S.K.MAL LODHA, J. - (1.) THE Income Tax Appellate Tribunal Delhi Bench, (here in after referred to as the Tribunal) has referred the following question arising from the order of the Tribunal in ITA No. 2583 of 1966 -67: Whether en the facts and in the circumstances of the case the Tribunal was right in holding that the expenditure of Rs. 91,185/ - is deductible as a revenue expenditure? The assessee -respondent is M/s National Tractors, Jodhpur. The assessment year in question is 1962 -63. One R. Gangadharappa obtained a lease measuring 450,85 acres together with mines from the Government of Mysore on April 5, 1952. It was for the purpose of obtaining and removing iron -ore and other permissible minerals from the mine situate at Jambunathanaballi in Hoppet Taluka for a period of 30 years commencing from April 5, 1952. The said R. Gangadhrappa obtained necessary mining lease and also permission to work the (sic) in the said area and to extract the minerals specified in the mining lease granted to him by the Mysore Government on April 5, 1952. R. Gangadharappa entered into an agreement on May 30, 1960 with the assessee -respondent for a period often years by virtue of which the assessee was put in possession of the mining area, which he was permitted to use the said land in furtherance of the mining purposes. It was authorised to sink, dive and make such pits, shafts, drifts, tunnels, ropeways, water courses and trenches whether upon or below the surface of the said land and/or execute any work necessary for ventilation of or draining the mine. The assessee was also authorised to make and erect roads, railways, buildings and machinery and other conveyances as may be required for working the mine. The material clauses in the agreement dated May 30, 1960, are Clauses (3), (10) and (23).
(2.) CLAUSES (3), (10) and (23) are reproduced herein below: (3) The contractor will have the power and authority to make and erect roads, railways, building & machinery and other conveyances as may be required for working of the mine. (10) The Contractor shall take all necessary measures for the safety and to keep the buildings and other works in good repair and shall conform to and observe all the provisions of the Mines and Mineral (Regulation and Development) Act III of 1948 and rules and regulations made thereunder or any other enactments and statutory rules for the time being in force so far as they relate to the working of mines and raising of minerals. (23) The Mine Owner hereby agrees that the raising Contractor cum Selling Agents shall receive and keep the full proceeds from sale of iron ore raised by them under this contract for having: (a) Paid the royalty on behalf of the Mine Owner. (b) Improved the Roads. (c) Developed the Mines. (d) Arranged the required transport from the Mine head to Stations or direct to ports as the case may be. (e) Paid the sum of Rs. 15,500/ - to the Mine Owner for the cost of upto Rs. 25,000/ - tons of Iron Ore as per year. (f) Assure the Mine Owner of Payments as set out in clauses twelve and Ninteen and (g) Paid the cost of Mining. The assessee closed its account for the first year on November 15,1960. It did not spend any money on the existing Kuchha roads joining the minehead with the main road and the railway station. In the assessment year 1962 -63 (relevant previous year ending on November 15, 1961), the assessee spent Rs. 91,185/ - for covering the Kuchha unmetalled road into a metalled road. The details pertaining to Rs. 19,185/ - are as follows: (1) Rs. 4725/ - in respect of construction of culverts. (2) Rs. 5,130/ - in respect of excavation of catch drain. (3) Rs. 81,330/ - in respect of conversion of Kuchha road into metalled road. The assessee entered the above expenditure in its books as deferred revenue expenditure and debited 1/10 of the total expenditure to the profit and loss Account. The assessee claimed the dedication of the entire expenditure of Rs. 91,185/ - in the computation of income for the year 1962 -61. The Income Tax Officer rejected the claim petition on the ground that the expenditure was of a capital nature. On appeal, the Appellate Assistant Commissioner, opined that the amount spent was on conversion of the Kuchha road into a metalled road and for making culverts and excavating catch drains wherever necessary and took the view that by so doing an asset or advantage of an enduring nature had been brought into existence. He, accordingly, affirmed the order of the ITO. Further appeal was filed before the Tribunal. The learned Accountant Member of the Tribunal examined Section 30(a)(ii) of the Income Tax Act, 1961 (Act No. XLIII of 1961) (which will here in after for the sake of brevity be referred to as 'the Act')., and CIT, Delhi v. S.B. Ranjit Singh , Regal theatre v. CIT Delhi (1966) 59 I.T.R. 49, Gotan Line Syndicate v. CIT : [1966]59ITR718(SC) and Hols by Cables Ltd. v. Atherton 10 Tax Cases 155. He also considered Humayan Properties Ltd. v. CIT (5) and CIT v. Mahalukshmi Textiles Mills Ltd. (1956) 56 I.T.R. 256, which were cited on behalf of the Revenue. He upheld the findings of the Revenue authorities that the amount spent by the assessee over the construction of the roads etc. did not amount to repair, that the construction of the roads etc. brought into existence and asset or advantage of an enduring benefit to the assessee's business and, therefore, the item was rightly disallowed as an item of revenue expenditure. The addition was, therefore, upheld by him. The Judicial Member of the Tribunal, however, did not agree with the learned Accountant Member. He held that the expenditure had been incurred in repairing the roads and as it is the assessee firm's liability to do so under the term of the agreement dated May 30, 1960, the expenses would be a permissible deduction under Section 31(1) or Section 30(a)(i). He, therefore, held that the expenditure was of revenue nature and should be allowed as deduction. It would thus be abundantly clear that there was a difference of opinion between the learned Accountant Member and the learned Judicial Member. Under Section 255(4) of the Act, the following point was referred to the third Member: Whether the sum of Rs. 91,185/ - or part thereof is an item of capital expenditure or revenue expenditure? Before the learned Third Member, on behalf of the assessee Commr. of Inc. Tax v. Gajjanand Govind Ram 28 I.T.R. 499, Commr. of Inc. Tax v. Hindustan Motors Ltd. 68 I.T.R. 301, Commr. of Income Tax v. Royal Calcutta Taurf Club 41 I.T.R. 414, were relied on by the assessee. It was pressed by the assessee that the view taken by the learned Judicial Member is correct. On the other hand, the Departmental Representative relied on Lupton Inspector of Tax v. F.A. and A.B. Ltd. 55 I.T.R. 544 and Asian Tool and Plastic Co. v. Commr. of Income Tax Calcutta 75 I.T.R. 392, and canvassed that the opinion expressed by the Accountant Member is justified. Shri N.M. Jhala, Third Member, expressed his agreement with the Judicial Member holding that the expenditure was allowable as expenditure on current repairs. The Tribunal by its order dated November 3,1969, conforming with the majority opinion held that the sum of Rs. 91,185/ - represented revenue expenditure and is allowable as a deduction in the assessment, The Tribunal has, thus referred the aforesaid question for our opinion arising out of its order. We have heard Mr. J.P. Joshi, learned Counsel for the Revenue and Mr. H.P. Cupta, learned Counsel for the assessees respondent.
(3.) WE may first consider the relevant provisions of the Act.;