CHAKRAVARTTI, C.J. - The assessee is a limited company and holds two leases of two mica mines. It appears that originally the leases were obtained by some third part, who may be or may have been connected with the assessee, but at some subsequent date, the loses were acquired by the company itself. The first lease was granted on the 30th May, 1930, and the second some fourteen years later, on the 22nd November, 1944.
It appears that the assessee carries on a business of purchase and sale of mica. In the course of its assessment for the assessment year 1946-47, it claimed a deduction of Rs. 2,300 which it had paid as minimum royalty during the relevant accounting year, which was the calendar year 1945. This minimum royalty appears to have been paid under one or both of the two mining leases and the case of the assessee was that it was entitled to a deduction of the amount under section 10 (2) (xv) of the Income-tax Act on the basis that it was expenditure laid out or expended wholly and exclusively for the purpose of its business.
The assessee was unable to induce the Income-tax Officer to allow the deduction claimed. It failed before the Appellate Assistant Commissioner also and its second appeal to the Appellate Tribunal met with no better success. Thereafter, it required the Tribunal to refer to this Court a question of law and the following question has been referred.
'Whether the sum of Rs. 2,300 paid by the assessee as minimum royalty under the two leases of mica has been rightly held as a capital expense and as such not deductible out of the assessees income from business.'
The findings of fact recorded by the Tribunal are as follows. In the first place, the Tribunal has held that the assessees business of mining mica was entirely distinct and separate from its business of purchase and sale of the same commodity. It has next held that all that was done during the relative year of account was that some prospecting operation had been conducted. It has been held in the third place, that no raising or sale of mica from the mines in question had taken place during the accounting year in question. On those findings the Tribunal came to the conclusion that the business of raising mica from the two mines and exploiting the minerals contained therein being a distinct and separate business from the purchase and sale of mica and no business activity in connection with the mining mica having taken place during the accounting year, there was no business to which the payment of the minimum royalty could be related or for the purpose of which the amount in question could be said to have been expended or laid out. It appears to have been urged before the Tribunal that the amount of the royalty was an allowable deduction, because it had been paid in order to safeguard a capital asset, namely, the mining leases. The Tribunal rejected that contention and held that since the business of mining mica had not yet commenced, the payment made to safeguard the capital asset of the mining leases could only be an expense in the nature of a capital expense.
Before us it was contended on behalf of the assessee that the Tribunal had erred in holding that during the relative accounting year no business activity in connection with the mining mica from the two mines concerned had taken place. According to Mr. Mitra once a lease of a mica mine had been obtained and some step had been set up and once a business was set up, the assessee was entitled to claim a deduction of the expenses incurred as revenue expenses. In my view, on the facts of this case, the contention of Mr. Mitra is not tenable.
It has to be recalled, in the first place, what the basic finding of the Tribunal is. That finding is that the business of the purchase and sale of mica from which the income of the assessee was derived was entirely different from the business, if any, of mining mica from the two lease. It that be so and if there was no income at all from the mining of mica, there would seem to be some initial difficulty in the way of claiming deductions when there was no income. Mr. Mitra, however, contended, it may be rightly, that if he could establish that business activities had commenced and also that the expenses, in respect of which he was claiming deduction were revenue expenses, he would be entitled to a deduction in respect of such expenses, even though it might be in the form of a loss credited to him which he might be able to carry forward to the next year.
There remains, however, the greater difficulty. At no time during the course of the assessment does the assessee seem have said what it had actually done during the relative accounting year by way of exploiting the mines. The Appellate Tribunal has said that some 'prospecting operations' had been conducted. At one stage of his argument, Mr. Mitra submitted that there must have been some mistake, inasmuch as in the case of mines, prospecting took place before a mining a lease was obtained an in the present case, we were dealing with a stage subsequent to the obtaining of a lease and, therefore any prospecting, which might have taken place, must have preceded the granting of the lease. Indeed, Mr. Mitra even pointed out a recital in the earlier lease that there had been a prior lease which was a prospecting lease. It appears, however, that both the leases expressly provide for some prospecting. Part II of the Schedule to the first lease enumerates the rights the rights and privileges of the lessee and the first item in the enumeration is liberty and power to 'search for' and 'carry away and dispose of all mineral herein specified.' Similarly, clause 3 of the second lease speaks of a grant to the lessee of the exclusive right and liberty 'to search for, win, work, get prospect case, therefore, it could not possibly be said that because the adventure had reached a stage when leases had already been obtained there could not any longer be mere prospecting or searching for the minerals.
If then all that had been done was some prospecting could it be said that the assessee had carried on any business during the year of account Besides the expression, 'prospecting operations,' Mr. Mitra had also the advantage of the expression 'etc.', used by the Income-tax Officer. In fact he said that if prospecting operations by themselves would not entitle him to contend that his client had carried on the business during the year of account, he could rely upon the omnibus expression 'etc.' and read into it appropriate business activities. I am entirely unable to hold that Mr. Mitra can succeed on the strength of whatever may be covered by or concealed under the expression 'etc'. It ought not to be forgotten that it was the assessee who was claiming the deduction and it lay on the assessee itself to make out how it was entitled to the deduction it was claiming, and to that end, say what operations it had carried on during the relative year of account which, in its view, constituted business. A have pointed out, nothing whatever appears to have been said at any stage. We have examined the grounds of appeal both before the Appellate Assistant Commissioner and before the Tribunal. They are perhaps models of conciseness, because beyond saying that the Income-tax Officer or the Appellate Assistant Commissioner had unreasonably disallowed the deduction claimed, they said nothing at all. Even in its application for a reference to this Court, when setting out the facts according, to its own version, the assessee did not disclose what its business operations in connection with mining mica had been during the year in question. On the other hand, one finds it saying that the business of mining mica and that of the purchase and sale of mica were not two different business, but one and, therefore, since purchase and sale of mica had taken place during the material accounting year, 'the assessee must be deemed to have been carrying on its business and the minimum royalty paid is a proper charge on its income.' It is rather surprising that the assessee should have put forward that view of the facts without asking for and obtaining a reference regarding the correctness of the Tribunals finding that the two business were separate and distinct business. Be that as it may, it appears to me that since all that can be ascertained from the statement of facts is that the assessee carried on certain prospecting operation, it is impossible to say that any business had commenced which entitled the assessee to get the deduction it claimed.
Mr. Mitra drew our attention to a decision of the Bombay High Court in the case of Western India Vegetable Products Ltd. v. Commissioner of Income-tax, Bombay City. A distinction was made in that case between the seeing up of a business and the commencement of a business and it was pointed out by references to the definition of 'previous year' in section 2 (11) of the Act that what was relevant under the Indian law was not the commencement of the business, but its setting up. It is not necessary for me in the present case to consider whether it impossible agree with that view, because it is sufficient for me to point out that the activities upon which the Tribunal had relied in that case and which the High Court found sufficient to justify the Tribunals finding, were of a numerous and varied character. The solitary and indefinite operation of prospecting, which we find in the present case and which was in its very nature preliminary even to the setting up of a business can bear no comparison with the detailed activities which had taken place in the Bombay case.
The other ground on which the assessee relied was that, in any event, the amount in question was a revenue expense, inasmuch as it had been expended for the purpose of guarding or preserving the capital asset of the business. In my view, the Tribunal dealt with that point correctly when it said that expenditure incurred for the purpose of preserving the capital asset of a business could be properly regarded as revenue expense when there was a business going on and when the capital asset was supporting an actual business. In my view, the second ground relied on by Mr. Mitra must equally fail.
For the reasons given above, the answer to the question referred to this Court must be in the affirmative.
The Commissioner of Income-tax, West Bengal, will have his costs of this reference.
LAHIRI, J. - I agree.
Reference answered in the affirmative.