Deb J. - (1.) This is a reference tinder Section 66(2) of the Income-tax Act, 1961. It relates to the assessment year 1955-56, the relevant previous year ending on May 31, 1954.
(2.) The assessee was carrying on business in mining and mining leases. In 1941, the assessee took a prospecting licence from the Government of Uttar Pradesh for prospecting marl and incurred an expenditure of Rs. 1,63,832 in prospecting operations in that year. In 1946, the assessee took a mining lease of those lands and developed them by incurring an expenditure of Rs. 1,90,618. The total sum thus spent by the assessee was Rs. 3,54,449 and this amount was shown in its balance-sheet as an asset as on 31st May, 1954. In the meantime, the assessee surrendered the said lease on February 2, 1954, inasmuch as the mining operation was found to be uneconomical and then, in the next year, after writing off this amount, claimed the sum as a business loss in the assessment year under consideration. The Income-tax Officer has disallowed this claim but on appeal, the Appellate Assistant Commissioner, after taking a report, on remand from the Income-tax Officer, has allowed Rs. 1,90,618 and has disallowed Rs. 1,63,832. The Appellate Tribunal has dismissed the second appeal filed by the assessee and has referred the following question to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 1,63,832 spent for prospecting the Uttar Pradesh Marl Concession was not an admissible business expenditure."
(3.) The relevant portion of the order of the Tribunal with which we are concerned is as follows : "The expenses to the extent of Rs. 1,63,832 has been found by the Appellate Assistant Commissioner to be in regard to the prospecting operations. During the period the prospecting licence was current and the operations were being carried on in that respect, it appears to us to be clear that the expenses incurred were in the nature of preliminary expenses. The prospecting licence does not entitle the licencee to win or carry away the mineral of the kind in question for commercial purposes. Having regard to the nature of the prospecting licence and that the expenses to the extent mentioned above were admitted to be in the operation of that licence, we are of the opinion that the conclusion reached by the Appellate Assistant Commissioner that the expenses to this extent were not admissible is correct. It was argued for the assessee that these expenses also were in regard to stock-in-trade but there is no basis for this and the argument cannot be accepted. The claim of the assessee in this behalf has to be rejected.";