CHAKRAVARTTI, C. J. - (1.) THE assessee is a limited company and holds two leases of two mica mines. It appears that originally the leases were obtained by some third party, who may be or may have been connected with the assessee, but at some subsequent date, the leases were acquired by the company itself. THE first lease was granted on the 30th May, 1930, and the second some fourteen years later, on the 22nd Nov., 1944.
(2.) IT appears that the assessee carries on a business of purchase and sale of mica. In the course of its assessment for the asst. yr. 1946-47, it claimed a deduction of Rs. 2,300 which it had paid as minimum royalty during the relevant accounting year, which was the calendar year 1945. This minimum royalty appears to have been paid under one or both of the two mining leases and the case of the assessee was that it was entitled to a deduction of the amount under s. 10 (2)(xv) of the IT Act on the basis that it was expenditure laid out or expended wholly and exclusively for the purpose of its business. The assessee was unable to induce the ITO to allow the deduction claimed. It failed before the AAC also and its second appeal to the Tribunal met with no better sources. Thereafter, it required the Tribunal to refer to this Court a question of law and the following question has been referred : "Whether the sum of Rs. 2,300 paid by the assessee as minimum royalty under the two leases of mica has been rightly held as a capital expense and as such not deductible out of the assessee's income from business." The findings of fact recorded by the Tribunal are as follows. In the first place, the Tribunal has held that the assessee's business of mining mica was entirely distinct and separate from its business of purchase and sale of the same commodity. It has next held that all that was done during the relative year of account was that some prospecting operations had been conducted. It has been held, in the third place, that no raising or sale of mica from the mines in question had taken place during the accounting year in question. On those findings the Tribunal came to the conclusion that the business of raising mica from the two mines and exploiting the minerals contained therein being a distinct and separate business from the purchase and sale of mica and no business activity in connection with the mining of mica having taken place during the accounting year, there was no business to which the payment of the minimum royalty could be related or for the purpose of which the amount in question could be said to have been expended or laid out. It appears to have been argued before the Tribunal that the amount of the royalty was an allowable deduction, because it had been paid in order to safeguard a capital asset, namely, the mining leases. The Tribunal rejected that contention and held that since the business of mining mica had not yet commenced, the payment made to safeguard the capital asset of the mining leases could only be an expense in the nature of a capital expense.
(3.) BEFORE us it was contended on behalf of the assessee that the Tribunal had erred in holding that during the relative accounting year no business activity in connection with mining mica from the two mines concerned had taken place. According to Mr. Mitra, once a lease of a mica mine had been obtained and some step had been taken with a view to extraction of the mineral, a business had been set up and once a business was set up, the assessee was entitled to claim a deduction of the expenses incurred as revenue expenses. In my view, on the facts of this case, the contention of Mr. Mitra is not tenable. It has to be recalled, in the first place, what the basic finding of the Tribunal is. That finding is that the business of the purchase and sale of mica from which the income of the assessee was derived was entirely different from the business, if any, of mining mica from the two leases. If that be so and if there was no income at all from the mining of mica, there would seem to be some initial difficulty in the way of claiming deductions when there was no income. Mr. Mitra, however, contended, it may be rightly, that if he could establish that business activities had commenced and also that the expenses, in respect of which he was claiming deduction, were revenue expenses, he would be entitled to a deduction in respect of such expenses, even though it might be in the form of a loss credited to him which he might be able to carry forward to the next year.;