AHMADI J. -
(1.)THE assessee, the Gujarat Mineral Development Corporation Ltd., is a State owned limited company incorporated under the Companies Act, 1956. It is carrying on business of mineral development and development of mines, extraction of ores, etc., including the business of extraction of fluorspar. It secured from the Government of Gujarat a mining lease in respect of Survey No. 40 admeasuring, 1,530 acres situate in the revenue limits of village Amba Dungar, Taluka Chhota -Udepur, district Baroda. At the relevant point of time M/s. Mineral Mining Company, Madras, had a prospecting license for extracting fluorspar in respect of Survey No. 30 admeasuring about 1,733 acres situate adjacent to Survey No. 40 held by the assessee. The said Madras Company had applied on September 11, 1957, for a prospecting license in respect of Survey No. 30 under the Mines and Minerals Act, 1948. The Government of Gujarat granted to the said company a prospecting license on August 27, 1962. Thereafter, the said company made an application for the grant of a mining lease in respect of that survey number on June 6, 1963. While that application was pending, it prepared a prospecting report on November 9, 1963, and submitted it to the State Government in support of its claim for a mining lease. However, the Government of Gujarat, by its order dated March 4, 1964, rejected its application for the grant of a mining lease. The said order was challenged in revision but the Govt. of India rejected the revision application on May 26, 1965. As its application for the grant of a mining lease was thus rejected, the Madras company field a Civil Suit No, 1552 of 1964 in the Civil Court at Baroda and also field a writ petition, being Special Civil Application No. 829 of 1965, in this court. Certain interim orders were obtained in the said proceedings whereby the Govt. of Gujarat was restrained from giving the said survey number on lease to any other party. It appears that in the meantime the assessee had also applied for a mining lease in respect of Survey No. 30. The assessee -Corporation, therefore, with a view of to expanding its business and avoiding competition on the adjacent land and with a view to getting the required raw material for the desired number of years, agreed to pay a sum of Rs. 3 lakhs to the Madras company on the said company agreeing to give up its claim for a mining lease in respect of Survey No. 30. An agreement was executed in that behalf on November 12, 1969, annex. 'F'. After setting out the history leading to the institution of the suit and the writ petition by the Madras company, the agreement proceeds to recite as under :
'AND whereas the Corporation has spent considerable amount for mining and has also invested over Rs. 3 crores for erecting a beneficiation plant for the aforesaid mineral at the aforesaid area. AND whereas 11.6 million tonnes of fluorspar deposits assessed by the geological survey of India under their report are spread over Survey Nos. 30 and 40, the beneficiation plant being put up by the Corporation could run for the desired number of years only when deposits of both the aforesaid Survey Nos. are made available to the Corporation. It is, therefore, advisable and necessary for the Corporation to obtain from the Govt. of Gujarat a mining lease of the aforesaid Survey No. 30 having vast quantities of the aforesaid mineral which the Corporation would not have unless the aforesaid suit and special civil application are finally disposed of which is likely to take considerable time a stated above. AND whereas the Corporation in view of business expediency and in order to avoid competition on the adjoining area and with a view to get the required raw material for the desired number of years, the Corporation and the company entered into negotiations for settlement of the matter and thereby clearing the way of the Corporation in obtaining mining lease of the aforesaid Survey No. 30 from the Government of Gujarat. AND whereas in consideration of the Corporation awarding andor paying a lump sum amount of Rs. 3,00,000 (rupees three lakhs only) to the company, the company has agreed to withdraw the aforesaid suit and aforesaid special civil application and to vacate the aforesaid Survey No. 30 and to furnish the copy of the prospecting report, data and other information to the Corporation.'
(2.)IT was for the aforesaid reasons set out in the agreement that the assessee paid a sum of Rs. 3,00,000 to the Madras company on receipt whereof the latter withdrew the civil suit as well as the writ petition and vacated Survey No. 30 with a view to facilitating the assessee to obtain a mining lease in respect of that land. The assessee claimed deduction of the said amount of Rs. 3,00,000 as revenue expenditure in computing the total income for the assessment year 1970 -71. The ITO, however, held that the said expenditure was of a capital nature and rejected the claim for deduction. In appeal the AAC also took the view that the expenditure in question was incurred with a view to persuading the Madras company to withdraw the pending litigation and further with a view to avoiding competition and since the benefit derived was of an enduring nature, the expenditure was rightly disallowed as it was in the nature of capital expenditure. The assessee carried the matter in appeal before the Income -tax Appellate Tribunal, Ahmedabad (Bench B), which relying on two decision of the Supreme Court in R.B. Seth Moolchand v. CIT : 86ITR647(SC) and Mewar Sugar Mills Ltd. v. CIT : 87ITR400(SC) held that, on the facts and in the circumstances of the case, it was clear that the expenditure was incurred to obtain an enduring benefit with a view to ultimately securing a mining lease in respect of Survey No. 30 and was, therefore, clearly in the nature of capital expenditure as held by the authorities below. It expressed its inability to accept the proposition that the impugned expenditure was incurred with a view to securing the required stock -in -trade. The assessee feeling aggrieved by the view taken by the authorities below, sought a reference and the Tribunal formulated the following two points for our determination :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not entitled to the deduction of Rs. 3 lakhs paid to M/s. Mineral Mining Co. Ltd. ? (2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 3 lakhs paid to M/s. Mineral Mining Co. Ltd. was revenue expenditure or capital expenditure ?'
For reasons which we shall presently indicate, we are of the view that the impugned expenditure was in the nature of capital expenditure and, therefore, the view taken by the authorities below that the assessee was not entitle to deduction of the amount of Rs. 3 lakhs as revenue expenditure was correct. We are, therefore, of the opinion that question No. (1) must be answered in the affirmative and question No. (2) must be answered by stating that the impugned expenditure was in the nature of capital expenditure. In other words, both the questions must be answered in favour of the Revenue and against the assessee.
(3.)EVEN though the question whether a particular expenditure is capital or revenue expenditure frequently arises, no precise definition or universal text has been evolved by courts to determine its character and different tests have been applied from time to time in the backdrop of facts and circumstances of each individual case for determining the question posed before the court. It is impossible to evolve a strait jacket formula for determining whether a particular expenditure is capital expenditure or revenue expenditure because it is not possible to conceive of all the diverse situations in which expenditure is incurred by an assessee. In the book Advanced Accounting, Vol.2, by Yorston Smith Brown 6th Edn., the learned authors observation at p.324 as under :
'The distinction between capital and revenue expenditure is that the former is for property having a life duration extending over several accounting periods, whereas the latter is an expenditure for property which will be consumed within the current accounting period.'