G.M.MEHTA, J. - (1.)THIS is a reference by the Tribunal, Bombay Bench "B", under s. 66(1) of the Indian IT Act, 1922 (hereinafter referred to as the Act). The questions referred to by the Tribunal, are as follows :
"(1) Whether, on the facts and in the circumstances of the case, the prospecting licence fee of Rs. 3,200 is allowable as revenue expenditure ? (2) Whether, on the facts and in the circumstances of the case, the appropriate part of Rs. 1,53,800 was allowable as revenue expenditure ?"

(2.)THE reference has arisen out of the following facts : THE applicant before the Tribunal, R. B. Seth Moolchand Suganchand (Mining Department), Udaipur, hereinafter referred to as the assessee, was working certain emerald mines in the Udaipur area where the head office was situated. THE relevant assessment year under reference was 1952-53. At the head office of the assessee, the accounts are closed on October 31, 1951, and at the branch on March 31, 1952, and those are the relevant previous years. During the relevant year, the assessee applied for certain new licences, for which it incurred an expenditure of Rs. 5,694 which included prospecting licence fee of Rs. 3,200 paid to the Government at the time of procuring the prospecting licence for the Badgulla emerald area issued under the provisions of Chapter III of the Mineral Concession Rules, 1949. This prospecting licence fee of Rs. 3,200 was payable at the rate of rupee one per acre per year. Besides this, there were items of expenditure like licence fee for other purposes, application charges, ammunition licence charges, etc. That other expenses were allowed to the extent allowable and there was no dispute in respect of them. THE ITO disallowed the sum of Rs. 3,200 on the ground that the licence was obtained by the assessee only that year, that the licence fee was to be paid at rupee one per acre in addition to the royalty to be paid on the value of emerald won, excavated and sold, that the expenditure was an initial expense as it gave the assessee a right of prospecting mines and, that, therefore, it was not an allowable deduction under s. 10(2)(xv) of the Act.
There was an appeal against the order of the ITO to the AAC, who, after setting out the facts, held as below :

"Now prospecting expenses including prospecting fees are clearly intial expenses and they are being disallowed in mining cases, such disallowances having been upheld even by the Tribunal, the ITO was, therefore, right in making the disallowance hereof . . . . . ."

At the time of arguments before the Tribunal the claim was confined only to the sum of Rs. 3,200 being the prospecting licence fee. Before the Tribunal, the assessee's learned counsel mainly based his claim on r. 23 of the Mineral Concession Rules, under which, in the case of precious stones like emerald, the licensee had a right to win and carry the minerals for commercial purposes which the assessee actually did in this case. The Tribunal negatived this contention for reasons set out in paragraph No. 2 of its order, the relevant portion of which reads :

"Mr. Bhargava, who argued the case on behalf of the assessee, rested this claim mainly on the provisions of r. 23 as mentioned above. We do not think that there is any substance in this contention. The amount is paid as and by way of a prospecting fee. It was not the contention of the assessee that a prospecting licence fee is liable to be allowed as such in all cases. The claim is rested here on the basis of the licence being for prospecting and mining precious stones and mica, the licensee in such a case being entitled to sell the products that he mines. But the licence fee paid is in this case as much for initiation of a business as in the case of licence for other minerals. Its character is not changed merely because the licensee has certain rights over the minerals obtained under the prospecting licence. The prospectin licence fee cannot be equated to a payment made for the purchase of stock-in-trade. It is not based on any quantity of minerals. The minerals had to be won and extracted from the earth, and the term `prospecting licence' shows that the mine had not yet started working as a mine. It is a fee irrespective of the quantity of minerals obtained. The plain object of the payment is to initiate the business. The character of the payment is not changed by anything that is mentioned in r. 23. The period for which the licence is obtained, viz., one year, does not also make it a revenue payment. In our opinion, the authorities rightly disallowed the amount."

The assessee required the Tribunal to refer the question of law arising in the case to the High Court and it is how the first question is referred to this Court. The second question has been referred in the following circumstances : The assessee claimed deduction of a sum of Rs. 7,857. M/s Duduwala and Company worked a mica mine for about 15 years and thereafter abandoned it. With a view to granting a licence over the area, the State Government issued Notification No. 9453 dated 29th March, 1955, (Annexure "B"). The leases were to be given in accordance with Mineral Concession Rules, 1949, with some relaxations and modifications about which reference had been made to the Government of India. Paragraph No. 5 of the notification runs as follows :

"As the area has been worked by a private company during the past fifteen years, all the known mines and quarries and prospecting pits have acquired a value which can be determined by the principles of `mine valuation'. Intending applicants are therefore requested to visit the area before 15th April, 1950, and assign their own value and offer it under a `sealed tender' superscribed `mica Rajasthan' . . ."

The assessee offered its tender at Rs. 1,57,150 for a particular block, which was leased out to him for a period of 20 years with an option for renewal as per conditions prescribed in the Mineral Concession Rules, 1949. Tender-money was, under the said notification, to be paid within a period of twelve months of acceptance of the tender. A part of the sum of Rs. 1,57,150 was for the mica scrap lying on the surface, the value of which was Rs. 3,360. This amount was allowed to be deducted by the Tribunal in appeal. The assessee paid a sum of Rs. 1,57,150 during the relevant year and wrote off 1/20th of it, that is, Rs. 7,857 as revenue expenditure of the year under appeal.

On the assessee's claim for deduction of Rs. 7,857, the 1/20th part of Rs. 1,57,150, the ITO observed as follows :

"Tender money.--A sum of Rs. 7,857 has been claimed as part of the tender money paid. This is claimed to be a revenue expense. I, however do not agree. The assessee got block No. 7 for tender-money of Rs. 1,57,150 vide Director of Mines and Geology's letter dated December 30, 1950, against the tender supplied by the assessee himself. I am of the view that this money was paid for the value of the land which it had acquired because the mine granted to the assessee had already been worked by other private companies."

There was an appeal against the disallowance to the AAC, who upheld the disallowance holding that the expenditure was of a capital nature as it was for acquisition of a capital asset. There was a further appeal to the Tribunal. The Tribunal allowed the expenditure of Rs. 3,360 as revenue expenditure as it was paid for mica scrap lying on the surface, and, as such, was acquisition of stock-in-trade. The balance of Rs. 1,53,800, which was paid under the tender, was held to be on capital account. On the above facts, on the application of the assessee, the second question has been referred to this Court by the Tribunal. Learned counsel for the assessee has argued that the Tribunal was in error in holding that the payment of Rs. 3,200 and Rs. 1,53,800 made by the assessee to the Government was expenditure of a capital nature. As regards the amount of Rs. 3,200, he has submitted that this amount, being a prospecting licence fee, was an expenditure of a revenue nature and as regards the payment of Rs. 1,53,800 he has submitted that the amount paid by the assessee was only an estimated value of the mica found lying in the area and it thus represented a payment for the stock-in-trade of the assessee, which was liable to be allowed as an allowable deduction. According to him, it should not be treated as capital expenditure. He has placed reliance on the following cases : Alianza Co. Ltd. vs. Bell (1904) 2 KB 5 Tax Cases 60, Atherton vs. British Insulated and Helsby Cables Ltd. (1925) 10 Tax Cases 155, Mohanlal Hargovind vs. CIT (1949) 17 ITR 473 (PC), Banarsidas Jagannath vs. CIT (1947) 15 ITR 185 (Lah), Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC) and Gotan Lime Syndicate vs. CIT (1966) 59 ITR 718.

Learned counsel appearing on behalf of the Department contested the stand taken on behalf of the assessee. He has submitted that the prospecting licence fee was expenditure of a capital nature, being an initial expense, which gave the assessee a right of prospecting mine. As regards the payment of Rs. 1,53,800, made by the assessee, it could not be treated according to him as payment for the price of mica. The raw materials had to be won and extracted before they could be said to be stock-in-trade. The amount represented the price that was paid by the assessee for obtaining the right to extract and win emerald and mica in an area which had already been worked and developed by the assessee's predecessor for a period of 15 years. The payment made by the assessee was thus incurred for the purpose of obtaining benefits of a capital nature and was, therefore, capital expenditure. Besides placing reliance on the authorities Nos. (5) and (6) cited on behalf of the assessee, he referred to the following cases : Pingle Industries Ltd. vs. CIT (1960) 40 ITR 67 (SC), Abdul Kayoom vs. CIT (1962) 44 ITR 689 (SC) and CIT vs. Ramlal and Sons (1965) 57 ITR 742 (Raj).

The Supreme Court has, in Assam Bengal Cement Co. Ltd. vs. CIT (supra) and Gotan Lime Syndicate vs. CIT (supra), referred to above, reviewed almost all the earlier cases and has laid down how the question regarding determination of what is capital expenditure and what is revenue expenditure is to be approached.

In Gotan Lime Syndicate's case (supra) the following observations in Abdul Kayoom vs. CIT (supra) were quoted with approval :

"None of the tests (laid down in various authorities) is either exhaustive or universal. Each case must depend on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases . . . by matching the colour of one case . . . . . against the colour of another."

Their Lordships, however, approved the tests indicated in Assam Bengal Cement Co. Ltd. vs. CIT (supra) and we may briefly refer to them.

The earliest test was the one indicated in the following observations of Bowen L. J. in City of London Contract Corporation Ltd. vs. Styles (1887) 2 Tax Cases 239 :

"You do not use it `for the purpose of' your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern."

(3.)THE expenditure in the acquisition of the concern would be capital expenditure ; the expenditure in carrying on the concern would be revenue expenditure.
Lord Dunedin in Vallambrosa Rubber Co. Ltd. vs. Farmer (1910) 5 Tax Cases 529, suggested another criterion, at page 536, which runs as below :

"Now, I don't say that this consideration is absolutely final or determinative, but in a rough way I think it is not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all, and income expenditure is a thing that is going to recur every year."

Then, there is another test which has almost been universally accepted as a test for determining what is capital expenditure as distinguished from revenue expenditure laid down by Viscount Cave L. C. in Atherton vs. British Insulated and Helsby Cables Ltd. (supra) The observations were as follows :

"Now, in Vallambrosa Rubber Co. vs. Farmer (supra), Lord Dunedin as Lord President of the Court of Session, expressed the opinion that `in a rough way' it was `not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing which is going to recur every year' ; and no doubt this is often a material consideration. But the criterion suggested is not, and was obviously not intended by Lord Dunedin to be, a decisive one in every case ; for it is easy to imagine many cases in which a payment, though made `once and for all', would be properly chargeable against the receipts for the year . . . . . But when an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital."

The Privy Council in Tata Hydro-Electric Agencies Ltd. vs. CIT (1937) 5 ITR 202 (PC) has held that there was distinction between acquisition of an income-earning asset and the process of earning of the income. Expenditure in the acquisition of that asset was capital expenditure and expenditure in the process of the earning of the profits was revenue expenditure, which test was akin to the one laid down by Bowen L. J. in City of London Contract Corporation vs. Styles (supra).

After referring to the various authorities distinguishing capital expenditure from revenue expenditure, their Lordships added, that on the whole, the definition of Viscount Cave is a good working definition which has almost been universally accepted as a test for determining what is capital expenditure as distinguishable from revenue expenditure.

In Banarsidas Jagannath vs. CIT (supra) a Full Bench of the Lahore High Court attempted to reconcile all these decisions and deduced broad tests for distinguishing capital expenditure from revenue expenditure, the pertinent portion of which is in these words :

"1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment : vide Lord Sands in IRC vs. Granite City Steamship Co. (1927) 13 Tax Cases 1 Bowen L. J. observed as to the capital expenditure as follows : `You do not use it "for the purpose of" your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern' 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade : vide Viscount Cave L. C. in Atherton vs. British Insulated and Helsby Cables Ltd. (supra)"

;