JUDGMENT

SINGH, J.:— This appeal is directed against the judgment and order of the High Court of Rajasthan dated 24-4-1975 (reported in 1976 Tax LR 30) answering the question referred to it by the Income-tax Appellate Tribunal in the negative, in favour of the Revenue and against the assessee. The question referred to the High Court was as under (at p. 31 of Tax LR).:

"Whether on the facts of and in the circumstances of the case, the Tribunal was right in holding that the payment of Rs. 3 lakhs to the Northern Railway was a revenue expenditure and was a deduction allowable under the Income-tax Act, 1961?"

The circumstances leading to the reference and the appeal are necessary to be stated. The natural Science (India) Ltd. predecessor-in interest of the assessee acquired a lease from the Maharaja of the erstwhile Bikaner State on September 29, 1948 for mining of gypsum for a period of 20 years over an area of 4.27 square miles at Jamsar. The lease was liable to be renewed after expiring of 20 years. The Natural Science (India) Ltd. by a deed of assignment dated December 11, 1948 assigned the rights under the lease to the Bikaner Gypsums Ltd, a company wherein the State Government owned 45 per cent share. The Bikaner Gypsums Ltd. (hereinafter referred to as the assessee) carried on the business of mining gypsum in accordance with the terms and conditions stated in the lease. The assessee entered into an agreement with Sindri Fertilizers, a Government of India Public Undertaking for the supply of gypsum of minimum of 83.5 per cent quality. Under the lease, the assessee was conferred the liberties and powers to enter upon the entire leased land and to search for win, work, get, raise, convert and carry away the gypsum for its own benefits in the most economic, convenient and beneficial manner and to treat the same by calcination and other processes. Clause 2 of Part 11 of the lease authorised the lessee to sink, dig, drive, quarry, make, erect, maintain and use in the said lands any borings, pits, shafts, inclines, drifts, tunnels, trenches, levels, water-ways, airways and other works and to use, maintain, deepen or extend any existing works of the like nature in the demised land for the purposes of winning aid mining of the mineral. Clause 3 granted liberty to erect, construct, maintain and use on or under the land any engines, machinery, plant, dressing, floors, furnaces, brick kilns, like kilns, plaster kilns etc. Clause 4 conferred liberty on the lessee to make roads and ways and use existing roads and ways. Clause 7 granted liberty to the assessee to enter upon and use any part or parts of the surface of the said lands for the purpose of stacking, heaping or depositing thereon any produce of the mines or works carried on and any earth materials and substance dug or raised under the liberties and powers. Clause 8 conferred liberty on the lessee to enter upon and occupy any of the surface lands within the demised lands other than such as are occupied by dwelling houses or farms and the offices, gardens and yards. Clause 3 conferred power on the lessee to acquire, take up and occupy such surface lands in the demised lands as were then in the occupation of any body other than the Government on payment of compensation and rent to such occupiers, and if the lessee is unable to acquire such land from the tenants and occupiers, the Government undertook to acquire such surface land for the lessee at the lessees cost. Clause 15 of Part II conferred liberty and power on the lessee to do all things which may be necessary for winning, working getting the said minerals and also for calcining, smelting, manufacturing, converting and making merchantable.

2. Part III of the lease contained restrictions and conditions to the exercise of the liberties and powers and privileges as contained in Part II of the lease. Clause 2 of Part III provided that the lessee shall not enter upon or occupy surface of any land in the occupation of any tenant or occ