1. The point involved in both these references, namely, as to the nature of the expenditure laid out for the acquisition of a mineral right, relates to the same assessee, but for two assessment years and can be dealt with in one judgment.
2. Before we deal with the merits, we will do well to quote the two questions that have been formulated 'for our opinion. R. C. No. 20 of 1962 :
'Whether the balance of lease amount of Rs. 17,000 as an admissible deduction as revenue expenditure with (SIC) the meaning of Section 10 (2) (xv) of the Act.'
R. C. No. 21 Of 1962:
'Whether the Tribunal is correct in law in holding that the balance of the lease amount of Rs. 67,000/-paid in the year of account ending 31st March, 1948 is allowable as revenue expenditure?'
R. C. No. 20 of 1962 bears on the assessment year 1947-48, while R. C. No. 21 of 1962 is in relation to the assessment year 19-18-49, the accounting year being the financial year 1947-48.
3. Originally a firm, of which the assessee was a partner, called the Bharat Mining Co. took in lease for a period of 20 years the Harnath Gopala Mica Mine. But, he mine could not be worked, as shortly after the forma(SIC) of the partnership, disputes arose amongst the part (SIC) and in fact a suit was brought for dissolution of (SIC) partnership and accounts. During the pendency of he suit, the mine was leased out to the assessee for (SIC) year 1946-47 on a rental ct Rs. 20,000/-, In the assessment year also the mining rights were auctioned and as the assessee happened to be the highest bidder, (SIC) was knocked down in his favour for Rs. 70,000/-. In (SIC) return submitted by the assessee for the two assessment years he claimed these amounts of Rs. 20,000/-(SIC) Rs. 70,000/- as allowable deductions being in the (SIC) of revenue expenditure. The Income-tax Officer (SIC) this claim except to the extent of Rs. 3,008/-each of the years as representing the rent for (SIC), buildings etc. The appeals carried By the assesses against these two orders to the Appellate Assistant Commissioner proved unsuccessful.
4. Two second appeals were filed before the Income-Tax Appellate Tribunal. The Appellate Tribunal while dismissing the appeal in regard to the assessment year 1947-48, allowed it in respect of 1948-49. With regard to the assessment year 1947-48, the Tribunal came to the conclusion that the amount of Rs. 17,000/- was paid for acquisition of source of goods and not the goods themselves and consequently it was an expenditure of capital nature which could not be deducted out of the income derived by the assessee.
5. As regards the second year, the Tribunal though that it stood on a different footing, in that, the lessee had worked the mine upto a certain extent and that he could know the extent of mica that would he available in the mine. In such a situation, there was no permanent or enduring advantage by the lease for the assessment year 1948-49, as in regard to the previous year. In the opinion of the Tribunal, 'It is leaning more on the side of purchase of material rather than the source of material'.
6. The assessee, dissatisfied with the order relating to the assessment year 1947-48, requested the Tribunal to made a reference to this Court under Section 66 (1) of the Indian Income-tax Act of 1922. The Commissioner of income-tax, equally dissatisfied with the order of the Tribunal as regards the subsequent year, also applied for a reference under Section 66 (1) of the Income-tax Act. The Tribunal complied with the requests made by Doth the parties. That is how these references are before vs.
7. At the outset, it must be mentioned that the party did not appear in person or through a counsel, though the references were in the list for more than a month. He appeared through a counsel on Monday the 2nd March, 1964 and requested for time till yesterday. the request was granted. Notwithstanding that, he did not turn up, nor has he made any arrangements for a counsel. In these circumstances we requested Mr. Kuppuswamy to help us as an 'Amicus Curiae' and he placed all the material before us, for which we are thankful to him.
8. The question that arises in regard to both the years is whether the payments made by the assessee for, lease could be described as revenue expenditure or whether they constituted capital outlay.
With regard to the first year, it is conceded that the expenditure laid out for obtaining the right was a capital outlay, in that, the assessee acquired an enduring advantage and it was not connected with the working expenses of the mine.
9. What could be attributed to capital or revenue has to be decided with reference to the merits of each! case. To borrow the words of Justice Hidayattullah in Abdul Kayoom v. Commissioner of Income-tax, Madras, ' : 44ITR689(SC) , in the determination of cases, 'one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another'. It means that tha Courts have to take into account the particular facts of each case and that one case cannot be decided with reference to another, except to made use of the principle enunciated therein. It has to be determined mostly with reference to the nature of the business, nature of the expenditure, and the nature of the right acquired and their relation inter se. If what is purchased could be regarded as the raw material Itself, the outlay could be regarded as revenue expenditure. But if the expenditure is incurred for the acquisition of source of gods, it falls in the other category.
10. If we bear this principle in view, it becomes clear that in the instant case what was acquired by the assessee was a right to work the mines. It was the source of goods that was taken on lease. There can be no scope for the contention that what was purchased was the raw material 'or a definite quantity of mica. It would be a different matter if the contract was to buy definite quantity of mica. Can it be posited with reference to the material that is found in the bowels of the earth as to how much mica can be extracted?
11. That being so, what is acquired was a speculative right unlike the case of the purchase of rights to remove Tendu leaves as in the case of Mohanlal Har-govind v. Commissioner of Income-tax, C. P. and Berar, Nagpur, , dealt with by the Judicial Committee of the Privy Council. In that case, a firm of beedi manufacturers which required Tendu leaves for wrapping to make beedies, look on lease forests with a right to pick the leaves. This right carried with it the right to coppice small Tendu plants and to pollard the Tendu trees, without any right in the trees or the land, except the right to go over the lard which was merely ancillary. In that situation, their Lordships of the Privy Council held that there was no more than a purchase of the leaves which were needed as a raw material of the business. In other words, They likened the right to the purchase of a known quantity of Tendu leaves. This is what their Lordships observed:
'If the Tendu leaves had been stored in a merchant's godown and the appellants had bought the right to go and fetch them and so reduce them into their possession and ownership it could scarcely have been suggested that the purchase price was capital expenditure. Their Lord-ships see, no ground in principle or reason for differentiating the present case from that supposed.'
Significantly, their Lordships said that 'cases relating to the purchase or leasing of mines, quarries, deposits of brick earth, land with standing timber .....' were of no assistance. These remarks indicate that money paid for the acquisition of mining rights could not be considered a revenue expenditure, but partook of the character of capital outlay.
12. The instant case falls within the ambit of the doctrine of Pingle Industries Ltd. Secundarabad v. Commissioner of Income-tax, Hyderabad, : 40ITR67(SC) and also : 44ITR689(SC) . In the first of the cases, the business of the assessee was selling stone slabs called flag stones and these stones were first won from the quarries and then dressed and shaped and then sold. To get this raw material, the Pingle Industries Ltd., took on lease stone quarries in a large number of villages for twelve years. The lessee could take all or it could take none. Having regard to the fact that no specific quantity was bought or sold either expressly or impliedly, the stones being immovable property or a part thereof and the contract being long term contact, the Supreme Court held that the company acquired an enduring asset and the expenditure was on capital account and consequently the principle of Mohanlal Hargovind's case is inapplicable to it.
13. In the same trend of thought is : 44ITR689(SC) . In that case the assesses firm Which carried on the business, of purchase and sale of conch shells (SIC) any known as 'chanks'), took on lease from the Director of Industiries and Commerce, Madras, the exclusive right, liberty and authority to (SIC) away all chanks found in the sea'. In (SIC) the annual income from the sale of these she assessee sought to deduct the yearly rental paid Government as business expenditure under Section (XV) of the Income- tax Act. This claim was (SIC) by the Income-Tax Department which was affirmed (SIC) Income-tax Appellate Tribunal. But the Full Bench Madras High Court held that it was a business (SIC) . This decision was reversed by the Supreme(SIC) in the view that the right acquired under the (SIC) with the Government was an enduring advantage and the outlay was of a capital nature.
14. In our opinion, the instant case is governer(SIC) the two pronouncements. It cannot be postulated the assessee could estimate the quantity of mica was embodied in the earth. It was a speculative (SIC) and the assessee could not have known the quan(SIC) mica that he would be able to win from the mine(SIC)
15. The difference between revenue expenditure(SIC) capital outlay was illustrated by Justice Hidayatullah(SIC) Abdul Kayoom's case : 44ITR689(SC) , by referring to the purchase wool by a manufacturer as raw material and purchase a sheep farm. In our opinion, the purchase of (SIC) work the mine could be likened to the purchase (SIC) sheep farm and the buying of wool as raw mater(SIC) the amount of lease paid for assessment year 1(SIC) is unquestionably a capital expenditure.
16. Could it be legitimately posited that the (SIC) paid for the subsequent year stands on a different(SIC) ing? In our opinion, the answer is 'No'. The (SIC) that the lessee worked the mine for a year would(SIC) place him in a position to assess the quantity of that could be extracted from the mine. This is a (SIC) a speculative transation as in the first year and a :(SIC) an enduring advantage as obtained under the earlier(SIC) We cannot agree with the Income-tax Appellate (SIC) that merely because the lessee had worked the(SIC) upto a particular point, he could have known the(SIC) of mica there was in the mine. It may be in (SIC) year he might have struck on veins which were rich(SIC) tent and which might have yielded a large quantity (SIC) In the second year he might not come across such(SIC) The mere fact that he bid for a larger sum in (SIC) year is not an indication that he knew the exact (SIC) of mica that could be taken out of the mine. (SIC) also a speculative bargain. In our opinion, there(SIC) close similarity between the first lease and the sub;(SIC) least and there is no ground to make any dis(SIC) between, the two years.
17. In the circumstances, we have to answer(SIC) the references in favour of the department and(SIC) the assessee. The assessee will have to pay the or(SIC) the references, Advocate's fee in both of them to(SIC) is Rs. 250/-.