Dipak Kumar Sen, J. - (1.) This reference arises out of the assessment of Amalgamated Jambad Syndicate Pvt. Ltd. for the assessment years 1958-59, 1959-60 and 1960-61. The facts found as appearing from the statement of the case and the annexures thereto may be briefly narrated as follows : The Amalgamated Jambad Syndicate Pvt. Ltd., the assessee, ran a colliery. For the assessment years in question the assessee claimed deductions of three sums, respectively, of Rs. 82,830, Rs. 1,96,012 and Rs. 2,01,104 on account of expenses incurred for removal of overburden. The assessee claimed that the said expenses were of a revenue nature and, therefore, the assessee was entitled to claim deduction for the said sums.
(2.) At the assessment the ITO was informed that the process of removal of overburden was a continuous process and was likely to increase from year to year on account of the seam being deeper with the advancement of mining operations. The ITO considered the cases where shafts were sunk in mines through which coal surface was reached. In such cases, the expenditure was considered to be in the nature of capital expenditure. On analogy, the ITO came to the conclusion that the removal of overburden in a restricted area was in the nature of sinking of a shaft and should be deemed to be sinking a number of pits or shafts for the purpose of reaching the surface of the coal. The ITO considered the principles laid down in the English decisions in the cases of Coltness Iron Co. v. Black [1881] 1 TC 287 (HL), Morant v. Wheat Grenville Mining Company [1894] 3 TC 298 (QB) and In re Addie & Sons [1875] 1 TC 1 and came to the conclusion that the entire cost of removal of overburden represented capital expenditure. He disallowed the deductions claimed.
(3.) From the assessments, the assessee preferred appeals to the AAC. In his consolidated order disposing of the three appeals in respect of the said three assessment years, the AAC noted that the ITO had compared the removal of overburden with the sinking of pits or shafts. He found that in a quarry only the coal in the portion where the over burden was removed could be raised unlike a pit or shaft through which different parts of the seam could be worked. He also found that in the instant case the coal seam was not parallel to the ground surface but was inclined at an angle and, consequently, with the progress of mining, the expenditure of removing overburden would go on increasing. He held that the ITO was not right in holding that by removal of overburden the appellant would have an enduring advantage for a number of years and came to the conclusion that removal of overburden was not an expenditure to get at the coal surface but was an expenditure which necessarily had to be incurred for the purpose of raising coal. On the basis as above, he held that such expenditure for the said three assessment years were allowable deductions.;