Decided on March 20,1952



- (1.) THE three questions that were referred to us for decision under Section 66 (1), Income-tax Act, by the Income-tax Appellate Tribunal are : (1) Whether the payment of Rs. 23,894 cost of Railway siding, paid by the assessee to the M. L. M. Estates was revenue expenditure which the assessee was entitled to deduct under Section 10 (2) of the Act. (2) Whether the sum of Rs. 7000 spent in connection with the new salt pans was capital expenditure and not allowable as a deduction under s. 10 (2) of the Act. (3) Whether the sum of Rs. 36,680 paid to Messrs A. R. Ramier and Co. , under the compromise decree was an admissible expenditure under Section 10 (2) (xv) of the Act.
(2.) THE three questions may be considered under two groups as questions Nos. (1) and (2) are closely connected and raise the same questions of law. The third question will be dealt with separately.
(3.) THE facts relevant for consideration of the first two questions are as follows as appear from the statement of the case : The assesee is a manufacturer of salt in Livingipuram in Tuticorin. The salt pans originally belonged to one M. L. M. Ramanathan Chettiar. He died and was succeeded by his son Mahalingam Chettiar who was then a minor. In O. P. No. 30 of 1932, District Court, Ramnad, one Rao Sahib R. Krishna Aiyar was appointed interim property guardian by the District Court and he was in management of the M. L. M. estate, Under the orders of the District Court and with its sanction, the pans were subleased under a document dated 28-3-1934 to the assessee, Subbiah Nadar, for a period of seven years commencing from 1-1-1934 and ending with 31-12-1940. Under the sublease the assessee had to pay a sum of Rs. 36,969 to the Government on behalf of his lessor in three instalments. One instalment on 12-3-1933 was paid even before the lease was executed on 2-11-1933 under an agreement. The other instalment had to be paid on 1-4-1934 and 1-10-1934. This amount represents the amount payable by the lessor to the Government under the lease granted by the Government to the estate of M. L. M. Besides this, he had also to pay a sum of Rs. 500 per annum or Rs. 35,00 for seven years as rent. These two amounts namely Rs. 36,969 payable to the Government on behalf of the lessor and the total rent for the seven years, namely Rs. 3500, in all Rs. 40,469 was treated under the lease as a consolidated lease amount for seven years. There were also further obligations imposed upon the lessee under this document. The lessee undertook to spend a sum of Rs. 18,000 for constructing a railway siding, though in the sub-lease it was stated that it would include also repair of the pans then in existence but it was assumed throughout and was conceded before us that that sum really represented the estimated cost of constructing the railway siding. The railway siding had to be constructed according to the terms of the lease, before the month of December 1935, in default it was provided that the lessee should forfeit the lease in respect of the seventh year and shall put the lessor in possession of the pans. On 31-12-1939, there was yet another form in the lease that the lessee was at liberty to spend a sum of Rs. 4000 in putting up new beds and for carrying out other works in connection with new beds but he was allowed to enjoy the income from such new beds until the expiry of the period of the lease without any addition to the rents stipulated.;

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