Pathak, J. - (1.) This appeal by special leave is directed against the judgment of the High Court of Orissa disposing of an Income-tax Reference and answering the following question in favour of the revenue and against the assessee:"Whether in the facts and circumstances of the case, the loss of Rs. 30,045/- claimed by the assessee is a capital loss or a revenue loss -
(2.) The assessee is a private limited company carrying on business as a contractor. In April 1964 it entered into a contract with the South-Eastern Railway Administration for the execution of earth work, bridge work and other miscellaneous works required for the construction of a new railway yard. As it was required to supply earth outside the railway land the assessee found it expedient to buy two pieces of land from which earth could be excavated and conveniently taken to the work site, one piece of land was acquired at a cost of Rs. 53,196/- during the calendar year 1964 corresponding to the assessment year 1965-66. and the other piece of land was acquired for Rs. 15,045/- during the calendar year pertaining to the assessment year 1966,67, bringing the total cost to Rs. 68,241/-. Soon after the work was over, the assessee sold both lands for a sum of Rs. 23,000/-, thereby sustaining a loss of Rs. 45,241 /-.The assessee treated this as the value of the excavated earth, and apportioned the amount in its accounts in the following manner, Rs. 8196/-as the cost of the earth for the assessment year 1965-66, Rs. 30,045/-towards the earth excavated in the assessment year 1966-67 and Rs. 7,000/- towards the earth excavated for the assessment year 1967-68. The Income-tax Officer accepted the claim for the assessment year 1965-66. The claim of the assessee to a deduction of Rs. 30,045/-for the assessment year 1966-67 was disallowed on the ground that it represented a capital loss. The assessee proceeded in first appeal to the Appellate Assistant Commissioner of Income-tax but the appeal was dismissed. A second appeal was allowed by the Income-tax Appellate Tribunal on the ground that the land formed a wasting asset and by constant digging of the earth the land had become unserviceable. On a reference being made to the High Court of Orissa at the instance of the Commissioner of Income-tax on the question of law set forth earlier the High Court held that the loss of Rs. 30,045/-claimed by the assessee was a capital loss and, therefore, the assessee was not entitled to a deduction.
(3.) The question in this appeal before us is a short one. Can it be said that the loss of Rs. 30,045/- is a capital loss or a revenue loss It is not in dispute that the assessee did not deal in land. It was a contractor and it had acquired the land for the purpose of obtaining a ready supply of earth in order to fulfil the contract with the Railway Administration. The land was not its stock-in-trade. What it needed as raw material for the purpose of the contract was loose earth and this it obtained by the process of excavation from the land. Moreover, the two pieces of land were shown as fixed assets by the assessee itself in its balance-sheet.;