MODI, J.—This is a reference by a Division Bench in what was a reference to that Bench under sec. 66-A of the Income-tax Act, 1922.

2. The material facts leading up to this reference may be shortly stated as follows : —

The assessee is a firm called Ramlal Kachhawa and Sons, Barmer, otherwise also known as Ramlal and Sons. It was assessed for income-tax for the year 1952-53, the corresponding accounting year having ended on 31st of March, 1952. The question before us arises out of the firms new business of mica mining in Mandol in Udaipur Division. The State Government invited tender for fresh leases of a certain area of mica-bearing tract in Udaipur and Bhilwara Districts as per notice No. 9453, dated 29th March, 1958 (Annexure A) in accordance with the Mineral Concession Rules, 1949, subject to certain modifications mentioned therein. Prospective applicants were advised that the mines, quarries and prospecting pits had acquired a value which can be determined by the principles of Mine Valuation and that the intending applicants should visit the area and assign their own value and tender for the same under a sealed cover. It was also mentioned therein that the amount so offered will be one of the factors on which selection of the lessees will be made, the other factors specified being: experience in mining, proved competence and sound financial position, though these qualifications were not insisted on in the case of displaced persons with which class of case we are not concerned. The whole area having been divided into certain blocks in three separate parts which were called A, B and C, it was notified that for those areas falling in Part A a dead rent of Rs. 8/- per acre will be charged, while for areas in Part B and C like rent of Rs. 3/- and Rs. 5/- per acre will be charged respectively. It was also made clear that annual dead rent would be payable from the second year of the lease in four quarterly instalments, except, where the Government should direct otherwise for special reason, and all instalments, would be required to be paid in advance. Two other provisions contained in the notice to which it is necessary to draw attention are, first, that the rate of royalty was to be 10% of the sale value of mica at pits mouth and a formula for calculating it was laid down, but into the details of which it is not necessary to enter for the purpose of the present reference, and secondly that the period of the lease was to be 20 years with option of renewal for another 20 years as per conditions prescribed in the Mineral Concession Rules, 1949. In pursuance of this notice the assessee firm made a tender for Block No. 6 in Part A and offered its tender, the lender price being Rs. 1,55,000/-. By its letter No. 12406, dated 30th of December, 1950 (Annexure B), the Government of Rajasthan accepted this tender by which a lease for period of 20 years with option of renewal for another 20 years as per conditions prescribed in the Mineral Concession Rules, 1949, was granted to the assessee firm for the aforesaid area subject only to such variations as were contained in the letter of acceptance. It may be pointed out in this connection that the rate of royalty was reduced from 10% as specified in the tender notice to 5% only. A formal lease agreement was required to be entered into between the parties but admittedly that does not appear to have been done until the 30th of March 1954. It is also admitted that the assessee firm had worked the mines in the accounting year ended on the 31st of March 1952. Consequently it claimed to deduct the entire sum of Rs. 1,55,000/- from the income accruing during that year. The Income Tax Officer, however, rejected this claim on the ground that it was clearly of a capital nature. The assessee then went in appeal to the Appellate Assistant Commissioner. The aforesaid contention was re-agitated before him, and, in the alternative, it was contended that as the period of lease was 20 years certain, at least 1/

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