- (1.) THIS is a reference under Section 66 of the Indian Income-tax Act, 1922. Messrs. United Commercial Corporation is the assessee. The assessment year is 1958-59. The .assessee is a firm carrying on the business of manufacturing bricks and certain other business. In connection with the brick-kiln business, it acquired a piece of land on a lease for seven years for digging earth for manufacturing bricks. The assessee incurred an expenditure of Rs. 13,205 in obtaining the lease. Again, the assessee spent a sum of Rs. 1,729 for erecting a chimney for the brick-kiln. The assessee claimed deduction for these two sums as revenue expenditure. THIS claim was disallowed by the income-tax -authorities and by the Appellate Tribunal. At the request of the assessee, the Appellate Tribunal referred the following questions of law to this court: "(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of Rs. 13,205 being the lease amount (including stamp fees) paid by the assessee? (2) Whether the cost of the chimney in the brick-kiln is a capital expenditure?"
(2.) WHEN the case was taken up by the court on August 28, 1969, it was noticed that the total expenditure of Rs. 13,205 for acquisition of the lease consists of two parts, Rs. 12,525 and a sum of Rs. 680 on account of incidental charges. The court found difficulty in ascertaining details of the sum of Rs. 12,525. The court, therefore, called for a restatement of the case. In accordance with that direction, the Appellate Tribunal has submitted a supplementary statement. That supplementary statement has given details of the amount of Rs. 12,525. Now we find that the total amount of Rs. 13, 205 consists of two parts. The bulk of this amount consists of four sums paid to four lessors. The balance accounts for incidental charges like stamp duty and registration fee. Whether certain expenditure is capital expenditure or revenue expenditure depends on circumstances of the case. Mr. Swami Dayal appearing for the assessee cited a number of cases on the point. In Gotan Lime Syndicate v. Commissioner of Income-tax, 1966 59 ITR 718; [1966] 2 S.C.R. 596 (S.C.) it was held by the Supreme Court that it is not the law in every case that if an enduring advantage is obtained, the expenditure for securing it must be treated as capital expenditure, for in the ordinary case, the cost of the material worked up in a manufactory is not a capital expenditure, it is a current expenditure, and does not become a capital expenditure merely because the material is provided by something like a forward contract under which a person for the payment of a lump sum down secures a supply of the raw material for a period extending over several years. In Singareni Collieries Co. Ltd v. Commissioner of Income-tax, 1966 ITR 553 the assessee-company which carried on coal mining business acquired lease in respect of several coal fields for a sum of Rs. 45 lakhs, the lease period being 99 years. The company had to pay yearly dead rent in respect of any coal field not worked. It was held that, the dead rent is relatable to royalty that will have to be paid. Such payment was revenue expenditure. In the instant case we are not concerned with the payment of any royalty or dead rent.
(3.) THE case of Benarsidas Jagannath, In re, [1947] 15 I.T.R. 185 (Lah.). [F.B] is a decision of a Full Bench of the Lahore High Court. In that case the assessee was a manufacturer of bricks. He obtained certain land on leases for the purposes of digging out earth for the manufacture of bricks. He had a right to dig earth up to 3 or 3 1/2 feet. He had no interest left in the land as soon as earth was dug out and removed. THE periods of the leases varied from six months to three years. It was held that payments were deductible under Section 10(2)(xii) of the Indian Income- tax Act, 1922. In M. A. Jabbar v. Commissioner of Income-tax, [1968] 68 I.T.R. 493; [1968] 2 S.C.R. the appellant carried on the business of supplying lime and sand. He took a lease for 11 months and obtained exclusive lease and liberty to enter, occupy and use for quarrying purpose and to raise and carry away sand within or upon the land constituting the base of a river. It was held that the appellant acquired under the lease merely the right to remove sand for a short time of 11 months. He did not acquire any fixed or capital asset of an enduring nature. The payment was deductible as a revenue expenditure.;