- (1.)THE question referred to us by the Tribunal, Bombay, for our decision on the application of the CIT, Hyderabad, is as follows : - -
"Whether the lease money paid by the assessee company to Nawab Mehdi Jung Bahadur and to Government is capital expenditure or revenue expenditure -

(2.)ACCORDING to the statement of the case, the assessee company carrying on business under the name and style of the " Pingle Industries" besides running its oil mills, had taken on lease, stone quarries from Nawab Mehdi Jung Bahadur under a lease, deed dated 9th Meher 1343F, which was for a period of 12 years commencing from 1st Ardibhehist 1346F. Under the terms of this lease, the assessee company was required to pay a sum of Rs. 28,000 per annum to the lessor ; the total amount payable for the entire period amounted to Rs. 3,36,000 out of which a sum of Rs. 96,000 was paid at the time of the execution of the lease deed and the balance of Rs. 2,40,000 was agreed to be paid at the rate of Rs. 20,000 per annum in 12 years. For facility of payment it was agreed that this sum of Rs. 20,000 could be paid in equal instalments of Rs. 1,666 -10 -8 every month. On the expiry of the period of lease, it was renewed for a further period of five years and seven months at an annual rent of Rs. 35,000.
(3.)THE assessee company has also taken on lease stone quarries from the Government. This lease was for a period of five years and the assessee company was required to pay Rs. 9,000 per year and this amount was to be paid in monthly instalments of Rs. 750 each. Under these leases, the assessee company acquired the right to extract Shahabad stones from the quarry (flag stones). After extracting these stones, the assessee company used to sell them after working on them if necessary. The assessee showed in its books of account that a sum of Rs. 37,000 was paid as lease money to the lessor and claimed that this amount should be regarded as revenue expenditure to be deducted for the purpose of assessing the income under s. 10, sub -s. (2), cl. (xv), of the Indian IT Act. The ITO and the AAC, disallowed the amount claimed for the years 1357F and 1358F respectively treating them as capital expenditure. On appeal the Tribunal came to a different conclusion and allowed the amount to be deducted holding that the sums paid by the lessee to the Jagirdar and to the Government was an expenditure incurred by the assessee wholly and exclusively for the purpose of the business of the company and, therefore, could not be regarded as capital expenditure. This view of the Tribunal is challenged by the CIT.
Shri Narasimha Iyengar, the learned advocate for the Department, contended that the amounts in question which were paid by the assessee under the two agreements were in the nature of capital expenditure as they were expended as outlay for the initiation of the business. It was an expenditure necessary for the acquisition of property, or the right of a permanent character, the possession of which was a necessary condition to the carrying on of the business. The business of the assessee was to extract Shahabad stones from the quarry and sell them. It was not the business of a manufacturer and the expenditure was not for the purchase of raw material for the manufacturing business. The rights obtained under the documents would be in the nature of an asset or an advantage for the enduring benefit of the business and it is not necessary that the benefit should be everlasting. Reliance was placed on the case of CIT,vs. Venkatasubba Reddy & Bros. (1949) 17 ITR 15, and it was urged that in this case all the authorities on this point had been sufficiently dealt with.