LexR. B. SETH MOOLCHAND SUGANCHAND versus THE COMMISSIONER OF INCOME-TAX, DELHI
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360 R. B. SETH MOOLCHAND SUGANCHAND v. THE COMMISSIONER OF INCOME-TAX, DELHI September 19, 1972 [P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.) Income tax Act (11 of 1922) s. 10 (2) (xv)-Amount paid for lease of mica mine already worked and /et for prospecting licence-Capital or .J~eve1u1e expenditure-TestJ. The assessee, a firm carrying on mining business, took on lease for 20 years certain areas which bad been worked previously by others, aull in which mica pillars had been exposed by those earlier minln• operations. Mica scrap was also lying on the surface. The assessee paid a sum of money, part di which was towards the- mica s~rap lying on the surface. The assessee also paid at Re. 1/- per acre per year as fee for prospecting Jicence. The assessee claimed the I/20th part of the money paid for the lease as well as the fee paid for the prospecting licence as revenue expen- diture for purposes of income tax. The Tribunal allowed the money paid for the mica scrap lying on the surface as revenue expenditure, but dis- .allowed. the other claims. The High Court also, on reference, held agz.i"'t the assessee (appellant). Dismissing the appeal to this Court, HELD : The expenditure incurred for the lease, as well as the f<c paid for the prospecting licence, were not allowable as revenue expenditure. [3~2G-H; 371Ci (I) The test for ascertaining whether the amount spent for the lease 8 c D js of a capital nature, is whether it was spent for obtaining a right of an .enduring character, whcih, in the case of mining lease is to acquire E rights over land for winning the mineral. Io other words, where the mineral is part of the land and some mining operations have lo ·be performed to extract it from the earth, the amount paid to acquire a right over, or in the land, to win that mineral, is of an endur- ing character, and hence, a capital expenditure. But where the mineral haa already been gotten and is on the surface, then the expenditure incurred for obtaining the right to acquire the raw material, that is, the mineral F would be a revenue expenditure laid out for the acquisition of a stock-in- 1rade. [36SA-B; 3680-HJ In the present case, the findings of the Tribunal are clear and consis- tent with those given by the Income-tax Officer and the Appellate Assistant Commissioner, in that, all of them distinguished between the raw-materials which had already been extracted and brought to the surface, and thoso that are still to be extracted. The mica pillars which had been exposed by the earlier mining operations had enhanced the value of the right which was leased to the appellant, but none the less, the appellant still had to -carry out some mining operations to extract the mineral from the pillars which were embedded in the land. The le"8e was for a long period and it conferred a right to excavate the mica. The amount paid was therefore for acquiring a right of an enduring nature toeextract and remove the mica, to bring it to the surface, grade it, and pay royalty to the Govern· meat in accordance with the quality of each grade of mica extracted. [368C-D, H; 369A-C; 370B-Di P;ng/.e Jn .. iustries Ltd. v. Con1111issioner of Jnconre-tax Hyderabad. Ml I.T.R. 67, followed. G H A (. n c D E f G ~ ~- H MOOLCHAND v. C.I.T. (Jaganmohan Reddy, J.) - 36.1. .Arther/en v. British Jnsu/aJ?d and He/sby Cables Ltd. [19161 A.C. 205, 213, Kauri Timber Co. Ltd. v, Commissioner of Taxes, [1913] A.C. 771, Golden Horse Shoe (New) Ltd. v:-Thurgood (H.M. Inspector of Taxes), . I 8T.C._ 280, Abdul ayoom v. Commissioner of Income Tax, 64 ITR 689 at 703, Mohan/al Hargovind v. C.l.T., 17 I.T.R. 473 and M.A. Jabbar Y .. Commissioner of Income Tax, 68 J.T.R. 493, referred to. -· (2) The term 'prospecting licence' shows that the mine has riot yet started working as a mine. The finding by the authorities and· the Tribu- nal that the fee paid for the prospect;ng licence was a payment for initiat- ing the mining operatiOns was a finding of a fact. It was, in- fact, a fee paid irrespective of the quantity of- minerals obtained sho\ving that the object Of the payment was to initiate the business. The period for \vhich the licence was·obtained, namely one year, does not also make it a revenu:! payment. The 'fee paid to obtain -the licence to carry out, investigate, search· and find· the mineral with the object- of conducting the business of cx"tracting ore from the earth, is a
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