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1965 Supreme(Cal) 120
HIGH COURT OF CALCUTTA
S. K. Datta, C. N. Laik
COMMR. OF INCOME-TAX, EXCESS PROFIT TAX - Appellant
Versus
INDIAN MICA SUPPLY CO. LTD. - Respondent
Application For Leave To Appeal To The Supreme Court In The Income-Tax Reference 99 Of 1957
Decided On : MAY 13, 1965
Annual payment of mining lease is revenue expenditure and allowable as deduction under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
Headnote:
INCOME TAX - Mining lease - Annual payment - Revenue or capital expenditure - Whether annual payment of mining lease is revenue or capital expenditure - Held, annual payment is revenue expenditure and allowable as deduction under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
Fact of the Case:
The assessee company, engaged in winning and selling mica, entered into a mining lease agreement for a term of 5 years. The assessee paid an annual rent to the superior landlord as per the lease terms. The dispute arose as to the nature of the annual rent payment, whether it was revenue or capital expenditure.
Finding of the Court:
The court held that the annual payment of mining lease is revenue expenditure and allowable as deduction under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
Issues: Whether the annual payment of mining lease is revenue or capital expenditure.
Ratio Decidendi: The court observed that the annual payment was for the use and occupation of factories, godowns, out-houses, structures, etc., along with the right of winning mica. Therefore, it was a payment of a revenue nature and admissible under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
Final Decision: The court granted leave to appeal to the Supreme Court of India, considering the importance and complexity of the issue.
( 1 ) THIS is an application for leave to appeal to the Supreme Court of India. The Assessee Company was at all material times carrying on business of winning mica and selling the same after refinement. In course of business, it entered into several contracts of leases. One of such lease is dated February 12, 1936 made between Madan Lal and others, Mica Merchants of Giridih, on the one part and the Assessee Company on the other part. A copy of the said lease was made an annexure A to the statement of the case. The said lease was for a term of 5 years commencing from 7th of March, 1935. Under the terms of the lease the Assessee covenanted to pay to the superior landlords of the lessors, either direct or through the lessors, the rents and royalties payable by the lessors to their landlords. In the year of account corresponding to the assessment year 1947-48, a sum of Rs. 28,726 was paid by the assessee company to the superior landlord towards rent on account of the lease.
( 2 ) THE Assessee contended that the payment of the annual rent was in the nature of a revenue expenditure. The Department on the other hand, contended that the said payment was in the nature of capital.
( 3 ) THE Income-tax Officer, Company District IV, Calcutta, by his order dated March 19, 1082 assessed the assessee of his income including the mining rent, in the sum of Rs. 26,726 to tax treating the same as capital expenditure Consequently there was an assessment as excess profit tax.
( 4 ) BY a petition of appeal, the Assessed appealed to the Assistant Commissioner of Income-tax. By his order of November 24, 1956 the Appellate Assistant Commissioner expresses the opinion that when lease rent is paid to enable the Assessee to have the right to set up mining operations, it is an expenditure on capital account. The assessment was confirmed.
( 5 ) THE Assessee appealed to the Appellate Tribunal In their opinion the said payment is on account of annual charge for the use and occupation of factories, godowns, out-houses, structures etc. along with the right of winning mica. Therefore, the said payment was held as payment of a revenue nature and admissible under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
( 6 ) BY an application under Section 66 (2) of the Act, the following question was referred to this Court: "whether on the facts and in the circumstances of the case, the sum of Rs. 28. 726 was a payment of a revenue nature and as such allowable as a deduction under Section 10 (2) (xv) of the Indian Income-tax Act. " A statement of the case was drawn up exhibiting a specimen of the mining lease referring the above question to this Court.
( 7 ) S. P. Mitra and K. C. Sen JJ. heard and disposed of in one judgment two References and answered the question In the affirmative. Their Lordships are of opinion that the Appellate Tribunal was right in holding that the annual payment was of a revenue nature and therefore was admissible under Section 10 (2) (IT ).
( 8 ) BEFORE the Reference Bench, it was contended on behalf of the Commissioner, that the annual payments were expenditures necessary for the acquisition of the property or rights of a permanent character and therefore should be considered as capital expenditure. It was further contended that the Assessee was merely winning mica and selling the same after refinement and was not carrying on any manufacturing business. The decision in the case of Commr. of Income-tax v. S. V. Reddy, (1949) 17 ITR 15 (32) = (AIR 1949 Mad 568) was relief on.
( 9 ) VARIOUS English and other Indian cases were cited on either side they were collected and explained by the Reference Court. On consideration of the same, their Lordships gave the opinion as indicated above. I do not think it necessary to repeat here that has been explained in the judgment in Reference.
( 10 ) THE instant application for leave to appeal is at the instance of the Commissioner.
( 11 ) THE Indian Income-tax Act, 1922, which was a
