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SUPREME COURT OF INDIA
23rd November, 1961
S.K. DAS, J.L. KAPUR AND M. HIDAYATULLAH, JJ.
K. T. M. T. M, Abdul Kayoom and another, Petitioners
Versus
Commissioner of Income Tax, Madras, Respondent.
Review Petn. No, 16 of 1960.
Advocates appeared
Mr. A. V. Viswanatha Sastri, Sr. Advocate (Mr. R. Ganapathy Iyer, Advocate and Mr. G. Gopalakrishnan, Advocate of M/s. Gagrat and Co. with him), for Petitioners; Mr. K. N. Rajagopal Sastri, Sr. Advocate (Mr. P. D. Menon, Advocate, with him), for Respondent.
INCOME TAX - Expenditure incurred by assessee firm for acquiring exclusive right to fish for, take and carry away all chank shells in the sea off the coast line of the South Arcot District - Whether revenue expenditure or capital expenditure - Held, capital expenditure.
Fact of the Case:
The assessee firm carried on a business in the purchase and sale of conch shells (called chanks). It used to acquire the stock of conch shells by (1) purchase from divers, (2) by purchase from the Fisheries Department of the Government of Madras, and (3) by fishing for and gathering such shells from the sea. It disposed of the stock so acquired at Calcutta, the difference between the cost price and selling price less expenses being its profit made in business. On November 9, 1945, it took on lease from the Director of Industries and Commerce, Madras, the exclusive right, liberty and authority to fish for, take and carry away all "chank" shells in the sea off the coast line of the South Arcot District including the French Kuppams of Pondicherry. The boundary of the area within which the right could be exercised was given in a schedule to the lease. The lease was for a period of three years from July 1, 1944, to June 30, 1947, on a consideration of an yearly rent of Rs. 6,111/- to be paid in advance.
Finding of the Court:
The Court held that the expenditure incurred by the assessee firm for acquiring the exclusive right to fish for, take and carry away all chank shells in the sea off the coast line of the South Arcot District was capital expenditure and not revenue expenditure.
Issues: Whether the expenditure incurred by the assessee firm for acquiring the exclusive right to fish for, take and carry away all chank shells in the sea off the coast line of the South Arcot District was revenue expenditure or capital expenditure.
Ratio Decidendi: The Court held that the expenditure incurred by the assessee firm was capital expenditure and not revenue expenditure on the following grounds: * The assessee firm acquired an exclusive right to fish for chanks in a specified area for a period of three years. * The assessee firm had to pay a lump sum rent in advance for the exclusive right. * The assessee firm had no right in the sea bed or in the sea water or in any of the products thereof. * The assessee firm acquired only the right to gather conch shells of a specified type and size, which of course, implied the right to appropriate them as the assessee firm's own property. * The right to go into the sea and cast nets etc. was merely ancillary to the real purpose of the contract. * The assessee firm did not acquire any interest in land or in the trees or plants themselves.
Final Decision: The appeal was allowed, but there was no order about costs.
Judgment
S. K. DAS, J. : I had taken a view different from that of my learned brethren when this appeal was heard along with Pingle Industries Ltd., Secunderabad v. Commissioner of Income-tax, Hyderabad 1960-3 SCR 681 and that view was expressed in a very short judgment dated April 26, 1960.
2. Now, we have had the advantage of hearing a very full argument with regard to the facts of this appeal, and I for myself have had the further advantage and privilege of reading the judgment which my learned brother Hidayatullah, J. is proposing to deliver in this appeal. I have very carefully considered the question again with reference to the facts relating thereto and, much to my regret, have come to the conclusion that I must adhere to the opinion which I expressed earlier. My view is that the facts of this case are indistinguishable from the facts on which the decision of the Privy Council in Mohanlal Hargovind v. Commissioner of Income-tax, C. P. and Berar, 1949-17 ITR 473 was rendered, and on the principles laid down by this Court in Assam Bengal Cement Co. Ltd. v. The Commissioner of Income-tax, West Bengal 1955-1 SCR 972, it must be held that the expenditure of Rs. 6,111/- in this case was on revenue account and the respondent firm was entitled to the allowance which it claimed.
3. The short facts are these. The respondent firm carried on a business in the purchase and sale of conch shells (called chanks). It used to acquire the stock of conch shells by (1) purchase from divers, (2) by purchase from the Fisheries Department of the Government of Madras, and (3) by fishing for and gathering such shells from the sea. It disposed of the stock so acquired at Calcutta, the difference between the cost price and selling price less expenses being its profit made in business. On November 9, 1945, it took on lease from the Director of Industries and Commerce, Madras, the exclusive right, liberty and authority to fish for, take and carry away all "chank" shells in the sea off the coast line of the South Arcot District including the French Kuppams of Pondicherry. The boundary of the area within which the right could be exercised was given in a schedule to the lease. The lease was for a period of three years from July 1, 1944, to June 30, 1947, on a consideration of an yearly rent of Rs. 6,111/- to be paid in advance. Clause 3 of the lease contained the material terms thereof and may be set out in full.
"3. The lessee hereby covenants with the lessor as follows :-
(i) To pay the rent on the day and in the manner aforesaid.
(ii) To deliver to the Assistant Director of Pearl and Chank Fisheries, Tuticorin all Velampuri shells that may be obtained by the lessee upon payment of their value as determined by the Assistant Director.
(iii) To collect chanks caught in nets and by means of diving as well. In the process of such collection of shells not to fish chank shells less than 2 1/4 inches in diameter and if any chank shells less than 2 1/4 inches in diameter be brought inadvertently to shore, to return at once alive to the sea all such undersized shells.
(iv) Not at any time hereafter to transfer or underlet or part with possession of this grant or the rights and privileges hereby granted or any part thereof without the written consent of the lessor.
(v) At the end or sooner determination of the term hereby created peaceably and quietly to yield to the lessor the rights and privileges hereby granted, and
(vi) To report to the Assistant Director of Pearl and Chank Fisheries (South), Tuticorn the actual number of shells kept unsold in different stations after the expiry of the lease period."
4. For the assessment year 1946-47, the respondent firm submitted a return of its income to the Income-tax Officer, Karaikudi Circle, showing its income from sale of chanks purchased from divers at Rs. 7,194/-, by sale of chanks purchased from Government Department at Rs. 23,588/- & Rs. 2,819/- by sale of chanks gathered by themselves (through divers) after deducting R
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