JUDGMENT

PATHAK, J. :— This appeal by certificate granted by the High Court at Calcutta under S. 66-A (2) of the Indian Income-tax Act, 1922 is directed against the judgment dated Aug. 5, 1971 of that High Court disposing of an income-tax reference.

2. The respondent assessee is a registered firm and owns several Collieries in West Bengal and Bihar. One of the collieries is known as the South Samla Colliery. The South Samla colliery was under military occupation from 1942 and was released in 1955. During the period of military occupation the assesse incurred expenditure on account of minimum royalty payable in respect of the colliery, the surface rent and salaries for the watch and ward employees. The expenditure was allowed in income-tax proceedings as a business expenditure. After the 641 colliery was released by the military, the assessee incurred a further expenditure amounting to Rs. 1,61,742/- on the colliery with a view to resuming mining operations. The expenditure was incurred during the previous year beginning Oct. 24, 1957 and ending Nov. 11, 1958 relevant to the assessment year 1959-60. In the assessment proceedings for that assessment year the assessee claimed a deduction of the amount of Rs. 1,61,742/- under Section 10 (2) (xv) of the Indian Income-tax Act, but the deduction was disallowed by the Income-tax Officer on the ground that the expenditure was capital in nature. On appeal, the Appellate Assistant Commissioner affirmed that the expenditure was in the nature of capital expenditure. The assessee proceeded in second appeal, but the Income-tax Appellate Tribunal, without giving any reasons of its own, merely recorded its agreement with the income-tax authorities. The assessee obtained a reference to the High Court at Calcutta for its opinion on the following question:

"Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the expenditure claimed on the South Samla Colliery at Rupees 1,61,742/- was capital in nature ?"

The High Court noted the following facts:

The assessee carried on business in coal as the owner of various collieries. The South Samla Colliery, which was one of them, was occupied by the military from 1942 until it was derequisitioned in 1955. During that period the assessee did not, because he could not, work the colliery. He continued, however, carrying on his business in coal and working other collieries during that period. While the South Samla Colliery remained under military occupation the assessee incurred expenditure on payment of surface rent and minimum royalty in respect of that colliery and also on account of salary for the watch and ward staff. The expenditure had been claimed and allowed as business expenditure of the assessee. After the colliery was handed over to the assessee upon derequisition, the assessee incurred, during the relevant period, an expenditure of Rupees 1,61,742/- in renovating the building, reconditioning the machinery and clearing the land of debris accumulated over a number of years. The expenditure of Rs. 1,61,742/- consisted of Rs. 66,937/- spent on the staff and labour force by way of salaries, wages and other benefits and an amount of Rs. 94,805 spent on the purchase of various stores, machinery repairs, dhowrah repairs etc. This expenditure had to be incurred by the assessee for the purpose of putting the machinery in working order and bringing the colliery to a state where the mining operations could be resumed, The colliery had not started working and mining operations had not been resumed during the relevant year.

3. The High Court observed that the assessee was carrying on its business throughout and the circumstance that one of the collieries was not being worked did not affect the carrying on of that business. The business of the assessee, the High Court said had to be considered as a whole and not on the basis of its different sources of supply or units of production. The High Court held