Hazra, J. - (1.) On the application of the assessee under Section. 66(1) of the Indian Income-tax Act, 1922 (hereinafter called "the Act"), the Appellate Tribunal referred the following questions to this court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the case of the asses see-company was rightly reopened under Section 34(1)(b) of the Indian Income-tax Act, 1922? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 13,157 claimed by the assessee under the Lead 'Rights, Concessions and Privileges' was not allowable under Section 10(2)(xv) of the Indian Income-tax Act, 1922, the same being an item of expenditure of a capital nature ?"
(2.) The facts will appear from the statement of the case. The assessee-company is a public limited company. The assessment year is 1959-60 and the relevant accounting period ends on June 30, 1958. The assessment of the company was completed by the Income-tax Officer under Section 23(3) of the Act by the order dated December 14, 1959. Some time thereafter, a notice under Section 34(1)(b) of the Act was issued by the Income-tax Officer in order to consider certain Items of expenditure debited to the profit and Joss account. One of the items was Rs. 13,157 under the head "Rights, Concessions, Facilities and Privileges". In response to the said notice the assessee-company filed a return. In the course of assessment proceedings the Income-tax Officer asked the assessee-company to give details of the items of Rs, 13,157 written off every year from the amount of rights, concessions, etc., standing in the balance-sheet and to show cause why the claims as made in the profit and loss account be not disallowrd being a portion of the capital expenditure. The assessee-company filed a written reply to the same. It was urged before the Income-tax Officer that the amount of Rs. 13,157 which was written off under items of "rights, concessions and privileges" was in respect of the annual charge for the use of the waters of the river "Wardha" for the purpose of the factory. It was mentioned that the sum of Rs. 13,157 was out of a total sum of Rs. 5 lakhs which was paid to the Government representing in reality commutation of a series of annual payments for the use of the river water for the aforesaid purposes by way of water rate or tax leviable under the Government Irrigation Act, 1931, This was to be an operational expenditure pertaining to the year of account like any other operational expenses and was, according to the submissions, admissible item of a revenue expenditure and was not in the nature of capital expenditure.
(3.) The Income-tax Officer, however, held that the said amount was not exclusively paid for the use of the water and could not be said to be an annual charge with reference to the use of water or services taken in connection with the business of the company. According to the Income-tax Officer the amount was clearly of a capital nature and he disallowed the same.;