- (1.) THIS is a reference by a Division Bench in what was a reference to that Bench under Section 66-A of the Income-tax Act, 1922.
(2.) THE material facts leading up to this Reference may be shortly stated as follows :-
(3.) THE assessee is a firm called 'ramlal Kachhawa and Sons, Banner', otherwise also known as 'ramlal and Sons'. It was assessed for income-tax for the year 1952-53, the corresponding accounting year having ended on 31st of March, 1952. The question before us arises Out of the firm's new business of mica mining in mandol in Udaipur Division. The State Government invited tender for fresh leases of a certain area of mica-bearing tract in Udaipur and Bhilwara Districts as per notice No. 9453 dated 29th March, 1950 (Annexure 'a') in accordance with the mineral Concession Rules, 1949, subject to certain modifications mentioned therein. Prospective applicants were advised that the mines, quarries and prospective pits had acquired a value which can be determined by the principles of 'mine Valuation' and that the intending applicants should visit the area and assign their own value and tender for the same under 'a sealed cover'. It was also mentioned therein that the amount so offered will be one of the factors on which selection of the lessees will be made, the other factors specified being -experience in mining, proved competence and sound financial position, though these qualifications were not insisted on in the case of displaced persons with which class of case we are not concerned. The whole area having been divided into certain blocks in three separate parts which were called 'a', 'b' and 'c', it was notified that for. these areas falling in Part 'a', a dead rent of Rs. 8/ -. per acre will be charged,, white of areas in Part 'b' and 'c'' like rent of. Rs. 3/- and Rs. 5/- per acre will be charged respectively. It was also made clear that annual dead rent would be payable from the second year of the lease in four quarterly instalments, except, where the Government should direct otherwise far special reasons, and all instalments would be required to be paid in advance. Two other provisions contained in the notice to which it is necessary, to draw attention are, first, that the rate of royalty was to be 10% of the sale value of mica at pit's mouth and a formula for calculating it was laid down but into the details of which it is not necessary to enter for the purpose of the present reference, and secondly that the period of the lease was to be 20 years with option of renewal for another 20 years as per conditions prescribed in the Mineral concession Rules, 1949. In pursuance, of this notice the assessee firm made a tender for Block No. 6 in Part 'a' and offered its tender, the tender price, being Rs. 1,55,000/ -. By its letter No. 12406, dated 3oth of December, 1950, (Annexure 'b'), the Government of Rajasthan accepted this tender by which a lease for period of 20 years with option of renewal for another 20 years as per conditions prescribed in the Mineral Concession Rules, 1949, was granted to the assessee firm for the aforesaid area subject only to such variations as were contained in the letter of acceptance. It may be pointed out in this connection that the rate of royalty was reduced from 10%, as specified in the tender notice to 5% only A formal lease agreement was required to be en-tered into between the parties but admittedly that does not appear to haye been done until the 30th of March, 1954. It is also admitted that the assessee firm had worked the mines in the accounting year ended on the 31st of March, 1952. Consequently it claimed to deduct the entire sum of Rs. 1,55,000/- from the income accruing during that year. The Income-tax Officer, however, rejected this claim on the ground that it was clearly of a capital nature. The assessee then went in appeal to the Appellate Assistant Commissioner. The aforesaid contention was reagitated before him, and, in the alternative, it was contended that as the period of lease was 20 years certain, at least 1/20th of the value should be allowed as revenue expenditure for the year in question. The appellate Assistant Commissioner rejected this claim on the ground that the said expenditure was incurred to acquire an "advantage for the enduring benefit of trade" and therefore it could nob but be treated as capital expenditure. Aggrieved by this decision, the assessee went in further ap-peal to the Income-tax Appellate tribunal, Bombay Bench 'c'. The contentions which we have set out above and which were raised before the Appellate Assistant Commissioner were not pressed before the Tribunal but an altogether new contention was raised before it, and that contentions was that as no dead rent was payable by the assessee for the first year, a certain element of rent was necessarily included in the payment of Rs. 1,55,000/-/- which was to be made by the assessee under the terms of the lease. This plea was resisted on behalf of the Depart-ment and it was submitted that the payment in question was of a capital nature and could not be dissected in the manner sought for by the assessee. This objection was, however, ruled out, and the Tribunal held that as three payments were to be made under the agreement, and one of them was in connection with the rent and no provision therefore had been made for the first year, it would be reasonable to hold that a reasonable portion of it was rent, and having regard to the rent which was paid by the assessee for the next following year, the Tribunal further came to the conclusion that the portion ascribable to rent in the sum of Rs. 1,55,000/- may reasonably be fixed at Rs. 25,000/ -. Thereafter the Commissioner of Income-tax required the tribunal to refer the following question of law to the High Court :- "whether on the facts and in the circumstances of the case and on a proper construction of the lease deed, the Income-tax Appellate Tribunal was right in holding that a slim of Rs. 25,000/- is ascribable to rent for the first year out of the sum of Rs. 1,55,000/- paid by the assessee as tender money?" The Tribunal, however, observed that the real pioint of the reference was not whether the sum of Rs. 25,000/- could be ascribed to rent, but whether any portion of the sum of Rs. 1,55,000/- could be ascribed to rent, i. e. , dead rent for the first year, and on this view of the matter referred the question, and it is this question that has been referred to us : "whether on a true construction of the notice dated 29th March, 1950, and the letter of acceptance dated December 30, 1950, any portion of the sum of Rs. 1,55,000/- can be considered as dead rent payable for the first year of mica mining lease?" The Tribunal further observed that it was common ground between the parties that if the sum of Rs. 1,55,000/- included any element of dead rent, then that element would be an item of 'reve-nue expenditure'.;