- (1.) THE Income-tax Appellate Tribunal (Delhi Bench 'a') (hereinafter referred to as "the Tribunal") has drawn up the statement of the case and referred the following question of law to this Court under sec. 256 (1) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for decision : - "whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of Rs 3 lakhs to the Northern Railway was a revenue expenditure and was a deduction allowable under the Income-tax Act, 1961 ?" THE reference has arisen in these circumstances -
(2.) THE Bikaner Gypsums Ltd. , hereinafter referred to as "the assessee", carries on the business of mining minerals. Its predecessor-in-title, the Natural Science (India) Ltd. , acquired a lease from the Maharaja of the erstwhile Bikaner State on September 29, 1948 over an area of 4. 27 square miles, at Jamsar. THE lease agreement is on the record as Annexure B. THE lease was for a period of 20 years and was renewable thereafter. It was assigned to the assessee on December 11, 1948, and the assessee entered into an agreement with the Sindri Fertilizer for the supply of gypsum of a minimum of 83. 5 per cent quality. The assessee's mining area at Jamsar included, inter alia, the Jamsar railway station, the railway track and the railway siding. The assessee was, according to the Tribunal, "restricted from carrying on its mining operations within a distance of 100 yards" from those places. The railway extended its yard into the leased area and the assessee filed a suit in the Court of the District Judge, Bikaner, for ejectment, but without success. The assessee exhausted the possibility of obtaining gypsum of the required degree of purity from the areas where it was entitled to carry on its mining operations without any restrictions, although gypsum deposits of a lower degree were available in those areas. According to the statement of the Tribunal, a large quantity of gypsum of "a high degree of purity acceptable to Sindri Fertilizer lay under the surface of the land covered by the railway station, railway track and the railway yard". The assessee "appealed" to the railway authorities to shift the railway station, railway track and the railway yard from their existing position so that it could, as stated by the Tribunal, "reise gypsum of the required purity to fulfil its contract with the Sindri Fertilizer". It was ultimately agreed between the assessee, the Sindri Fertilizer, the Government of India and the Railway Board that the railway station, the track and the yard would be shifted and the total expenditure of Rs. 12 lakhs thereon would be borne equally by all four of them. The assessee paid Rs. 3 lakhs and the Railway Board released the land to it. The assessee started the mining operations on the released land in March, 1965 and "exhausted gypsum of the required purity therefrom by May, 1967". It raised 6,30,390 tons of gypsum from that area as against the estimated stock of 10 lakh tons. When the question of making an assessment of the income for the assessment year 1964-65 was taken up, the assessee claimed that the expenditure of Rs. 3 lakhs was for removing certain obstructions on its gypsum deposits. The Income-tax Officer held in his order Annexure A that the payment was for acquiring an additional capital asset, and that view was confirmed on appeal by the Appellate Assistant Commissioner's order Annexure dated August 20, 1966. The assessee appealed to the Tribunal which held that it was not a capital payment but a "revenue" expenditure, and was a permissible deduction. The alternative contention of the assessee that the payment was for obtaining stocks of gypsum to be supplied to the Sindri Fertilizer was also upheld. The Commissioner of Income-tax made an application under section 256 (1) of the Act requiring the Tribunal to refer the aforesaid question of law to this Court, and this is how the Tribunal has drawn up the statement of the case and made the reference.
(3.) THE learned counsel for the parties have referred at length to the terms and conditions of the lease agreement Annexure 'b' to show whether the payment of Rs. 3 lakhs was by way of a revenue expenditure. It will however be sufficient for us to say that the duty of finding the facts was essentially on the Tribunal, and it has stated them as follows : - (i) THE "4. 27 Sq. miles of leased mining area at Jamsar included Jamsar railway station, railway track and railway siding". (ii) THE assessee was "under the terms of the lease agreement restricted from carrying on its mining operations within a distance of 100 yards" from the area mentioned in (i) above. (iii) THE assessee had "exhausted gypsum of the required degree of purity from the areas where it was entitled to operate without any restrictions". (iv) "there were gypsum deposits of lower degree of purity in such areas which were however not acceptable to Sindri Fertilizer". (v ) A "large quantity of gypsum of high degree of purity acceptable to Sindri Fertilizer lay under the surface of the land covered by the railway station, railway track and railway yard". (vi) THE assessee "appealed to the railway authorities to shift the railway station, track and yard from its existing position so that it could raise gypsum of the required purity to fulfil its contract with the Sindri Fertilizer". (vii) "ultimately it was decided between the Company, Sindri Fertilizer, Government of India and Railway Board that the railway station, track and yard should be shifted and the expenses to be equally borne by all four of them. . . " (viii) "accordingly, the Railway Board shifted the railway station, track and yard and released the land to the Company" (Emphasis added), (ix) THE assessee "started mining operations in the released land in March 1965 and exhausted gypsum of the required purity therefrom by May 1967" (Emphasis added), (x ) THE assessee "raised 6,30,390 tons of gypsum from the said area against the estimated stock of 10 lakhs tons, during this period". We have to answer the question under reference on these basic facts. It is well settled by the decision of their Lordships of the Supreme Court in R. B. Seth Moolchand Suganchand vs. Commissioner of Income-tax, New Delhi (l) that mining operations stand on a some-what different footing from other business, and a question like the one under reference has to be examined with due regard to that fact. The learned counsel for the parties have cited a number of decisions, some of which deal with the facts applicable to a case like the present. The tests are whether the expenditure was for the acquisition of a business or of rights essential to the carrying on of a business City of London Contract Corporation, Limited vs. Styles (Surveyor of Taxes) (2), whether the assessee was granted any interest in land Mohanlal Hargovind of Jabbulpore vs. Commissioner of Income-tax. C. P. , & Berar, Nagpur (3), whether the expenditure was incurred for initiation of the business The Commissioner of Inland Revenue vs. The Cavan Central Co-operative Agricultural and Dairy Society, Ltd (4), whether the capital was fixed or circulating John Smith & Son vs. Moore (H. M. Inspector of Taxes (5), whether a right was acquired to a source from which the raw material was to be extracted Pingle Industries Ltd. vs. Commissioner of Income-tax, Hyderabad (6), whether any new asset has been created as a result of the expenditure Southern vs. Borax Consolidated Ltd. (7), whether the winning of the mineral depended on uncertain factors Commissioner of Income-tax, Madras vs. Siddareddy Venkatasubba Reddy & Bros. (8), whether payment was to be made even if no mineral was extracted Pingle Industries Ltd. vs. Commissioner of Income-tax, Hyderabad (6), whether the expenditure was going to be made once for all Vallam-brosa Rubber Co , Ltd. , vs. Former (Surveyor of Taxes (9), whether there was no limit to the quantity of the mineral to be extracted Pingle Industries Ltd. vs. Commissioner Income-tax, Hyderabad (6), was the assessee ensuring supplies of raw materials or purchasing them Alianza Company vs. Bell (10), and Mohanlal Hargovind of Jabbulpore vs. Commissioner of Income-tax, C. P. and Berar, Nagpur (3), whether the mineral in situ was the assessee's stock in-trade Stow Bardolph Gravel Co. , Ltd. vs. Poole (H. M. Inspector of Taxes (11), whether the asset or advantage acquired by the assessee was for the enduring benefit of the trade Atherton (H. M. Inspector of Taxes) vs. British Insulated and Helsby Cables Limited (12), and whether the money had been laid out as a trader and was directly and intimately connected with his business and not by way of owning assets Travancore Titanium Product Ltd. vs. Commissioner of Income-tax, Kerala (13), etc. ;