A.N.Sen, J. - (1.) A short, though not quite simple, question of law arises for consideration in the present reference. The question, whether a particular expenditure is of a capital nature or not, may prove ticklish and intricate in the facts of a particular case. In the instant reference, such a question falls for determination. The point for consideration in the present reference is whether the expenditure incurred by the assessee on renovating the buildings, reconditioning the machinery and clearing the land of debris in one of its collieries, known as South Samla Colliery, for restarting the operation of digging coal therefrom, after a long lapse of time, during which period this colliery had remained under military occupation, is in the nature of capital expenditure or not.
(2.) The assessee is a registered firm which owned several collieries in West Bengal and Bihar. One of such collieries owned by the assessee is known as South Samla Colliery. South Samla Colliery was under military occupation since 1942 and was derequisitioned in 1955. This colliery could not be worked by the assessee during these years of military occupation. Expenses, however, had been claimed by the assessee during the period of military occupation on account of minimum royalty, surface rent and salary for watch and ward purposes of this colliery and had been allowed as business expenditure of the assessee by the taxing authority. The relevant assessment year is 1959-60, the corresponding previous year, i.e., the accounting year of the assessee being the Gujarati Dewali 2014 (beginning with 24th of October, 1957, and ending on 12th of November, 1958). During the relevant period under consideration, the assessee incurred certain heavy expenses amounting in all to Rs. 1,61,742 on renovating the buildings, reconditioning the machinery and clearing the land of the debris that had accumulated for over a number of years at the said South Samla Colliery for the purpose of putting the machinery in working order as well as the whole of that colliery in general to a state of resumption of mining operations from the said colliery. The assessee had claimed deduction of the said entire amount as business expenditure. The Income-tax Officer disallowed the claim of the assessee on the ground that the said expenditure incurred by the assessee was of a capital nature. The Income-tax Officer in his order held : "The expenditure incurred by the assessee is mostly for the purpose of renovating the buildings, reconditioning the machinery and clearing the land of the bebris that has accumulated for over a number of years. This operation had to be carried out by the assessee before the actual working of the coal fields. During the military occupation period it was held by the Tribunal that the minimum royalty payable, the surface rent paid and small amount of salary for watch and ward purpose should be allowed as a business expenditure, mostly on the ground that the assessee intended to work the colliery after the Government derequisitioned it. The Tribunal observed that simply because for reasons beyond the appellant's control one of the collieries could not be worked temporarily during the years under consideration, the expenses incurred in connection with it did not cease to be business expenditure. It is, therefore, clear that at least after the colliery was handed over to the assessee and as such the various items of expenditure incurred by it for the purpose of putting the machinery in working order and bringing the colliery in general to a state when the assessee could start digging out coal had got to be treated as development or capital expenditure. The advantage gained by the assessee in various operations which it is carrying out is in any case of an enduring nature."
(3.) The Income-tax Officer further held : "The expenditure incurred by the assessee on account of salaries and wages including labour benefit, etc., amounting to Rs. 66,937 and the expenditure incurred for purchase of various stores, machine repairs, dhowrah repairs, etc., amounting to Rs. 94,805 which in all Rs. 1,61,742 will be disallowed as capital expenditure.";