ASSAM BENGAL CEMENT CO LTD Vs. COMMISSIONER OF INCOME TAX WEST BENGAL CALCUTTA
LAWS(CAL)-1951-6-20
HIGH COURT OF CALCUTTA
Decided on June 07,1951

ASSAM BENGAL CEMENT CO.LTD., CALCUTTA Appellant
VERSUS
COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA Respondents


Referred Judgements :-

CITY OF LONDON CONTRACT CORPORATION LTD. V. STYLES [REFERRED TO]
GUEST,KEEN AND NETTLEFIELDS LTD. V. FOWLER [REFERRED TO]
BRITISH INSULATED AND HALSBY CABLES,LTD. V. ATHERTON [REFERRED TO]
OUNSWORTH V. VICKERS LTD. [REFERRED TO]
JOHN MOORE V. STEWARTS AND LLOYDS LTD. [REFERRED TO]
SMITH AND SON V. MOORE [REFERRED TO]
ANGLO-PERSIAN OIL CO. V. DALE [REFERRED TO]
HENRIKSEN V. GRAFTON HOTEL LTD. [REFERRED TO]
COLLINS V. ADAMSON AND CO [REFERRED TO]
ASSOCIATED PORTLAND CEMENT MANUFACTURERS LTD. V. KERR [REFERRED TO]
GULABSINGH AND SONS V. COMMISSIONER OF INCOME-TAX,LAHORE [REFERRED TO]
GOLDEN HORSE SHOE (NEW) LTD. V. THURSGOOD [REFERRED TO]
VAN DEN BERGHS LTD. V. CLARK [REFERRED TO]
KNEESHAW V. ABERTOLLI [REFERRED TO]
COMMISSIONER OF INCOME-TAX,MADRAS V. A.S. ALAGANAN CHETTY [REFERRED TO]
JAGAT BUS SERVICE VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. LAHOTY BROTHERS LTD [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. CHENGALVAROYA MUDALIAR [REFERRED TO]
CHENGALVAROYA CHETTIAR VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
TATA HYDRO ELECTRIC AGENCIES LTD, BOMBAY VS. COMMISSIONER OF INCOME TAX, BOMBAY PRESIDENCY AND ADEN [REFERRED TO]



Cited Judgements :-

COMMISSIONER OF INCOME TAX VS. ASIATIC OXYGEN AND ACETYLENE CO LTD [LAWS(CAL)-1980-7-26] [REFERRED TO]
STATE OF BIHAR VS. BENGAL CHEMICAL AND PHARMACEUTICAL WORKS LTD [LAWS(PAT)-1953-5-2] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. HINDUSTAN PILKINGTON GLASS WORKS [LAWS(CAL)-1981-4-32] [REFERRED TO]


JUDGEMENT

Chakravartti, J. - (1.)The question involved in this Reference is whether in the computation of its taxapre profits for two successive accounting years, the assessee company was entitled in each case to a deduction of two sums of Rs. 5,000/- and Rs. 35,000/- which it had paid to its lessor in each of those years under certain special terms of the lease. The deduction was claimed under Section 10(2) (xv), Income-tax Act & the dispute is as to whether the payments were of the nature of a business or capital expenditure.
(2.)The facts are as follows. On 14-11-1938, the assesses company obtained from the Government of Assam a lease of certain limestone quarries, known as the Komorrah Quarries, which are situated in the Khasi and Jaintia Hills district and cover an area of 594.40 acres. The actual lessee under the deed of lease was the Eastern Corporation Limited, but we were informed that they were only the managing agents of the assessee company and had assigned the lease almost immediately to the latter under a permissive clause contained in the deed itself. For all practical purpose therefore, the assessee company was the lessee. The lease is for 20 years, commencing on 1-11-1938 and ending on 31-10-1958, but there is a renewal clause under which the lessee may ask for a lease for a further term of 20 years and the Assam Government may grant such lease upon such conditions as they may deem fit to impose. The right conveyed to the lessee is the right to quarry limestone and to convert it into lime or cement & to dispose of the manufactured articles at its will and pleasure. The rent reserved is a half yearly rent certain of Rs. 3000/- for the first two years and thereafter a half-yearly rent certain of Rs. 6000/- which are in the nature of minimum royalties, payable in any event; but provision is also made for the payment of further royalties in the event of extraction of limestone in excess of a certain quantity. In addition to these rents and royalties, two further sums are payable under two special covenants, contained in Clauses 4 and 5 of the deed. One is a sum of Rs. 5000/-, payable annually during the whole period of the lease as a "protection fee" and the protection is that in consideration of that payment, the lessor undertakes not to grant any lease, permit or prospecting licence regarding limestone to any other party in respect of another group of quarries, called the Durgasil area, without a condition that no limestone shall be used for the manufacture of cement. The second sum is a sum of Rs. 35,000/- also payable annually, taut only for five years from 15-11-1940, as a "further protection fee" and the lessor, in consideration of that payment, gives a similar undertaking in respect of the whole of the Khasi and Jaintia Hills district. There are certain conditions as to rebate and termination of the agreement, attached to the covenant regarding the second sum, but it is not necessary to set them out at this stage. In accordance with these two covenants, the company paid its lessor a sum of Rs. 40,000/- in the accounting year 1944-45 and a similar sum in the year 1945-45. The present reference relates to a claim of deduction made by the company in respect of those two sums in the assessments for the assessment years 1945-46 and 1946-47.
(3.)The company based its claim on the ground that the sums concerned actually represented "item of royalties as enumerated in the deed of lease" and accordingly, in the computation of its business profits, they were liable to be deducted under the provisions of Section 10(2) (xv) of the Act. The Income-tax Officer did not accept that view of the payments and held that though annual, they were payments for the acquisition of a right or privilege rather than for meeting working expenses and as such they were not revenue, but capital payments. The privilege, he held, was that no other manufacturers of cement could be brought within the orbit of the company's activities. In accordance with that view, he disallowed the claim and his order was upheld both by the Appellate Assistant Commissioner and the Appellate Tribunal. The latter wrote an extremely cryptic order and expressed its finding in the form that the sums concerned were not "expenditure wholly and exclusively spent for the purpose of carrying on the business."


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