# 5 96 M/S. GOTAN LIME SYNDICATE v. COMMISSIONER OF INCOME-TAX, DELHI AND RAJASTHAN

- **Citation:** [1966] 2 S.C.R. 596
- **Court:** Supreme Court of India
- **Decided:** 1965-11-15
- **Bench:** K. SUBBA R.Ao, J. C. Shah, S. M. S!Kr!
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/5-96-m-s-gotan-lime-syndicate-v-commissioner-of-income-tax-delhi-and-rajasthan-3721
- **Pages:** 11

## Headnote

Income-tax-Royalty paid for nzining lease-Capital or Revenue
penditure-Tests.
• A
•
•
•
ll
...
exThe appellant was a registered firn1 carrying on the. business of manu-
•
facturing lime from lime-stone.
By an indenture dated March 4, 1949,
it was granted by the Government of Rajasthan the right to excavate limeC
stone in a certain area, subject to certain conditions.
The lease expired
on July 14, 1952. The lease was extended from time to time by the
Government for short periods.
While working out a new scheme for
leasing out lime-stone quarrie.s the Government sanctioned the leasing
out of 15 sq. miles of lime deposits to the appellant.
Till the new lease
was given effect to the appellant agreed to pay Rs. 96,000 per year to
the Government as royalty.
For each of the assessn1cnt years 1954-55,
1955-56 and 1956-57 the assessee' paid a sum of Rs. 96.000 to
the
D
Government and claimed it as a deduction against its profits for
those
years.
The Income-tax Officer disallowed this expenditure as being of
a capital nature.
On reference the High Court also upheld that view.
•
In appeal to the Supreme Court it was conlendcd on behalf of the
appellant that under the Rajasthan Mineral Concession Rules and the
arrangement with the Government the appellant did not get exclusive
possession of the mines as such; what he got was a right to get lime for
E
manufacturing and the payment had direct relation to the amount of
lime removed by the appellant.
HELD : Under the arrangement read with the Rajasthan Mineral
Concession Rules, 1955. the assessee was certainly entitled to go upon
the land and had some rights to build premises for the purpo'5e of mining
the lime.
But it ~'as also clear that the assessee could not carry a\vay
any other mineral which might be found on the mine and further he
F
was obliged to allow other lessees of other minerals to go on the land
and win their minerals.
[603 B-D]
Thei royalty payment by the assessee in the present case was not a
direct payment for securing an enduring advantage; it had relation to
the raw material to be obtained.
No material had been placed on the
record to show that any part of the royalty must, in view of the circu1nstances .of the case be treated as permium and be referable to the acquisiG
tion of 'the mining lease. (605 E-G]
The yearly payment of Rs. 96.000 must therefore be treated as revenue expenditure.
[605 HJ
lf. R. Rorke Ltd. v. Co1nn1is:rioner of Inland Rerenue, 39 T.C.
194. Ogden v. Medway Cine111as Ltd., 18 T.C. 691 and Allenza Con1pany
v. Bell. [1904] LR. 2 K.B. 666. relied on.
H
Abdul Kayoom v. Conunissioner of !nco1ne-tax, 44 I.T.R. 689 and
PinRI.'.!
Industries
Ltd. v. Con11nissio11er
of Inco,11e-tax, 40 I.T.R. 67,
distinguished.
•
•
•
•
•
'
GOTAN LIME V. C.J.T. (Sikri, J.)
597
A
As.~ani Bengc1l Ce111ent Co. Ltd. v. Co111111issioner of lncon1e-tax, 27
I.T.k. .l4 and
Bri1isf1 Insulated and He/shy Cables Ltd. v. Atherton, 10
T.C. 155, referred to .
CIVIL APPELLATE JuRISDICT!ON : Civil Appeals Nos.
692
to 694 of 1964.
B
Appeal from the judgment and order dated October 9, 1963
of the Rajasthan High Court in D. B. Civjl Income-tax Reference
No. 73 of 1961.
N. A. Palkhivala, T. A. Ramachandran and J. B. Dadachanji for the appellant.
C
C. K. Daphtary, Attorney-General, S. T. Desai, R. GanaD
pathy Iyer, R. N. Sachthey and B. R. G. K. Achar, for the respondent.
A. V. Viswanatha Sastri, J. B. Dadachanji, for interveners
Nos. 1 and 2.
M. M. Tiwari, S. S. Khanduja and Ganpat Rai,. for Intervener
No. 3.
The Juugment of the Court was delivered by
Sikri, J. These three appeals are directed against the judgE
ment of the Ra jasthan High Court in a consolidated reference
made to it by the Income Tax Appellate Tribunal, Bombay .
Branch, under s. 66 (1) of the Indian Income Tax Act,
1922
(hereinafter referred to as the Act). The question referred to by
the Appeilate Tribunal :s as follows :
F
"whether on the facts and in the circumotances of
the case the sum of Rs. 96,000 paid by the assessee
durin

## Text

5 96
M/S. GOTAN LIME SYNDICATE
v.
COMMISSIONER OF INCOME-TAX, DELHI AND
RAJASTHAN.
November 15, 1965
[K. SUBBA R.Ao, J. C. SHAH AND S. M. S!KR!, JJ.]
Income-tax-Royalty paid for nzining lease-Capital or Revenue
penditure-Tests.
• A
•
•
•
ll
...
exThe appellant was a registered firn1 carrying on the. business of manu-
•
facturing lime from lime-stone.
By an indenture dated March 4, 1949,
it was granted by the Government of Rajasthan the right to excavate limeC
stone in a certain area, subject to certain conditions.
The lease expired
on July 14, 1952. The lease was extended from time to time by the
Government for short periods.
While working out a new scheme for
leasing out lime-stone quarrie.s the Government sanctioned the leasing
out of 15 sq. miles of lime deposits to the appellant.
Till the new lease
was given effect to the appellant agreed to pay Rs. 96,000 per year to
the Government as royalty.
For each of the assessn1cnt years 1954-55,
1955-56 and 1956-57 the assessee' paid a sum of Rs. 96.000 to
the
D
Government and claimed it as a deduction against its profits for
those
years.
The Income-tax Officer disallowed this expenditure as being of
a capital nature.
On reference the High Court also upheld that view.
•
In appeal to the Supreme Court it was conlendcd on behalf of the
appellant that under the Rajasthan Mineral Concession Rules and the
arrangement with the Government the appellant did not get exclusive
possession of the mines as such; what he got was a right to get lime for
E
manufacturing and the payment had direct relation to the amount of
lime removed by the appellant.
HELD : Under the arrangement read with the Rajasthan Mineral
Concession Rules, 1955. the assessee was certainly entitled to go upon
the land and had some rights to build premises for the purpo'5e of mining
the lime.
But it ~'as also clear that the assessee could not carry a\vay
any other mineral which might be found on the mine and further he
F
was obliged to allow other lessees of other minerals to go on the land
and win their minerals.
[603 B-D]
Thei royalty payment by the assessee in the present case was not a
direct payment for securing an enduring advantage; it had relation to
the raw material to be obtained.
No material had been placed on the
record to show that any part of the royalty must, in view of the circu1nstances .of the case be treated as permium and be referable to the acquisiG
tion of 'the mining lease. (605 E-G]
The yearly payment of Rs. 96.000 must therefore be treated as revenue expenditure.
[605 HJ
lf. R. Rorke Ltd. v. Co1nn1is:rioner of Inland Rerenue, 39 T.C.
194. Ogden v. Medway Cine111as Ltd., 18 T.C. 691 and Allenza Con1pany
v. Bell. [1904] LR. 2 K.B. 666. relied on.
H
Abdul Kayoom v. Conunissioner of !nco1ne-tax, 44 I.T.R. 689 and
PinRI.'.!
Industries
Ltd. v. Con11nissio11er
of Inco,11e-tax, 40 I.T.R. 67,
distinguished.
•
•
•
•
•
'
GOTAN LIME V. C.J.T. (Sikri, J.)
597
A
As.~ani Bengc1l Ce111ent Co. Ltd. v. Co111111issioner of lncon1e-tax, 27
I.T.k. .l4 and
Bri1isf1 Insulated and He/shy Cables Ltd. v. Atherton, 10
T.C. 155, referred to .
CIVIL APPELLATE JuRISDICT!ON : Civil Appeals Nos.
692
to 694 of 1964.
B
Appeal from the judgment and order dated October 9, 1963
of the Rajasthan High Court in D. B. Civjl Income-tax Reference
No. 73 of 1961.
N. A. Palkhivala, T. A. Ramachandran and J. B. Dadachanji for the appellant.
C
C. K. Daphtary, Attorney-General, S. T. Desai, R. GanaD
pathy Iyer, R. N. Sachthey and B. R. G. K. Achar, for the respondent.
A. V. Viswanatha Sastri, J. B. Dadachanji, for interveners
Nos. 1 and 2.
M. M. Tiwari, S. S. Khanduja and Ganpat Rai,. for Intervener
No. 3.
The Juugment of the Court was delivered by
Sikri, J. These three appeals are directed against the judgE
ment of the Ra jasthan High Court in a consolidated reference
made to it by the Income Tax Appellate Tribunal, Bombay .
Branch, under s. 66 (1) of the Indian Income Tax Act,
1922
(hereinafter referred to as the Act). The question referred to by
the Appeilate Tribunal :s as follows :
F
"whether on the facts and in the circumotances of
the case the sum of Rs. 96,000 paid by the assessee
during each of the relevant
acc~unting years
was
rightly allowed as a revenue deduction in computing
the business profits of the assessee company."
G
The reference arose out of the following facts : Tlie appellant, M/s Gotan Lime Syndicate, hereinafter referred to as the
assessee, is a registered firm and carries on the bminess of manufacturing lime from lime-stone. By an indenture dated March 4,
1949, the assessee was granted the right to excavate lime-stone in
certain area at Gotan and Tunkaliyan, subject to certain condiH
tions.
It is not necessary to detail the conditions contained in
this indenture except that the lease exp:red on July 14, 1952.
The lease was extended from time to time by the Government
L3 Sup. CI/66-8
598
SUPREME
COURT
REPORTS
(1966] 2 S.C.R.
for short periods.
The last letter dated December 17, 1952, A
extending the lease was in the following terms :
"In continuation to this office letter cited above,
Government have been pleased to convey extension up
to the 31st March, 1953, or till the finalisation of the
proposals for leasing out the area whichever may be
shorter, with the clear understanding that you will have
to vacate the area, when you may be asked to do so,
and will have no claim whatsoever over the area after
it."
By Jetter dated December 1, 1953, the Government intimated to
B
the Director of Mines and Geology, Rajasthan, Udaipur, that the C
Government had adopted a new policy for leasing out lime-stone
quarries.
The proposal was to divide the lime-stone quarries in
Jodhpur Division in blocks of 5 sq. miles each and the dead rent
was to be charged at Rs. 10/- per acre while royalty was to be
charged at Re. -/1/- per md. of lime-stone. It was further contemplated that the period of lease will be for five years with
D
option to renewal for another five years, and the minimum area
to be granted to each party would be 10 sq. miles and maximum
30 sq. miles and the other terms and conditions would be generally the same as were in practice in such cases. But as it was
necessary to give legal form to these proposals, the Director of
Mines and Geology was directed to frame rules on the lines of E
the Mineral Concession Rules. It appears that on October 4,
1954, the Government sanctioned the leasing out of 15 sq. miles
of lime deposits to the assessee.
The Government in this letter
further stated as follows :
"2. As regards the payment of arrears by Mis
f
Gotan Lime Syndicate for the period between 30-7-52,
and the date the new lease is given effect to, it has
been decided that they may pay @
Rs. 96,000/-
(Rupees Ninety six thousand) per year which ha& also
been agreed to by them before the Chief Minister
(Industries) on the basis of dead rent nnder the new
G
proposals for 15 sq. miles at Rs. 10/- per acre.
3. Lease agreement may be got executed by them
at an early date and the arrears recovered.
4. The new rules may
be incorporated m the
Mines Mineral Concession Rules for Rajasthan."
It further appears that the assessee never executed any lease
but continued to work the lime deposits and the payments to be
H
•
•
' •.
; ..
·
..
GOTAN LIME V. C.!.T. (Sikri, J.)
599
A made were finalised by letter dated November 30, 1959 from the
Mining Engineer, Jodhpur, to the assesee. The Mining Engineer
stated in this letter as follows :
B
c
D
"On checking the figures of export of lime stone,
limekali and lime kachra for the settlement of royalty,
the figures of royalty amount payable in the following
years is as under :-
From !st April
to 31st March
Year
Export figures
Rs.
Amount
as. p.
1953-54
1954-55
1955-56
1956-57
1957-58
1958-59
13511 tons
133u8 tons
l81J33 tons
18382 tons
614946 rods
604498 rods
30,553
27,965
37,332
37,740
49,162
43,673
At the end of each financial year the accrued royalty
amount is far less actually and as such as per agreement
royalty payable is Rs. 96,000 I· in all the years above
written.
The royalty for each of these years was settled after
the end of each year i.e. in the subsequent year."
10 6
11 6
90
0 6
14 6
IS 0
At this stage it would be convenient to mention the !erms on
E
which the assessee remained in possession. It is common ground
that these terms are contained in the Jodhpur Division Vindhyan
Lime-stone Mining Leases Rules, 1954, and the Rajasthan Minor
Mineral Concession Rules, 1955.
These rules were made · in
exercise of the powers conferred by r. 4 of the Central Mineral
Concession Rules, 1949.
In the Jodhpur Division
\rindhyan
F
Lime-stone Mining Leases Rules, 1954, "Mining lease" was
defined to mean "a lease to mine, quarry, bore, dig, search for,
win, work and carry away lime-stone".
Under these rules the
assessee had to make an application for a mining lease in res·
ponse to a Notification issued by Director of Mines and Geology,
Rajasthan, inviting applications in respect of a lime-stone deposit.
G Rules 13 provided that the lease shall be in respect of plots comprising of 5 sq. miles each. The applicant had to deposit security equal to one-fourth of the annual dead rent of the Iea1e in
cash or Goverrunent bonds, for due observance of the terms and
conditions of the lease.
The lessee was entitled tO transfer his
lease or any right, title or interest therein, to a person holding a
H
certificate of approval on payment of a fee, subject to the previous sanction of the Director of Mines and Geology, and subject to some other conditions.
Rule 18 prescribed a period of ·
600
SUPREME
COURT
REPORTS
[1966)2 S.C.R.
five years for a lease and the lease was renewable at the option
A
of the assessee for a further period of five years. Rule 19 prescribed the conditions which had to be inserted in the lease. The
following conditions are relevant :
( l) the lessee shall not encroach upon cultivable land
or
Bapi holdings within the leased area, unless otherwise after B
obtaining pennission of Director of Mines and Geology;
(2) the lessee shall perform a minimum development work
.as instructed from time to time by the Di:ector of Mines and
Geology, whose instructions in this respect and in maintaining
standards of lime products, and arranging an adequate supply of
the same in the market at reasonable price shall be binding upon
C
the lessee;
( 3) On expiry or sooner determination of lease the lessee
shall remove all stock of lime-stone or its products and movable
property within six months from the date of expiry of the lease
and shall pay the reyalty on the stock within this poriod. There D
was a proviso to this c0!1dition to the effoct that the Rajasthan
Government would be fr~e to lease out the deposits afresh to any
person on expiry of the tenure of the lease, and the lessee shall
hand over the quarry to the new lessee in a workable condition.
Rule 31 of the Rajasthan Minor Mineral Concession Rules,
1955, prescribed inter ab'a the following conditions :
E
( i) The lessee shall pay the royalty on minerals despatched
from the leased area at the rate specified in the First Schedule
to these rules.
(ii) The lessee shall pay for the surLce area used by him for
the purpose of mining, surface rent at such rate not exceeding the
F
land revenue as may be specified by the Governinent in such
case.
(iii) The lessee shall also pay, for every year, such yearly
dead-rent within the limits specified in the Second Schedule to
these rules as may be fixed by the Director in each ca· e, aud if G
the lease permits the working of more than one mineral in the
same area, the Government may charge separate deJd-rent
in
respect of each mineral.
(iv) The lessee shall keep correct accounts showing
the
quantity and particulars of all minerals obtained from the mines,
~.
H
(v) The lessee shall allow existing and future licensees or
lease-holders of any land which is comprised in or adjoins or
•
'
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•
GOTAN LIME v. c.r.r. (Sikri, J.)
601
A
is reached by the land held by the lessee, reasonable facilities fot
access thereto.
(vi) The Jessee may erect on the area granted to him any
building required for bona fide purposes and such buildings shall
be the property of the G_overnment after expiry of the iease.
Jl
(vii) The Jessee if he discovers any new mineral was entitled
to apply for a mining lease in respect of the newly discovered
mineral.
(viii) The Government shall have the right of preemption
at current market rates over all minerals demised by the lease
and shall be indemnified by the lessee against claims of any third
C party in respect of such minerals.
(ix) In case of any breach on the part of the lessee of any
covenant or condition contained in the lease other than a condition regarding rent or royalty, the Government may determine
the lease and take possession of the said premises, or in the alterD
native, may impose payment of a penalty not exc~eding twice
the amount of the annual dead-rent from the Jessee.
(x) At the end or sooner determination of the lease
the
lessee shall deliver up the said premises and all mines, if any,
dug therein in a proper and workable state, save in respect of any
g
working as to which the Government might have
sanctioned
abandonment.
For each of the assessment years 1954-55, 1955-56 and
~
1956-57, the assessee paid a sum of Rs. 96,000/- to Government
and claimed it as a revenue deduction agairst its profi:s for those
years.
The Income Tax Officer disallowed this exp.~nditure, as
f
being of a capital nature. The Appellate Assistant Commissioner
upheld his view, but on appeal, the Appellate Tribunal held that
the payment should be treated as a revenue expenditure.
The
High Court held on a reference that the payment was
capital
expend;ture and could not be allowed as a revenue deduct'on in
computing the business profis of the assessee.
G
l:J
•
These appeals raise the difficult question of
distinguishing
between revemle expenditure and capital expeuditure. The learned counsel for the assessee,
Mr. N. A. Palkhiwala,
and
the
l~arned counsel for the Revenue, the Attorney-General,
both
cJted a number of cases before us but we agree with Hidayatullah
J.'s observations in Abdul Ka,voom v. Commissioner of Income
Tax(') that "none of the tests (laid down in various authorities)
(ll 44 l.T.R. 689:
"02
SUPREME
COURT
REPORTS
[1966] 2 S.C.R.
is exhaustive or universal. Each case must depend on its own
facts, and a close similarity between one ca'e and another is not
enough, because even a single sigaificaat de:ail may alter the
entire aspect. In deciding such cases, one should avoid the temptation to decide cases ...... by matching' the colour of one case
against the colour of another." Therefore, we do not propose to
review all the cases cited before us, especially as this Court has,
after reviewing the relevant cases, formulated certain tests in
Assam Bengal Cement Co. Ltd. v. Commissioner of Income
Tax('). The cases were reviewed again in Ping/e Industries Ltd.
v. Commissioner of Income-tax,
Hyderabad( 2 ), and Abdul
Kayoom v. Commissioner of Income Tax( 3 ).
In this case, in view of the arguments of the respondent and
the judgment of the High Court, we have to concentrate on the
following test laid down by Viscount Cave in British Insulated
and Helsby Cables Ltd. v. Atherton(') :
A
B
c
"But when an expenditure is made, not only once
D
and for all, but with a view to bringing into existence
an asset or an advantage for the enduring benefit of a
trade, I think that there is very gocd reason (in the
absence of special circumstances leading to an opposite
conclusion) for treating such an expenditure as properly attributable not to revenue but to capital."
E
The learned Attorney-General, relying qn this test, urges
that
what the assessee got by entering into the mining lease was an
asset or advantage of an enduring nature; that this asset or advantage was an interest in land for not only has the assessee the
right to go upon the land and excavate but also has the right to
F
use part of the area as premises, and it was by virtue of this that
the assessee eventually got raw-material for his manufacturing
business.
Mr. Palkhiwala, the learned counsel for the assessee, on the
other hand, contends that under the Rajasthan Minor Mineral
G
Concession Rules and the arrangement between the assessee and
the Government, the assessee did not get exclusive pos-ession of
the mines as such; what he got was a r'ght to )/et lime for manufacturing and the payment had direct relation to the amount of
lime removed by the assessee. He says that the cases decided in
this Court (Pingle Industries Ltd. v. Commissioner of Income
H
(I) 27 I. T. R. 34.
(3) 44 I. T. R. 689.
(2) 40 I. T. R. 67.
(4) 10 T. C. 155 at p. 192.
,
•
•
(
'
•
-
-
r
A
8
GOTAN LIME V. C.I.T. (Sikri, J.)
603
Tax Hyderabad('), and Abdul Kayoom
v.
Commissioner of
Income Tax( 2 ) were distinguishable.
He further urges that :in
no case has royalty payment been treated as capital expenditure,
and as a matter of fact, in Ping/e Industries Ltd. v. Commissioner of Income Tax(') it was a lurnpsum payment that was
under dispute and not the royalty payable under the lease.
We do not think there is any necessity to decide wliether the
assessee got a licence or a lease or profits a prendre. Under the
arrangement, read with the Rajasthan Minor Mineral Coni;:ession
Rules, 1955, the assessee was certainly entitled to go upon the
land, win the raw-material and had some rights to build premises
c
for the purpose of winning the lime. But it is also clear that the
assessee could not carry away any other mineral which might be
found in the mine, and further he was obliged to allow other
lessees of other minerals to go on the land and win their minerals.
Thus there is no doubt that the assessee did derive an advantage
by having enternd into this arrangement. We will assume for
D the sake of this case that this advantage was to last atleast for
a period of five years. The question then arises whether the circumstances of this case fall within the test laid down by Viscount
Cave and relied on strongly by the learned Attorney-Genera!.
In our opinion, the test does not apply fully to this case because
there is no payment once for all; it is a yearly payment of deadiE
rent and royalty.. It is true that if a capital sum is arrived at
and payment is made every year by chalking out the capital
amount in various instalments, the payment does not lose its
character as a capital payment if the sum determined was capital
in nature. But it is an important fact in this case that it is a
F
case of an annual payment of royalty or dead-rent. No lumpsum
payment was ever settled or paid. We have not been referred to
any case in which payments of royalty under a mining lease
have been treated as capital expenditure. Ju JI. R. Rorke Vd.
v. Commissioner of Inland Revenue( 3 ) Cross, J., while dealing
with a similar question observed as follow> :
H
"The case then proceeds to set out the leases in
question, which were substantiaJly 'n the same form.
The first was an agreement made on 16th December,
1957, between a Mr. Parker, the lessor, and the Company.
Clause 1 provided that the lessor, being the
owner of the land in question (four acres and five perches of agricultural land in Yorkshire) should let the
(1) 41 I. T. R. 67
(2) 44 I. T. R. 689.
(3) 39 T. C. 194 at 202
604
SUPREME
COURT
REPORTS
[1966] 2 S.C.R.
land to the lessee-that is, the Appellant Companyfrom 5th November, 1957, for one year, paying therefor a royalty of 1 s. 3d. per ton for all coal recovered
from the demised land and accepted by the coal sales
department of the National Coal Board or, the sum
of £312 10s. whichever was
the greater,
such
payment to be made by calendar monthly instalments.
There is, of course, no doubt that those rents or royalty
payments would be allowable as deductions on revenue
account."
A
B
c
He had no doubt in his mind that rent and royalty payments
would be deductible as revenue expenditure. In Pingle Industries Ltd. v. Commissioner of Income Tax(') the assessee had
already been allowed payments of royalty as revenue expenditure and the only dispute was regarding lumpsum payment. In
Ogden v. Medway Cinemas, Ltd.(2 ) an annual payment in respect of the goodwill of the business was held to be an admissible
deduction on the ground that "this is a revenue payment for the
D
use during a certain period of certain valuable things and rights."
The reason why royalty has to be allowed as r.evenue expenditure
must be the relation which the royalty has to the raw-material
which is going to be excavated or extracted. The more you take
the more royalty you pay, and the minimum payment or lhe deadrent also has the same characteristic, i.e., it is an advance payE
rnent in respect of certain amount of raw-material to be excavated.
We find that it is on this ground that the case strongly
relied on by the learned Attorney-General
Abdul Kayoom v.
Commissioner of lncom'C Tax(') is distinguishable because payments there had no relation whatsoever to the amount of conchshells taken.
As observed by Hidayatu!lah, J., "in obtaining F
the ;ease, the respondent obtained a speculative ri0ht to fish for
chanks which it hoped to obtain and which m'ght be iii large
quantities or small, according to its lilck
The
respondent
changed the nature of its business to fishing for chanks instead
of buying them." Hidayatullah, J., then put the ca'e in a nutshell
as follows:
"That amount was paid to obtain an enduring asset
in the shape of an exclusive r'ght to fish, and the payment was not related to the chanks, which it m'ght or
might not have brought to the surface in this speculative business."
(1) 40 I. T. R. 67.
(2) 18 T. C. 691.
(3) 44 I. T. R. 689.
G
H
•
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•
•
GOTAN LIME V. C.I.T. (Sikri, J.)
605
A
The ca'e of Pingle Industries Ltd. v. Commissioner of Income
B
c
Tax(') is distinguishable because on the facts it was a lumpmm
payment in instalments for acquiring capital asset of er.during
benefit to his trade.
It is not the law that in every case, if an endur;ng advantage
is obtained the expenditure for securing it must be lr<:ated
as
capital expenditure, for as pointed out by Channell, J., in Al/anza
Company v. Bell(') "in the ordinary case, the cost of the material
worked up in a manufactory is not a capital expenditure; it is a
current expenditure, and does not become a c1pital expenditure
merely because the material is provided by som~thing like a forward contract, under wh'ch a person for the payment of a lumpsum down secures a supply of the raw material for a period
extending over several years."
This illustration shows that it is
not in every case that an .expenditure in respect of an advantage
of an enduring nature is capital expenditure. The reason underD
lying the illustration is that the payments made to enter into a
forward contract have relation to the raw material eventually
to be obtained. Viscount Cave acknowledged that in certain
cases an expenditure for obtaining an enduring advantage need
not be capital expenditure for he inserted the words "in the
absence of special circumstances leading to an opposite concluE
sion" within brackets.
We are of the opinion that in the present case the royalty
payment is not a direct payment for securing an enduring advantage; it has relation to the raw material to be ob'ained. Ordinarily,
a mining lease provides for a capital sum payment; but fhe fact
F that there is no lumpsum payment here cannot by itself lead to
the conclusion that yearly payments to be made und,or the mining lease have relation to the acquisition of the advantDge. No
material has been placed on the record to show that any pa:rt of
the royalty must, in view of the circumstances of lhe case,
be
treated as premium and be referab1e lo the 1:cquisiticn of the
G
111ining !case.
Therefore, on the facts of this case we must hold that the
royalty payment, includin'.i the dead-rent, have re!at'on only to
the lime deposits to be got. If it has no direct telation to the
acqu:sition of the asset, then the principle relied on by the learned
H
Attorney-General
does not afford him 8ny ascis•anc~. We,
therefore, hold that the yearly payment of Rs. 96,000/- should
(!) 40 I. T. R. 67.
(2) (t904) L. R. 2 K. B. 666-at p. 673.
6 06
SUPREME
COURT
REPORTS
[1966] 2 S.C.R.
be treated as revenue expenditure and the answer to the quesA
tion referred to the High Court must be in favour of the assessee.
In the result the appeals are accepted
and the question ·
referred to the High Cour~ answered in the affirmative.
The
appellant will have his costs incurred in this ·Court, one set of
;hearing fee.
B
. Appeals allowed.
•
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