1. Certain villagers in Mitratti village and Kattampatti village in Udumalpet Taluk, Coimbatore District, sold their lands to the assessee with an option to repurchase. The lands contained deposits of gypsum. The sales were under registered conveyances. The option to repurchase was by separate agreements. After the purchase of the lands, the assessee entered into an agreement with her husband. Under this agreement, the husband was to do the mining operation in those lands after obtaining the requisite mining licence. The consideration under this agreement was that the husband should pay to the assessee a royalty at the rate of Rs. 2 per ton of gypsum won and Re. 1 per ton as and towards the cost of land, compensation for damages caused to land and the like. The dues payable to the Government on account of mining operations were also to be paid by the husband.
2. The assessee's husband began mining operations in the accounting year relevant to the assessment year 1966-67 and began paying the amounts which her owed under the agreement to the assessee on the basis of the gypsum extracted by him from the lands. The assessee accounted for the amounts received from her husband at the aggregate rate of Rs. 3 per ton. As against these receipts, the assessee set off many items of expenses. The chief item of expenditure which she sought to set off against the receipts from the mining operations was the price which the assessee paid to the villagers in Mitratti village and Kattampatti village for purchasing the lands containing gypsum deposits. As a matter of accounting, the assessee did not set off the entire price paid by her for those lands; but she applied some formula to distribute and spread over the total cost price of the lands among the several account years, claiming only a portion of the purchase price as expenditure properly debitable in any given year as against the receipts from mining from her husband for that year. Having done so, the assessee claimed the cost of purchase of the lands or portions thereof to be more accurate, as admissible deductions in the computation of her business income. The claim for allowance was made in all the assessment years during which the assessee had received moneys from her husband.
3. The ITO, however, rejected the claim for deduction as inadmissible on the ground that this item of expenditure was capital in nature. After considering the facts bearing on the claims, the ITO recorded a finding that the acquisition of gypsum bearing lands by the assessee from the villagers was by means of an outright purchase in which the title to the lands passed from those villagers to the assessee. The ITO held that the purchase price of the lands must be regarded as the capital outlay for the business which the assessee was carrying on by way of farming out to her husband the right to win gypsum deposits in those lands for a consideration of Rs. 3 per ton. The officer, accordingly, rejected the claim that the cost of the lands or an appropriate fraction thereof must be allowed as an item of revenue expenditure to be set off against the income from the business. In this manner, the ITO completed the assessments for 1966-67 to 1969-70.
4. On appeal by the assessee, the AAC observed that he was unable to discover the basis on which the assessee had distributed the total cost of the lands as between the several account years for the purpose of claiming portions of that outlay as revenue expenditure. He, however, took the of a strange combination of outright purchase and simultaneous agreement for resale, nevertheless the transaction must be regarded as an agreement of lease. The AAC took note of the fact that under the agreement for reconveyance, if the option came to be exercised by the villagers, the assessee had to reconvey the lands within a period of seven years. The AAC regarded that the advantage from a transaction of this kind should not be treated as being of a permanent nature having regard to the option to repurchase given to the villagers and the period within which it had to be exercised. On the basis of this reasoning, the AAC held that the expenditure claimed in respect of portions of the outlay on the purchase of land in the relevant years must be regarded as revenue expenditure. In this view, he allowed the appeals and granted the assessee's claim for deduction.
5. Against this order of the AAC, the department filed appeals before the Tribunal. The Tribunal restated the facts as found by the ITO, but agreed with the interpretation put upon them by the AAC. The Tribunal even went further and held that no transaction of purchase of lands at all was involved when the assessee entered into her transactions with the villagers in respect of the gypsum bearing lands. The reasons which the Tribunal gave for this conclusion were as follows :
(1) Prior to the transaction with the villagers, the assessee had requisitioned the services of a geologist for the purpose of ascertaining the gypsum potential of the lands.
(2) Both the villagers and the assessee were perfectly aware that the subject-matter of this transaction, viz., the lands in question, contained gypsum are which was fit for mining.
(3) Under the terms of the option for repurchase, the villagers were all the while at liberty to cultivate such portions of the lands which were not being mined, even before exercising the option to repurchase.
(4) A reference to the consideration which passed from the assessee to the villagers would indicate that it was far below the market price of the lands.
6. The Tribunal took all these considerations into account and held that notwithstanding the form in which the transactions were put through as between the assessee and the villagers, the amounts paid by the assessee to them cannot be regarded as the price paid for the purchase of lands but they must be equated to the payment of a 'dead rent' in respect of the gypsum deposits founds in the lands. On this basis, the Tribunal upheld the claim for deduction and dismissed the department's appeals.
7. In this reference made by the Tribunal at the instance of the department, Mr. Jayaraman, learned standing counsel for the department, submits that the decision of the Tribunal is erroneous in point of law, at least in two respects : In the first place, according to learned counsel, the Tribunal was not justified in going against the tenor of the documents of sale with an option to repurchase and in proceeding to treat the transactions as, in substance, one for the payment of a 'dead rent' for the gypsum deposits. The learned counsel's second submission was that, even otherwise, the Tribunal did not understand the law aright in the matter of allowance of expenditure in mining transactions.
8. We hold that the first of the contentions is well founded and is enough to dispose of the case. We agree with the learned counsel's that the Tribunal ought not to have brushed aside the transactions of purchase and the agreements of resale as of no consequence. The documents of purchase and the agreements for resale were drawn up in Tamil. But, the record contains a translation of the sample documents of each kind. The translation has been reproduced in the Tribunal's order in appeal. The text of the document, as translated, clearly shows what the intention of the parties was. Typical of the sale deeds is the following :
'We have this day sold you the undermentioned property belonging to us as self-acquired, for a consideration of Rs. 679 out of which Rs. 90 has been already received as advance and Rs. 589 is agreed to be received before the Sub-Registrar and we have this day put you in possession of the property. This property will be hereafter owned by you and your heirs and neither ourselves nor our heirs shall have any right or ownership over this property. Hereafter you shall be the absolute owner of the property and enjoy the same.'
9. In relation to the subject-matter of the above sale, there was in agreement for reconveyance executed by the assessee in the following terms :
'I have this day got a sale for Rs. 679 of the under-mentioned lands belonging to your and in your possession. I agree to reconvey this property after mining and leveling them before December 31, 1966, without any expenses on your part and without any consideration expected from you. If I fail to reconvey before December 31, 1966, I shall be liable to make good all your losses that may accrue to you by my default. I undertake not to encumber the lands by way of sale or mortgage or other encumbrances. You are at liberty to cultivate the portions of land not being mined year after year and also the lands already mined. You can also cultivate all the lands till I start mining. I have not received any amount as advance for this document.'
10. It is clear from the tenor of the two documents that one is an outright sale for consideration and the other is an agreement for reconveyance, based upon and closely linked with the earlier conveyance.
11. Mr. S. V. Subramaniam, learned counsel appearing for the assessee, submitted that although there are two different documents, one for purchase and the other for a reselling option, the two must be regarded as forming part and parcel of the same transaction. He further submitted that if the document s are construed in this fashion, it would be plain to see that the assessee had derived nothing from out of this transaction excepting the gypsum deposits in the lands which she would have a right to win for a duration of seven years. Learned counsel, accordingly, submitted that the Tribunal was right in holding that in reality and in substance, the sale-cum-repurchase was only a means of payment by the assessee of a 'dead rent' although given in the form of a sale consideration.
12. We are prepared to ignore the plurality of the documents, one for sale and the other for repurchase. We may even hold that for purposes of constriction of deeds, it does not matter whether the sale and the agreement for reconveyance are transcribed in two different documents or they form different operative clauses of one and the same document. Even so. we do not think the assessee's learned counsel is right in ignoring the legal relations brought about by the express terms of the documents in question. Even in case where there is a sale by conveyance, containing in the same document an option to the vendor to repurchase the subject-matter of the sale, it is undeniable that the purchaser has obtained under the document a title by way of transfer of owner ship from the vendor. Merely because an option to repurchase is reserved with or conferred on the vendor, it does not mean that the purchaser has obtained something less than the full title. It does not mean that the transaction is different in kind from that of a absolute and outright purchase. The very agreement earlier extracted in this case and similar agreements or clauses which may be found in other documents, contain only an option to repurchase. The option may or may not be exercised. But, whether it is exercised or not, does not derogate from the fullness of the title of the purchaser. The option only means that so long as the right to exercise the option remains, the purchaser would be disabled from transferring the property to a third party. If the option is not exercised at all or in some way the vendor disentitles himself to exercise the option, even this disability on the purchaser which forbids him from transferring the property to a third party would disappear. In any case, whether during the subsistence of the option or after the right expires, the exclusive title which the purchaser has in the property can hardly be gainsaid. Under the document of sale what the purchaser acquires is the land itself and the entire fee simple in the land, nothing less and nothing different from a full and absolute title in himself.
13. We do not also accept the contention of Mr. Subramaniam that the Tribunal, as a tribunal of fact, was entitled to go behind the form and the agreed provisions of a transaction and go into the so-called 'reality' of it for the purpose of ascertaining the tax treatment of any consideration payable thereunder. This is a familiar argument heard in tax cases, and the argument is based on the substance of the transaction. Whatever validity an argument of this kind may have in other disciplines of the law, so far as taxation is concerned, the arguments based on the substance of the transaction is how the parties to the transaction have though fit to bring it about, when they sit down to translate it in words. If what they have brought about is a sale by by a conveyance, it is not subsequently open either to the parties to a court or Tribunal to rewrite the deed for them. To do so would be not to consider the transaction in terms of substance, but to rob the document of the very substance which the parties themselves had intended for the transaction and thereby stultify it.
14. Another reason why the doctrine of substance is not available in discussions in revenue matters is that, given the taxable event, the tad attaches on the event as it emerges of unfolds, itself. It often happens that there may be more than one way of bringing about a desired result, and while one method may yield a tax advantage the same result brought about by a different method might land the person concerned in tax liability of reduction of tax advantage to a greater of a lesser degree. Courts have, therefore, been chary of introducing into the discussions of liability to tax the test of substance in interpreting transactions with tax consequences. The fact that a particular result can be achieved by treating the transaction as of a different kind from that which the parties have but it through, would not give jurisdiction to the Tribunal to ignore the form of the transactions which had commended itself to the parties and which the parties had adopted for incorporating the transaction. The Tribunal cannot tax on the basis of substance; neither can it let off an assessee from tax on the same basis.
15. What we have stated above has been the practice of tax courts both in England and India for a long time. The doctrine of substances was repudiated in no uncertain terms in Duke of Westminster's case  19 TC 490 (HL). In this case it was observed by the House of lords that even the doctrine of substance can only mean that a court having once ascertained the legal rights of the parties may disregard mere nomenclature and proceed to decide the question of taxability or non-taxability in accordance with the legal rights. The doctrine of substance does not, however, mean that the court may brush aside deeds, disregard the legal rights and liabilities arising under the terms of the said deeds, and decide the question of taxability of non-taxability upon the footing of the rights and liabilities of the parties being very different from what in law they were.
16. For a later day restatement of the principle of Duke of Westminster's case  19 TC 490 (HL), we may quote the following passage from Wrottesley J. in Margerison v. Tyresoles Ltd.  25 TC 59 (KB). at p. 68. The learned judge observed as under :
'But it is suggested on behalf of the Crown that I am not bound by the language of the agreement. The agreement must be looked at as a whole, and so regarded it will reveal, between the lines, something very different from what it bears on its face; and by this is meant, of course, that the payments made under clause 3 are not for the consideration appearing in the agreement, but for other considerations which show these payments to be in the nature of income. No court of law will deny the propriety of the suggestion that this agreement should be looked at as a whole. But that does not mean that just because this is a tax case, the court can rewrite the agreement and substitute for the terms upon which the parties agreed, other terms as to which they have not even been consulted.'
17. To the same effect are the observations to be found in the judgment of the Supreme Court in CIT v. Motors General & Stores (P.) Ltd. : 66ITR692(SC) . The Supreme Court observed that the true principle is that the taxing statute has to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used therein, and this must be determined in accordance with the ordinary rules of construction.
18. We are, therefore, satisfied that the proper approach in this case to a consideration of the real nature of the outgoing is to construe the transaction between the assessee and the villagers, who owned the land, in accordance with the tenor of the documents concerned. There can be no doubt whatever of the results of such an approach. For, on the terms of the documents exhibited in this case, samples of which we have earlier extracted in this judgment, the assessee really purchased outright the lands in question subject, of course, to the option of the owners to repurchase, after she had exploited the gypsum deposits therein. From a purely economic point of view, the assessee's transactions might very well raise a practical question, 'what did it all come to ?' And the answer might very will be, 'it only come to the assessee obtaining free access to the gypsum deposits and nothing else besides'. But we cannot truly describe a transaction or an results, We must call them by their proper names. Take the epigram which says that 'drinking milk is our way of eating grass'. This is only picturesque speech or patter which cannot be literally understood. To take another illustration, there is a tale by Charles Lamb of a primitive Chinaman who used to obtain fried pork only by burning down his pigsties every time because he knew no better. What he intended and got, was pork, but if the question were asked, 'what did he do ?' the answer must be, 'he committed arson'. To turn to the case on hand, the assessee, deep down in her heart, might have devoutly wished only for the gypsum deposits, and nothing else besides. But what she actually did was to go in for the purchase of the whole area of two villages, where gypsum happened to lie scattered, here and there, either near the surface or deep down in the earth. If so much is granted, namely, that the assessee paid a price for the purchase of the land itself, then she could not claim to set off that cost against the receipts of royalty from her husband, as an item of expenditure in the computation of her net profits. It would have been quite otherwise if the assessee had carried on business as a dealer in gypsum-bearing lands, purchasing and selling the lands in the course of trade. In that case, the lands acquired by her at a price would represent her stock-in-trade in business and the cost of obtaining the lands by purchase would, of course, have had to be regarded as a revenue item of expenditure. But the assessee's business was not that of a dealer in mining properties, but it consisted in farming out the gypsum deposits in the lands, and obtaining profits as royalties. The result was that the cost of purchase of the lands, although the lands themselves carried gypsum deposits, could by no means be regarded as the cost of obtaining that which the assessee subsequently turned to profit as her trading stock. On the contrary, the money laid out by the assessee on the lands was the very means by which she was able to establish her business. It was the income-yielding source with which she intended to do mining operations, whether all by herself or by farming out the mining rights to her husband in consideration of payment to her of royalties. In other words, the lands constituted the assessee's fixed capital, and the price paid by her therefor was an outgoing of capital. It was by no means a revenue outgoing.
19. We have earlier summarised the various factors which had weighed with the Tribunal for holding that what the assessee paid to the villages was 'dead rent' and not the purchase price for the acquisition of the lands. In our judgment, however, the reasons adduced by the Tribunal are unsound. In the first place, the fact that a geologist went round the two villages on a prospecting expedition and the assessee had his report in her hands before she proceeded in the matter does not mean that she did not go in for an outright purchase of the lands. It only shows that the assessee was a careful buyer of property, and was quite calculative in naming her price for the purchase. Secondly, the Tribunal was not justified in treating the purchase of land as a purchase of gypsum, for the reason that both parties knew full well the prospects for mining which the lands offered. It is true that under the agreements of repurchase, the villagers the fields as were not covered by the mining operations. This leave and licence, again, is only consistent with the assessee having obtained by outright purchase absolute title over the lands. If she had not acquired full title, where is the need at all for the villagers to ask for her permission to till the lands which were not brought under the mining operations We must observe, finally, that the nature of a transaction cannot be adjudged by reference to the amount, or the value of the consideration which passed between the parties. In cases where the price paid for purchasing an item of property is inadequate, then, to the extent of the inadequacy, there may be an element of gift in it. This element of bounty in the transaction would not, however, affect the fullness of the transfer of title from the vendor to the purchaser in the lands in question. Where land or other property is sold for a song, you may call it a sale or you may call it a gift. But the shortfall in the price cannot metamorphose what is truly a transfer of the land into a transaction of 'dead rent'. The Tribunal's reasonings are thus demonstrably untenable in every respect.
20. We are, therfore, clear in our minds that on the basis of the documents themselves, to which the assessee was party, the amounts paid by her towards the cost of purchase of the lands are not liable to be deducted as revenue expenditure. They were rightly disallowed by the ITO as capital expenditure. The Tribunal was in error in giving a determination to the contrary.
21. On a true construction of the documents, what was done by the assessee in this case was the acquisition of a fixed capital item, that is to say, gypsum-bearing land, and the price paid was for the acquisition of this fixed capital item and was, naturally, capital expenditure.
22. At the hearing of this reference we were referred by learned counsel on both sides with choice citations of cases from the law reports. It has, however, become quite unnecessary to refer to them, since the answer to the question of law referred to us has already emerged on our consideration of the true nature of the assessee's transactions, which we have been able to arrive at on a construction of the assessee's own documents. Nothing else remains in this case excepting to set out the question of law referred to us and return our formal answer to the question.
23. The question is as under :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amounts of Rs. 6,057, Rs. 6,550, Rs. 6,000 and Rs. 5,111 paid by the assessee were an admissible deduction in computing the total incomes for the assessment years 1966-67, 1967-68, 1968-69 and 1969-70 ?'
24. For the reasons earlier stated, our answer to the question is in the negative and against the assessee. The department will have their costs. Counsel's fee Rs. 500, one set.