,789, Rs. 1,500 and Rs. 70,146 received by the assessee are income assessable to tax under the Indian Income-tax Act ?"

The question was answered in the affirmation and the High Court held that there was material to support the finding of the Tribunal, and it was a finding of fact ; that the amounts received by the appellant were revenue receipts and not capital receipts. Against this judgment the appellant has come in appeal to this court by special leave.

3. The question that falls for decision is whether the amounts received by the assessee are capital or revenue receipts and for that purpose it is necessary to investigate the nature of the grants made by the appellant. Under the licence the licensee was granted the sole and exclusive right and liberty to (sic)

(a) to enter into and upon, to prospect, search for, mine quarry, bore, dig and prove all Bauxite lying and being in, under or within the said lands.

(b) For the purpose aforesaid and all other purposes incidental thereto dig, drive, make and maintain such pits, shafts, borings, inclines, admits levels, drifts, air courses, drains, water courses, roads and ways and to set up, erect and construct such temporary engines, machinery shuds and things as may be reasonably necessary for effectually carrying on the prospecting operations hereby licenced.

(c) To remove, take away and appropriate samples and specimens of Bauxite of every quality, kind and description and in reasonable quantities not exceeding one hundred tons in all during the terms of this grant.

(d) for the purposes aforesaid to clear undergrowth brushwood and to make use of any drains or water courses on the lands or for clearing sites of working from any water which may flow or accumulate thereon or therein.

4. The periods of the licences were comparatively short 6 months in two cases and a year each in the other two. Under the covenants the licensees were to cause as little damage as possible to the surface of the land. They were to give full information regarding the progress of the operations and true copies of all borings to the licensor. The licensees were also required to plug all holes made by them. The licensor covenanted to give a reasonable right of passage through and over the adjoining lands and properties and in consideration of the premium paid, the licensees could, at their option, after giving necessary notice and on payment of a further sum, get a mining lease for a term of thirty years on the terms and conditions

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1960 Supreme(SC) 276

Amounts received as consideration for a licence to prospect for minerals are capital receipts and not revenue receipts.

Cases Referred (1)