BIKANER GYPSUMS LTD. versus COMMISSIONER OF INCOME TAX, RAJASTHAN

Citation: [1990] SUPP. 2 S.C.R. 313 · Decided: 23-10-1990 · Supreme Court of India · Bench: K.N. SINGH · Disposal: Appeal(s) allowed

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Judgment (excerpt)

BIKANER GYPSUMS LTD. 
v. 
COMMISSIONER OF INCOME TAX, RAJASTHAN 
OCTOBER 23, 1990 
A 
[K.N. SINGH, K.N. SAIKIA AND KULDIP SINGH, JJ.] 
B 
Income Tax Act 1922/Jncome Tax Act 1961-Section 10(2)(xv)/ 
Section 37( ])-Capital or revenue expenditure-Determination of in 
the case of mining leases-FacJors to be considered-What are. 
The appellant-assessee carried on the business of mining gypsum. 
The predecessor-in-interest of the' assessee acquired a lease from the 
Maharaja of one of the erstwhile princely State on September 29, 1948 
for mining of gypsum for a period of 20 years over an area of 4.27 
square miles in the State. The lease was liable to be renewed after the 
expiry of 20 years. By a deed of assignment dated December 11, 1948 
the rights under the lease were assigned to the assessee company, in 
which the State Government owned 45% shares. 
The assessee entered into an agreement with a Government of 
India Public Undertaking for the supply of gypsum of minimum of 
83.5% quality. Under the lease, the assessee was conferred the liberties 
and powers to enter upon the entire leased land and to search for win, 
work, get, raise, convert and carry away the gypsum for its own 
benefits in the most economic convenient and beneficial manner and to 
treat the same by calcinatioo and other processes. The lease agreement 
consisted of several parts and each part contained several clauses. 
Clause 3 of part in prescribed restrictions on mining operatfon within 
100 yards from any railway, reservoir, canal or other public works. 
This clause had beeil incorporated in the lease to PJ'Olect the railway 
track and railway station which was situated within the area deiiilsed 
to the lessee. 
The assessee exclusively carried on the mining of gypsum in the 
entire area demised to it. The Railway Authorities extended the railway 
area by laying down fresh track, providing for railway siding and 
fOrther constructed· quarters in the leased area without the permission 
of the assessee. 
The assessee company filed a civil suit for ejecting the railways 
from the encroached area but it failed in the suit. 
313 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
G 
314 
SUPREME COURT REPORTS 
[ 1990] Supp. 2 S.C.R. 
As the assessee company on research and snrvey found that under 
the railway area a high quality of gypsum was available, which was 
required as raw material by the Public Sector Company, all the parties 
(Public Sector Company, the Railway Board and the assessee company) 
negotiated the matter, the Railway Board agreeing to shift the railway 
station, track and yards to an alternative area offered by the assessee, 
the parties equally bearing the cost of the shilling. 
Under the aforesaid agreement, the assessee company paid a snm 
of Rs.3 lakbs as its share towards the cost of shifting of the Railway 
Station and other constructions, and claimed deduction of the said snm 
for the assessment year 1964-65. The Income Tax Officer rejected the 
assessee's claim on the ground that it was a capital expenditure. The 
order was confirmed on appeal by the Appellate ~tan! Commissioner. 
On appeal by the assessee, the Income Tax Appellate Tribunal 
held thilt the payment of Rs.3 lakhs by the assessee company was not a 
capital expenditure, but a revenue expenditure. The Tribunal referred 
the question to the High Court under section 256 of the Income Tax Act, 
1961, on an application by the revenue, which held that since on pay-
ment of Rs.3 lakhs to the Railways the assessee acquired a new asset 
which was attributable to capital of enduring nature, the sum of Rs.3 
lakhs was a capital expenditure and it could not be a revenue ex-
penditure. 
In the appeal to this Court on the question whether the payment 
of Rs.3 lakbs to the Northern Railway was a revenue expenditure and 
was a deduction allowable under the Income Tax Act, 1961. 
, Allowing the appeal, this Court, 
HELD: l(a) Where the assessee has an existing right to carry on a 
business, any expenditure made by it during the course of business for 
the purpose of removal of any restriction or obstruction or disability 
would be on revenue account, provided the expenditure does not 
acquire any capital asset. [326A] 
(b) Payments made for removal of restriction, obstruction or dis-
ability may resnlt in acquiring benefits to the business, bot that by itself 
would not acquire any capital asset. [326B] 
Gotan Lime Syndicate v. C./. T., Rajasthan & Delhi, [1966) 59 
H 
ITR 718; M.A. Jabbar v

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