Sudhindra Mohan Guha, J. - (1.) This reference under Section 256(1) of the Income-tax Act, 1961, by the Income-tax Tribunal at the instance of the assessee relates to the assessment years 1962-63 and 1963-64, for which the relevant previous years ended on 31st March, 1962, and 31st March, 1963, respectively.
(2.) The assessee-company is engaged in the business of raising and selling coal. The company by an agreement dated October 5, 1959, appointed Selected Satgram Collieries (P.) Ltd. as its raising contractor in respect of its colliery. Under the terms of this agreement this was to remain in force for a period of 15 years. The raising contractor was to be given a flat remuneration at the rates mentioned in the said agreement. The ITO disallowed sums of Rs. 92,500 and Rs. 40,970 in the two years, respectively, on the ground that these amounts spent by the assessee-company were to be borne by the raising contractor who was to reimburse the former.
(3.) The assessee being aggrieved by the order filed an appeal before the AAC. The AAC found that the assessee-company was appointed a raising and selling contractor by M/s. New Beerbhum Coal Co. Ltd. by an agreement dated December 1, 1960, for an area of 1,547.87 bighas. The contract was to remain in force in the first instance for a period of 15 years and it could be terminated thereafter subject to 12 months' notice from either side. Under Clause 3 of the said agreement, the right, title and interest in the properties covered by the contract were to continue to vest entirely in the New Beerbhum Coal Co. Ltd. Under Clause 8 of the agreement, the said M/s. New Beerbhum Coal Ltd. continued to remain responsible for the payment of all rent and royalties, cesses, taxes and any other imposition but all these payments were to be reimbursed by the assessee-company. Clause 16 of the agreement provided that a sum of Rs. 1,54,787 by way of advance profits on coal to be raised from the area covered by the contract was to be paid by the assessee-company by monthly instalments of Rs. 7,500 each. In addition, the company also had to pay what was described as a net profit of 0-8-0 (eight annas) per ton on all coal actually raised from the Disergarh seam subject to a minimum tonnage of 5,000 tons per month and also ten annas per ton on all coal raised from the seams above the Disergarh seam subject to a minimum tonnage of 3,000 tons per month. The second payment was to commence only on the expiry of six months from the date on which the work was actually commenced in the respective seams. According to the agreement, the sums of Rs. 90,000 and Rs, 33,967 were paid in the course of the assessment years 1962-63 and 1963-64 by the assessee-company to M/s. New Beerbhum Coal Co. Ltd. The actual working of the mines, however, started only in June, 1960, and before that there was no raising of coal by the assessee-company from the mines covered under the contract. So, the AAC disallowed the above payments of Rs. 90,000 and Rs. 33,967 in the two years, respectively, on the ground that they were in the nature of capital expenditure which the assessee-company incurred in order to acquire a right to a source of income which was to remain in existence for a period of 15 years. He also noted that this payment was not royalty on the actual coal to be raised, but was in fact calculated on the basis of Rs. 100 per bigha of the area under the contract. It was, accordingly, held by him that this was in the nature of a premium paid for the acquisition of a valuable right and a benefit of enduring nature and as such a capital expenditure.;