The payment of lease money for obtaining sand from a river-bed for a short period and for the purpose of obtaining stock-in-trade is revenue expenditure.

Judgement

BHARGAVA, J. :- The appellant assessee, who is an individual, carries on business of supplying lime and sand. With the object of procuring sand, he obtained a leave under a lease-deed dated Ist February, 1954, from the then Govermnent of State of Hyderabad. The terms of this lease, which are relevant for the purpose of deciding these appeals, will he indicated later. At this stage, it may, be mentioned that, under this lease, the assessee was required to pay a sum of Rs 82,500/- as lease money to the Government. The period of lease was found 1st February, 1954 to 31ist December, 1954. The assessee s account year ends with the last day of September each year. The assessee paid a sum of Rs. 56,100/- in respect of the account year ended 30th September 1954 for the assessment year 1955-56 and another sum of Rs. 26,400/ for the account year ended 30th September, 1955 relevant to the assessment year 1956-57. Both these payments were claimed by the assessee, in the proceedings for assessment to income-tax, as revenue expenditure. The Income-tax Officer held that, under the lease-deed, the assessee had secured a right to quarry sand from the river-bed, which was a right in the nature of a capital assets, so that these payments made to secure the right were capital expenditure, and disallowed their deduction as revenue expenditure. The assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, in addition to the material provided by the terms of the lease-deed and other material before him, made a personal investigation also. Thereafter, in his appellate order, he recorded findings that the lease was a short-term contract for one year, that the contract was for removal of sand lying on the surface of the river-beds within a specified period, and no excavation or skilful extraction was involved in the process, and that no interest in the land was conveyed to the lessee, and, if the lessee discovered any minerals not specified in the deed, he was required to report that fact to the Director of Mines and obtain a prospecting licence separately. On these facts, he held that what the assessee had secured under the lease-deed was only stock-in-trade of his business and not a capital asset, so that his claim that the payments made by him under the lease-deed to the Government were deductible as revenue expenditure was allowed. Thereupon, an appeal was brought before the Income-tax Appellate Tribunal by the Department. The Tribunal upheld the order of the Appellate Assistant Commissioner. At the instance of the Department, the Tribunal then referred the following question for opinion to the High Court :-

"Whether, on the facts and in the circumstances of the case, the payments of Rs. 56,100 for the assessment year 1955-56 and Rs. 26.400 for the assessment year 1956-57 made under the lease deed dated 1-2, were expenditure of revenue nature ?" The High Court answered the question in the negative, accepting the case of the Department, and thus upsetting the decision given by the Appellate Assistant Commissioner and the Tribunal. The assessee has now come up to this Court in appeal by certificate granted by the High Court.

2. Learned counsel appearing for the assessee first contended before us that an examination of the terms of the lease-deed would show that no right at all in the land was acquired by the assessee under the lease and that the only right which had been acquired was the right to remove sand lying on the land constituting the beds of the river and the nallahs specified in the deed and the ancillary right to enter the land for that purpose. It appears to us that, on the language of the lease-deed, this submission cannot be accepted. The lease specifically mentions in para 3 that, under it, the Government do hereby demise and grant unto the lessee exclusive lease and liberty to enter, occupy, and use for quarrying purpose and to raise, render marketable, carry away, sell and dispose of sand