Shah, J. - (1.) For the period July 1, 1944, to June 30, 1950, the appellant company was permitted under two separate agreements both dated September 14, 1944, with the Maharaja of Jeypore to collect "sleepers and scantlings" approved by the company form logs of sal trees marked by the forest department, in the Ramgiri Forest and Omerkote Nowrangpur range in the Jeypore Estate, in consideration of the compare agreeing to pay as royalty specified percentages of the price at which the "sleepers and Scantligns" were supplied by the company to the Indian railways. By a letter dated January 16, 1950, addressed to the Dewan of Jeypore the company offered to pay enhanced royalty for the period June 1, 1948, to June 30, 1950, in considerate of the Estate granting renewal of the agreements which were about to expire. The collector of Koraput who was the authority to sanction the grant or renewal of the agreement under section 3(1)(a) of the Orissa Preservations of Private Forests Act, 1947, by order dated April 3, 1950, sanctioned renewal of the original agreement for one year from July 1, 1950, to June 30, 1951. A fresh agreements was there after executed on June 13, 1952 for a term of three years with effect from July 1, 1951 under which company was granted the right to cut sal trees marked by the Estates forest department in the arrear agreed upon and to convert the same into "sleepers and scantlings" and to remove them. The agreements provided that the company would pay to Estate subject to a minimum of Rs 40,000 annually (which would not be altered during the term of the agreement) at the rates specified in clause 6 for different types of "sleepers and scatlings" mentioned therein.
(2.) During the course of negotiations for extensions of the agreement from July 1, 1951, the company agreed to pay royalty enhanced rates for the period July 1 1943 to June 30, 1950, on conditions that the agreement was extended for at least three years. This worked at the rate of Rs. 69,000 per annum. The company then offered by its letter dated March 22, 1951, to pay an additional amount of Rs. 9,000 annually in addition to Rs. 69,000 already agreed to be paid. By another letter dated June 10, 1952 it was confirmed that subject to a lease being signed in the terms of the draft enclosed with the company letter dated June 9, 1951, the company agreed to pay additional amounts in the aggregate at the rate of Rs. 83,000 annually during the term of the lease. A convenient about the additional payments offered to be made by the company was however not incorporated in the agreement dated June 13, 1952.
(3.) In proceeding for assessment of income-tax in the assessment year 1953-54, the claim of the company to deduct Rs. 83,157 pending during the year of account in addition to the royalty stipulated to be under the agreement dated June 13, 1952 as an allowable expenditure under section 10(2)(xv) of the Income Tax Act was rejected by the Income-tax Officer. The order of the Income-tax was reversed by the Appellate Assistant Commissioner who held that the agreement to pay amounts of money addition to royalty stipulated to be paid under the formal agreement were "additional royalty" solely for the purpose of acquiring logs to be converted into sleeper for sale and the payments represented "the prime cost of the companys stock-in-trade". In appeal by the Income-tax Officer, the Income-tax Appellant Tribunal confirmed the order to the Appellate Assistant Commissioner. The Tribunal then drew up a statement and submitted the following question for the opinion of the High Court of Judicature at Calcutta : "Whether on the facts and in the circumstances of the case, and on the correct interpretations of the three enclosure to the letter of the assessee dated the 8th day of July 1954, to the Income-tax Officer concerned the sum of Rs. 83,517 was allowable as an expenditure of a revenue nature - ;