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Commissioner of Income-tax Vs. Katras Jharia Coal Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 393 of 1973
Judge
Reported in[1979]118ITR6(Cal)
ActsIncome Tax Act, 1961 - Section 256(1)
AppellantCommissioner of Income-tax
RespondentKatras Jharia Coal Co. Ltd.
Appellant AdvocateAjit Sengupta, Adv.
Respondent AdvocatePranab Pal, ;M. Seal and ;J.C. Saha, Advs.
Cases ReferredStow Bardolph Gravel Co. Ltd. v. Poole
Excerpt:
- .....sum of rs. 4,95,978 claimed by the assessee to have been incurred in removal of overburden was a revenue expenditure and not a capital expenditure and in allowing the same ?'4. the identical question came up for consideration of this court in income-tax references nos. 173, 174 and 175 of 1969 in cit v. amalgamated jambad syndicate pvt. ltd. : [1979]117itr698(cal) and the question was answered in the affirmative and in favour of the assessee.5. at the hearing, mr. ajit sengupta, learned counsel for the revenue, contended before us that the earlier decision of this court in the aforementioned income-tax reference no. 173 to 175 needed reconsideration as other decisions in favour of the revenue were not placed nor considered in the earlier reference. he cited stow bardolph gravel co......
Judgment:

Dipak Kumar Sen, J.

1. The assessee is a colliery company and carries on the business, inter alia, of raising coal. In the assessment year 1964-65, the relevant previous year being the year ended on the 31st January, 1964, the assessee claimed deduction of expenses for removal of overburden in its mines where extraction of coal was carried on by what is known as opencast method and/or quarry method. The ITO disallowed the claim holding that such expenses were of capital nature. Being aggrieved thereby the assessee preferred an appeal. It was contended before the AAC that where coal was extracted by open-cast method in places where coal seam was near the surface, it was absolutely necessary to remove the overburden for reaching the coal seam. The expenditure incurred on such removal did not result in any enduring benefit as the process had to be repeated immediately in the neighbouring are as such contentions were not controverted and the AAC accepted the same.

2. From the order of the AAC, the revenue preferred an appeal to the Tribunal. The Tribunal confirmed the order of the AAC accepting, inter alia, the contention that the expenditure incurred for the removal of overburden did not bring any enduring benefit to the assessee and that such expenditure was part of the normal process involved in the raising of coal by this method.

3. On an application of the revenue under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question of law arising from its order for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 4,95,978 claimed by the assessee to have been incurred in removal of overburden was a revenue expenditure and not a capital expenditure and in allowing the same ?'

4. The identical question came up for consideration of this court in Income-tax References Nos. 173, 174 and 175 of 1969 in CIT v. Amalgamated Jambad Syndicate Pvt. Ltd. : [1979]117ITR698(Cal) and the question was answered in the affirmative and in favour of the assessee.

5. At the hearing, Mr. Ajit Sengupta, learned counsel for the revenue, contended before us that the earlier decision of this court in the aforementioned Income-tax Reference No. 173 to 175 needed reconsideration as other decisions in favour of the revenue were not placed nor considered in the earlier reference. He cited Stow Bardolph Gravel Co. Ltd. v. Poole (H. M. Inspector oj Taxes) : [1955]27ITR146(Cal) This decision was cited for the following observations from the judgment of Jenkins L.J. (pp. 475-476):

'The distinctions drawn by the cases are not altogether satisfying to some minds. It may seem strange that a purchase of a heap of tailings, as in the Golden Horse Shoe case [1933] 18 TC 280 should be regarded as a purchase of raw material or stock-in-trade, whereas the sums expended in acquiring a quantity of caliche or nitrates embedded in a quarry, as in the Alianza case [1904] 5 TC 60 should be a capital expense; or again that, as I think is the result in the present case, the right to obtain or win gravel lying in the soil should be a capital expense...In my view, when all the authorities are looked at, it is reasonably plain that an asset such as that acquired by the taxpayers in the present case must be regarded as a capital asset and not as so much stock-in-trade purchased by the taxpayers for the purposes of their trade.....The question is the same in all these cases, and it is in effect whether a given expense, granted that it is wholly and exclusively for the purposes of the trade, is a capital expense or an income expense, and in deciding that question I think the same principle must be applied whether the gainful activity concerned is the operation of a mine or a quarry or dealing in su(sic) commodity as gravel.'

6. The next decision cited was that of the Supreme Court in Pingle Industries Ltd. v. CIT : [1960]40ITR67(SC) , where the Supreme Court considered and approved the decision in Stow Bardolph Gravel Co. Ltd. : [1955]27ITR146(Cal)

7. On the strength of the aforesaid decisions, it was contended by Mr. Sengupta that the expenses in the instant case incurred by the assessee for obtaining coal embedded in the seams should be equated with expenses for obtaining a right to win such coal since without such an expenditure the assessee could not have reached the seams. The removal of the overburden was an essential pre-condition to bring the coal to surface and expenditure incurred for the same must be held to be expenditure of a capital nature.

8. Mr. Pranab Kumar Pal, learned counsel for the assessee, contended on the other hand that the matter was covered by the earlier decision of this court in Amalgamated Jambad Syndicate Pvt. Ltd. [1978] 117 ITR 698 and the new cases cited had no application in the facts and circumstances in this reference. He submitted that both the AAC and the Tribunal have found as a fact :

(a) that removal of overburden was a necessary process involved in raising coal in open-cast or quarry mining,

(b) that removal of overburden did not bring about an enduring benefit to the assessee.

9. Such findings of fact not having been challenged the matter was concluded in favour of the assessee.

10. Mr. Sengupta for the revenue contended in reply that there was no evidence on the basis of which the authorities could come to such findings and that such findings were based on mere contentions raised at the hearing.

11. It appears to us that the decisions cited and which were not considered in Amalgamated Jambad Syndicate Pvt. Ltd. : [1979]117ITR698(Cal) have little application in the facts and circumstances of the present case. The facts in the case of Stow Bardolph Gravel Co. Ltd. : [1955]27ITR146(Cal) were, inter alia, that the assessee carried on business as sand and gravel merchants. It purchased the benefit of an agreement conferring rights in relation to a deposit of gravel and sand ballast and also exercised option in respect of similar rights in other land by further payment. Under the agreements, the assessee did not obtain any proprietary right on the land or the deposits therein but only a right to win the material which became their property after excavation. On such facts, it was held that the right to win and acquire the sand and gravel under the agreement were capital assets and the amounts spent for obtaining such assets were not deductible in the computation of taxable profits.

12. In Pingle Industries Ltd. : [1960]40ITR67(SC) , the facts were that the assessee carried on the business of selling flag stones and had obtained right under a contract to extract such stones from quarries for a period of twelve years on annual payments of stipulated amounts. Such amounts paid by the assessee were sought to be deducted as revenue expenditure. It was held that the stones in situ were not the stock-in-trade of the assessee. What the assessee acquired was the right to win the stones and that a part of the land had been conveyed to the assessee. The payments were neither in the nature of rent nor royalty but were payments for acquiring a capital asset of enduring benefit.

13. In the instant case, the expenses incurred in removing the overburden were not for acquiring any right of property either on the land or on the product but were incurred in the course of winning coal from an open-cast mine. The question is whether this is a revenue expenditure or an expenditure capital in nature. It has been found as a fact that the expenditure has not brought about any enduring benefit to the assessee. The contentions of the assessee in this behalf before the AAC and the Tribunal were at no time controverted nor were sought to be denied on behalf of the revenue. The findings were based on the admitted statements of the assessee, believed by the Tribunal, and this is the material on which the finding is based. We are not concerned with the quantum or the quality of the evidence adduced or materials, before the Tribunal: vide Gouri Prasad Bagaria v. CIT : [1961]42ITR112(SC) . Accordingly, we are not inclined to take a view different from that taken in Amalgamated Jambad Syndicate Pvt. Ltd. : [1979]117ITR698(Cal) .

14. Mr. Pal for the assessee had drawn our attention to another decision of the Supreme Court in CIT v. Kirkend Coal Co. : [1970]77ITR530(SC) , where it was held that the expenditure incurred by a colliery company in stowing operations was revenue expenditure and was eligible for deduction inasmuch as such operations were necessary in the process of extraction of coal and, without which, extraction would not be possible. It appears to us that the contentions of the assessee also find support from this decision of the Supreme Court.

15. Accordingly, we answer the question referred in the affirmative and in favour of the assessee. There will be no order as to costs.

Bimal Chandra Basak, J.

16. I agree.


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