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PETITIONER: BIKANER GYPSUMS LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, RAJASTHAN

DATE OF JUDGMENT23/10/1990

BENCH: SINGH, K.N. (J) BENCH: SINGH, K.N. (J) SAIKIA, K.N. (J) KULDIP SINGH (J)

CITATION:  1991 AIR  227            1990 SCR  Supl. (2) 313  1991 SCC  (1) 328        JT 1990 (4)   481  1990 SCALE  (2)876

ACT:     Income   Tax  Act  1922/Income  Tax  Act   1961--Section 10(2)(xv)/     Section     37(1)--Capital     or     revenue expenditure--Determination   of  in  the  case   of   mining leases--Factors to be considered  What are.

HEADNOTE:     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 calcination and other processes. The lease agreement consisted  of several parts and each part contained  several clauses.  Clause  3 of part Iii prescribed  restrictions  on mining  operation within 100 yards from any railway,  reser- voir,  canal  or other public works. This  clause  had  been incorporated  in the lease to protect the railway track  and railway  station which was situated within the area  demised 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,  pro- viding  for railway siding and further 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. 314     As  the  assessee company on research and  survey  found

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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 shifting.     Under the aforesaid agreement, the assessee company paid a sum of Rs.3 lakhs as its share towards the cost of  shift- ing  of  the Railway Station and  other  constructions,  and claimed  deduction of the said sum 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  Assistant Commissioner.     On  appeal  by the assessee, the  Income  Tax  Appellate Tribunal held that the payment of Rs.3 lakhs by the assessee company was not a capital expenditure, but a revenue expend- iture. The Tribunal referred the question to the High  Court under section 256 of the Income Tax Act, 1961, on an  appli- cation  by the revenue, which held that since on payment  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 expenditure.     In the appeal to this Court on the question whether  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. Allowing the appeal, this Court,     HELD:  1(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  re- striction  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,  obstruc- tion  or disability may result in acquiring benefits to  the business,  but that by itself would not acquire any  capital asset. [326B]     Gotan  Lime  Syndicate  v. C.I.T.,  Rajasthan  &  Delhi, [1966]  59 ITR 718; M.A. Jabbar v. C.I.T.,  Andhra  Pradesh, Hyderabad, [1968] 315 2  SCR  413  and Commissioner of Inland  Revenue  v.  Carron Company, [1966-69] 45 Tax Cases 18, referred. Empire Jute Company v. C. I. T., [1980] 124 ITR 1, affirmed.     In  the  instant case, the assessee  have  been  granted mining lease in respect of 4.27 square miles under which  he had  right to sink, dig, drive, quarry and  extract  mineral i.e. the gypsum and in that process he had right to dig  the surface of the entire area leased out to him. The payment of Rs.3  lakhs  was not made by the assessee for the  grant  of permission to carry on mining operations within the  railway area,  instead  the  payment was made towards  the  cost  of removing the construction which obstructed the mining opera- tions.  On the payment made to the Railway  Authorities  the assessee did not acquire any fresh right to any mineral  nor he acquired any capital asset instead, the payment was  made by  it  for  shifting the Railway Station  and  track  which operated  as  hindrance and obstruction to the  business  of mining in a profitable manner. [326C-E]     2. There may be circumstances where expenditure, even if incurred  for obtaining advantage of enduring benefit  would

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not  amount to acquisition of asset. The facts of each  case have to be borne in mind in considering the question  having regard  to the nature of business, its requirement  and  the nature of the advantage in commercial sense. [326F-G]     3(a)  The test for considering the expenditure  for  the purposes of bringing into existence an asset or an advantage for  the enduring benefit of a trade is not always true  and conclusive. [327B]     3(b)  In  considering the cases of mining  business  the nature  of  the lease the purpose for which  expenditure  is made,  its relation to the carrying on of the business in  a profitable manner should be considered. [326H]     In the instant case, existence of Railway Station,  yard and buildings on the surface of the demised land operated as an  obstruction  to the assessee’s business of  mining.  The Railway  Authorities agreed to shift the Railway  establish- ment to facilitate the assessee to carry on his business  in a profitable manner and for that purpose the assessee paid a sum of Rs.3 lakhs. The payment made by the assessee was  for removal of disability and obstacle and it did not bring into existence  any  advantage of an enduring nature.  There  was therefore. no acquisition of any capital asset. [326H; 327A] 316     British  Insulated and Helsby. Cables Ltd. v.  Atherton, [1926] AC 205, explained.     Assam  Bengal  Cement Co. Ltd. v.  The  Commissioner  of Income Tax, West Bengal, [1955] 1 SCR 972, referred to.     R.B. Seth Moolchand Suganchand v. Commissioner of Income Tax, New Delhi, [1972] 86 ITR 647, distinguished.     4.  The  Tribunal  rightly allowed  the  expenditure  on revenue  account.  The High Court failed to  appreciate  the true  nature  of the expenditure. It committed an  error  in interfering  with  the findings recorded by the  Income  Tax Appellate Tribunal. [327B-C]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 262  (NC) of 1976.     From  the  Judgment  and Order dated  24.4.1975  of  the Rajasthan High Court in D.B. Civil I.T.R. No. 45 of 1969.     Mrs.  Anjali Verma for JBD & Co. and D.N. Misra for  the Appellant.     O.P.  Vaish, S. Rajappa, Vinay Vaish, S.K. Aggarwal  and Ms. A. Subhashini for the Respondents. The Judgment of the Court was delivered by     SINGH,  J. This appeal is directed against the  judgment and  order  of the High Court of Rajasthan  dated  24.4.1975 answering  the  question referred to it by  the  Income  Tax Appellate Tribunal in the negative, in favour of the Revenue and against the assessee. The question referred to the  High Court was as under: "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  circumstances leading to the reference and  the  appeal was necessary to be stated. The Natural Science (India) Ltd. predecessor-ininterest of the assessee acquired a lease from the Maharaja of the 317 erstwhile Bikaner State on September 29, 1948 for mining  of gypsum for a period of 20 years over an area of 4.27  square miles  at Jamsar. The lease was liable to be  renewed  after

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expiring of 20 years. The Natural Science (India) Ltd. by  a deed  of  assignment dated December 11,  1948  assigned  the rights under the lease to the Bikaner Gypsums Ltd., a compa- ny wherein the State Government owned 45 per cent share. The Bikaner Gypsums Ltd. (hereinafter referred to as the  asses- see) carried on the business of mining gypsum in  accordance with the terms of conditions stated in the lease. The asses- see  entered  into an agreement with Sindri  Fertilizers,  a Government  of  India Public Undertaking for the  supply  of gypsum of minimum of 83.5 per cent 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 calcination and other  proc- esses.  Clause  2  of Part II of the  lease  authorised  the lessee  to sink, dig, drive, quarry, make,  erect,  maintain and  use  in the said lands any borings, pits,  shafts,  in- clines,  drifts,  tunnels,  trenches,  levels,   water-ways, airways  and  other works and to use,  maintain,  deepen  or extend any existing works of the like nature in the  demised land  for the purpose of winning and mining of the  mineral. Clause  3 granted liberty to erect,  construction,  maintain and use on or under the land any engines, machinery,  plant, dressing, floors, furnaces, brick kilns, like kilns, plaster kilns etc. Clause 4 conferred liberty on the lessee to  make roads  and  ways and use existing roads and ways.  Clause  7 granted  liberty to the assessee to enter upon and  use  any part  of  parts  of the surface of the said  lands  for  the purpose  of  stacking,  heaping or  depositing  thereon  any produce  of  the  mines or works carried on  and  any  earth materials  and substance dug or raised under  the  liberties and  powers.  Clause 8 conferred liberty on  the  lessee  to enter  upon and occupy any of the surface lands  within  the demised  lands other than such as are occupied  by  dwelling houses or farms and the offices, gardens and yards. Clause 9 conferred power on the lessee to acquire, take up and occupy such surface lands in the demised lands as were then in  the occupation of any body other than the Government on  payment of  compensation  and  rent to such occupiers,  and  if  the lessee  is unable to acquire such land from the tenants  and occupiers, the Government undertook to acquire such  surface land for the lessee at the lessee’s cost. Clause 15 of  Part II  conferred  liberty  and power on the lessee  to  do  all things  which may be necessary for winning, working  getting the said minerals and also for calcining, smelting, manufac- turing, converting and making merchantable. 318     Part III of the lease contained restrictions and  condi- tions to the exercise of the liberties and powers and privi- leges as contained in Part II of the lease. Clause 2 of Part III provided that the lessee shall not enter upon or  occupy surface  of  any  land in the occupation of  any  tenant  or occupier  without  making reasonable  compensation  to  such tenant  or  occupier.  Clause 3  prescribed  restriction  on mining  operation within 100 yards from any railway,  reser- voir, canal or other public works. It reads as under: "Clause 3: No mining operations or working shall be  carried on  or permitted to be carried on by the lessee in or  under the  said lands at or to any point within a distance of  100 yards  from  any railway, reservoir, canal or  other  public works  or any buildings or inhabited site shown on the  plan hereto annexed except with the previous permission in  writ- ing  of the Minister, or some officer authorised by  him  in that  behalf or otherwise then in accordance with  such  in-

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structions,  restrictions and conditions either  general  or special  which may be attached to such permission. The  said distance  of  100 yards shall be measured in the case  of  a Railway  Reservoir or canal horizontally from the  outer  of the bank or of outer edge of the cutting as the case may  be and  in the case of a building horizontally from the  plinth thereof." The  above  clause  had been incorporated in  the  lease  to protect  the  railway track and railway  station  which  was situate  within the area demised to the lessee. Clause 5  of Part VIII of the agreement stated as under: "Clause 5: If any underground or mineral rights in any lands or mines covered and leased to the lessee in accordance with the  provisions of those presents be claimed by any  ’Jagir- dar’ ’Pattedar’, ’Talukdar’, tenant or other person then and in all such cases the Government shall upon notice from  the lessee  forthwith put the lessee in possession of  all  such lands and mines free of all costs and charges to the  lessee and any compensation required to be paid to any such "Jagir- dar", ’Pattedar’, ’Talukdar’, tenant or other person  claim- ing to have any underground or mineral rights shall be  paid by the Government." The assessee company exclusively carried on the mining of 319 gypsum in the entire area demised to it. The Railway author- ities extended the railway area by laying down fresh  track, providing  for  railway siding. The  Railways  further  con- structed  quarters in the lease area without the  permission of  the assessee company. The assessee company filed a  suit in civil court for ejecting the Railway from the  encroached area but it failed in the suit. The assessee company, there- upon,  approached the Government of Rajasthan which  had  45 per  cent share of it and the Railway Board for  negotiation to remove the Railway Station and track enabling the  asses- see  to carry out the mining operation under the land  occu- pied by the Railways (hereinafter referred to as the  ’Rail- way  Area’).  Since,  on research and  survey  the  assessee company found that under the Railway Area a high quality  of gypsum was available, which was required as raw material  by the Sindri Fertilizers. All the four parties namely,  Sindri Fertilizers, Government of Rajasthan, Railway Board and  the assessee  company negotiated the matter and  ultimately  the Railway Board agreed to shift the railway station, track and yards  to  another place or area offered  by  the  assessee. Under the agreement the Railway authorities agreed to  shift the  station and all its establishments to  the  alternative site  offered  by the assessee company and  it  was  further agreed and all the four parties, Sindri Fertilizers, Govern- ment  of Rajasthan, Indian Railway and the assessee  company shall  equally bear the total expenses of Rs. 12  lakhs  in- curred  by  the Railways in shifting  the  railway  station, yards  and  the  quarters. Pursuant to  the  agreement,  the assessee  company paid a sum of Rs.3 lakhs as its  share  to the  Northern  Railway towards the cost of shifting  of  the Railway Station and other constructions. In addition to that the  assessee company further paid a sum of Rs.7,300 to  the Railways  as  compensation  for the surface  rights  of  the leased  land. On the shifting of the Railway track and  Sta- tion the assessee carried out mining in the erstwhile  Rail- way Area and it raised gypsum to the extent of 6,30,390 tons and supplied the same to Sindri Fertilizers.     The  assessee  company claimed deduction of  Rs.3  lakhs paid to the Northern Railway for the shifting of the Railway Station  for  the assessment year  1964-65.  The  Income-Tax Officer rejected the assessee’s claim on the ground that  it

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was  a capital expenditure. On appeal by the  assessee,  the Appellate Assistant Commissioner confirmed the order of  the Income-Tax  Officer. On further appeal by the  assessee  the Income Tax Appellate Tribunal held that the payment of  Rs.3 lakhs by the assessee company was not a capital expenditure, instead it was a revenue expenditure. On an application made by the Revenue the Income Tax Appellate Tribunal  (hereinaf- ter referred to as the 320 Tribunal  referred  the question as aforesaid  to  the  High Court  under  s. 256 of the Income Tax Act, 1961.  The  High Court held that since on payment of Rs.3 lakhs to the  Rail- way 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  expendi- ture. On these findings the High Court answered the question in the negative in favour of the Revenue against the  asses- see  and it set aside the order of the Tribunal by  the  im- pugned order.     Learned  counsel for the appellant contended that  since the  entire  area had been leased out to  the  assessee  for carrying  out mining operations, the assessee had  right  to win,  the minerals which lay under the Railway Area as  that land  had  also been demised. to the  assessee.  Since,  the existence  of railway station, building and yard  obstructed the mining operations, the assessee paid the amount-of  Rs.3 lakhs  for removal of the same with a view to carry  on  its business  profitably. The assessee did not acquire  any  new asset,  instead, it merely spent money in removing  the  ob- struction  to facilitate the mining in a profitable  manner. On  the  other hand, learned counsel for the  Revenue  urged that in view of the restriction imposed by Clause 3 of  Part III  of the lease, the assessee had no right to the  surface of the land occupied by the Railways. The assessee  acquired that  right  by  paying Rs.3 lakhs which  resulted  into  an enduring  benefit to it. It was a capital expenditure.  Both the counsel referred to a number of decisions in support  of their submissions.     The  question whether a particular expenditure  incurred by  the assessee is of Capital or Revenue nature is a  vexed question  which has always presented difficulty  before  the Courts.  There are a number of decisions of this  Court  and other courts formulating tests for distinguishing the  capi- tal from revenue expenditure. But the tests so laid down are not  exhaustive  and  it is not possible  to  reconcile  the reasons given in all of them, as each decision is rounded on its own facts and circumstances. Since, in the instant  case the  facts are clear, it is not necessary to  consider  each and  every case in detail or to analyse the tests laid  down in various decisions. However, before we consider the  facts and  circumstances of the case, it is necessary to refer  to some of the leading cases laying down guidelines for  deter- mining the question. In Assam Bengal Cement Co. Ltd. v.  The Commissioner  of  Income  Tax, West  Bengal,  [1955]  1  SCR 972,’this  Court  observed that in the  great  diversity  of human affairs and the complicated nature of business  opera- tion,  it is difficult to lay down a test which would  apply to all situations. One has, therefore, to apply the criteria from the business 320 point of view in order to determine whether on fair appreci- ation of the whole situation the expenditure incurred for  a particular matter is of the nature of capital expenditure or a revenue expenditure. The Court laid down a simple test for determining the nature of the expenditure. It observed:

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         the expenditure is made for acquiring or  bringing into existence an asset or advantage for the enduring  bene- fit  of the business it is properly attributable to  capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into  exist- ence  any such asset or advantage but for running the  busi- ness or working it with a view to produce the profits it  is a  revenue expenditure. If any such asset or  advantage  for the  enduring  benefit of the business is thus  acquired  or brought  into existence it would be immaterial  whether  the source  of the payment was the capital or the income of  the concern or whether the payment was made once and for all  or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether  it is a capital expenditure or a revenue expenditure."     In  K.T.M.T.M. Abdul Kayoom and Another v.  Commissioner of Income Tax, [1962] 44 ITR 589, this Court after consider- ing  a  number of English and Indian authorities  held  that each  case depends on its own facts, and a close  similarity between  one case and another is not enough, because even  a single  significant detail may alter the entire aspect.  The Court  observed that what is decisive is the nature  of  the business,  the nature of the expenditure, the nature of  the right acquired, and their relation inter se, and this is the only  key to resolve the issue in the light of  the  general principles,  which are followed in such cases. In that  case the  assessee claimed deduction of Rs.6, 111 paid by  it  to the  Government  as lease money for the grant  of  exclusive rights,  liberty  and authority to fish and carry  away  all chank shells in the sea off the coast line of a certain area specified  in  the lease for a period of  three  years.  The Court held that the amount of Rs.6,111 was paid to obtain an enduring benefit in the shape of an exclusive right to fish; the payment was not related to the chanks, instead it was an amount spent in acquiring an asset from which it may collect its  stockin-trade. It was, therefore, an expenditure  of  a capital nature.     In Bombay Steam Navigation Co. Pvt. Ltd. v. Commissioner of  Income Tax, Bombay, [1965] 1 SCR 770, the assessee  pur- chased. the 321 assets  of another Company for purposes of carrying on  pas- senger and ferry services, it paid part of the consideration leaving the balance unpaid. Under the agreement of sale  the assessee-had to pay interest on the unpaid balance of money. The  assessee  claimed deduction of the amount  of  interest paid  by it under the contract of purchase from its  income. The  court  held that the claim for deduction of  amount  of interest  as  revenue expenditure was  not  admissible.  The Court  observed  that  while considering  the  question  the Court. should con-.. sider the nature and ordinary course of business  and  the object for which the expenditure  is  in- curred. If the outgoing or expenditure is so related to  the carrying  on  or  conduct of the business, that  it  may  be regarded  as an integral part of the profit-earning  process and  not for acquisition of an asset or a right of a  perma- nent  character, the possession of which is a condition  for the  carrying  on of the business, the  expenditure  may  be regarded  as revenue expenditure. But, on the facts  of  the case,  the  Court  held that the assessee’s  claim  was  not admissible,  as the expenditure was related to the  acquisi- tion  of an asset or a right of a permanent  character,  the possession  of which was a condition for carrying the  busi- ness.     The  High  Court has relied upon the  decision  of  this

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Court  in R.B. Seth Moolchand Suganchand v. Commissioner  of Income  Tax, New Delhi, [1972] 86 ITR 647, in rejecting  the assessee’s contention. In Suganchand’s case the assessee was carrying  on  a mining business, he had paid a  sum  of  Rs. 1,53,800  to acquire lease of certain areas of land  bearing mica for a period of 20 years. Those areas had already  been worked for 15 years by other lessees. The assessee had  paid a  sum of Rs.3,200 as fee for a licence for prospecting  for emerald  for a period of one year. In addition to  the  fee, the assessee had to pay royalty on the emerald excavated and sold. The assessee claimed the expenditure of Rs.3,200  paid by  it as fee to the Government for prospecting  licence  as revenue  expenditure. The assessee further claimed that  the appropriate  part of Rs. 1,53,800 paid by it as lease  money was  allow-able as revenue expenditure. The Court held  that while  considering  the question in relation to  the  mining leases  an empirical test is that where minerals have to  be won, extracted and brought to surface by mining  operations, the expenditure incurred for acquiring such a right would be of a capital nature. But, where the mineral has already been gotten and is on the surface, then the expenditure  incurred for obtaining the right to acquire the raw material would be a revenue expenditure. The Court held that since the payment of  tender money was for acquisition of capital  asset,  the same  could  not  be treated as a  revenue  expenditure.  As regards the claim relating to the prospecting licence 322 fee  of Rs.3,200 the Court held that since the  licence  was for  prospecting  only and as the assessee had  not  started working a mine, the payment was made to the Government  with the  object of initiating the business. The Court held  that even though the amount of prospecting licence fee was for  a period  of one year, it did not make any difference  as  the fee was paid to obtain a licence to investigate, search  and find the mineral with the object of conducting the business, extracting  ore from the earth necessary for initiating  the business.  The facts involved in that case are totally  dif- ferent  from the instant case. The assessee in  the  instant case never claimed any deduction with regard to the  licence fee or royalty paid by it, instead, the claim relates to the amount spent on the removal of a restriction which obstruct- ed the carrying of the business of mining within a  particu- lar  area in respect of which the assessee had  already  ac- quired mining rights. The payment of Rs.3 lakhs for shifting of  the Railway track and Railway Station was not  made  for initiating the business of mining operations or for  acquir- ing  any right, instead the payment was made to  remove  ob- struction to facilitate the business of mining. The  princi- ples  laid  down in Suganchand’s case do not  apply  to  the instant case.     In British Insulated and Helsby Cables Ltd. v. Atherton, [1926]  AC 205, Lord Cave laid down a test which has  almost universely been accepted. Lord Cave observed: "... when an expenditure is made, not only once 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 good reason (in the absence of special circum- stances leading to an opposite conclusion) for treating such an  expenditure as properly attributable not to revenue  out to capital." This dictum has been followed and approval by this Court  in the  cases  of Assam Bengal Cement Co. Ltd.  (supra);  Abdul Kayoom  (supra)  and Seth Sugancha.nd  (supra)  and  several other  decisions of this Court. But, the test laid  down  by Lord Cave has been explained in a number of cases which show

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that  the  tests  for considering the  expenditure  for  the purposes  of  bringing  into existence, as an  asset  or  an advantage for the enduring benefit of a trade is not  always true and perhaps Lord Cave himself had in mind that the test of  enduring benefit of a trade would be a good test in  the absence  of  special circumstances leading  to  an  opposite conclusion.  Therefore, the test laid down by Lord Cave  was not a conclusive one as Lord Cave himself did not regard his test 323 as  a conclusive one and he recognised that special  circum- stances might very well lead to an opposite conclusion.     In Gotan Lime Syndicate v. C. I. T., Rajasthan &  Delhi, [1966] 59 ITR 7 18, the assessee which carried on the  busi- ness  of manufacturing lime from limestone, was granted  the right to excavate limestone in certain areas under a  lease. Under the lease the assessee had to pay royalty of Rs.96,000 per annum. The assessee claimed the payment of Rs.96,000  to the  Government as a revenue expenditure. This  Court  after considering  its  earlier decision in  Abdul  Kayoom’s  case (supra) and also the decision of Lord Cave in British  Insu- lated  (supra), held that the royalty paid by  the  assessee has to be allowed as revenue expenditure as it had  relation to  the  raw materials to be excavated  and  extracted.  The Court  observed that the royalty payment including the  dead rent had relation to the lime deposits. The ’Court  observed although  the assessee did derive an advantage  and  further even  though the advantage lasted at least for a  period  of five  years there was no payment made once for all. No  lump sum payment was ever settled, instead, only an annual royal- ty  and dead rent was paid. The Court held that the  royalty was  not a direct payment for securing an enduring  benefit, instead it had relation to the raw materials to be obtained. In this decision expenditure for securing an advantage which was  to  last at least for a period of five  years  was  not treated  to have enduring benefit. In M.A. Jabbar v.  C.I.T. Andhra  Pradesh, Hyderabad, [1968] 2 SCR 413,  the  assessee was carrying on the business of supplying lime and sand, and for  the purposes of acquiring sand he had obtained a  lease of a river bed from the State Government for a period of  11 months. Under the lease he had to pay large amount of  lease money for the grant of an exclusive right to carry away sand within, under or upon the land. The assessee in  proceedings for assessment of incometax claimed deduction with regard to the  amount  paid as lease money. The Court  held  that  the expenditure incurred by the assessee was not related to  the acquisition  of an asset or a right of  permanent  character instead  the expenditure was for a specific object  of  ena- bling  the assessee to remove the sand lying on the  surface of the land which was stock-in-trade of the business, there- fore, the expenditure was a revenue expenditure.     Whether payments made by an assessee for removal of  any restriction  or  obstacle to its business would  be  in  the nature  of capital or revenue expenditure, has been  consid- ered by courts. In Commissioner of Inland Revenue v.  Carron Company,  [1966-69] 45 Tax Cases 13 the assessee carried  on the business of iron founders which was incor- 325 porated  by a Charter granted to it in 1773. By  passage  of time many of its features had become archaic and unsuited to modern  conditions and the company’s commercial  performance was  suffering  a progressive decline. The  Charter  of  the company placed restriction on the company’s borrowing powers and  it placed restriction on voting rights of certain  mem- bers.  The company decided to petition for  a  supplementary

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Charter providing for the vesting of the management in Board of Directors and for the removal of the limitation on compa- ny’s  borrowing  powers and restrictions on  the  issue  and transfer of shares. The company’s petition was contested  by dissenting  share-holders in court. The company settled  the litigation  under  which  it had to pay the  cost  of  legal action  and  buy out the holdings of the  dissenting  share- holders and in pursuance thereof a supplementary Charter was granted.  In  assessment proceedings,  the  company  claimed deduction of payments made by it towards the cost of obtain- ing  the Charter, the amounts paid to the dissenting  share- holders and expensed in the action. The Special Commissioner held  that  the company was entitled to the  deductions.  On appeal the House of Lords held that since the object of  the new  Charter was to remove obstacle to  profitable  trading, and the engagement of a competent Manager and the removal of restrictions on borrowing facilitated the day-to-day trading operation  of  the company, the expenditure  was  on  income account. The House of Lords considered the test laid down by Lord Cave L.C. in British Insulated Company’s case and  held that the payments made by the company, were for the  purpose of  removing of disability of the company trading  operation which  prejudiced its operation. This was  achieved  without acquisition  of any tangible or intangible asset or  without creation  of  any  new branch of trading  activity.  From  a commercial and business point of view nothing in the  nature of additional fixed capital was thereby achieved. The  Court pointed  out that there is a sharp distinction  between  the removal  of a disability on one hand payment for which is  a revenue  payment,  and  the bringing into  existence  of  an advantage,  payment  for  which may be  a  capital  payment. Since,  in the case before the Court, the Company  had  made payments  for removal of disabilities which  confined  their business under the out of date Charter of 1773, the expendi- ture was on revenue account. In Empire Jute Company v.  C.I. T,  [1980] 124 ITR I, this Court held that expenditure  made by  an assessee for the purpose of removing the  restriction on  the number of working hours with a view to increase  its profits, was in the nature of revenue expenditure. The Court observed that if the advantage consists merely in facilitat- ing  the assessee’s trading operations of enabling the  man- agement and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving 326 he  fixed  capital untouched, the expenditure  would  be  on revenue account even though the advantage may endure for  an indefinite  future.  We  agree with the view  taken  in  the aforesaid  two decisions. In our opinion where the  assessee has  an existing right to carry on a business, any  expendi- ture  made by it during the course of business for the  pur- pose  of removal of any restriction or obstruction or  disa- bility would be on revenue account, provided the expenditure does not acquire any capital asset. Payments made for remov- al  of restriction, obstruction or disability may result  in acquiring benefits to the business, but that by itself would not acquire any capital asset.     In the instant case the assessee had been granted mining lease in respect of 4.27 square miles at Jamsar under  which he had right to sink, dig, drive, quarry and extract mineral i.e. the gypsum and in that process he had right to dig  the surface  of the entire money, licence fee and other  charges for  securing the right of mining in respect of  the  entire area of 4.27 square miles including the right to the  miner- als under the Railway Area. The High Court has held that  on payment  of Rs.3 lakhs, the assessee acquired capital  asset

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of  an enduring nature. The High Court failed to  appreciate that  Clause  3 was only restrictive in nature  it  did  not destroy the assessee’s right to the minerals found under the Railway Area. The restriction operated as an obstacle to the assessee’s  right to carry on business in a profitable  man- ner.  The assesse paid a sum of Rs.3 lakhs towards the  cost of removal of the obstructions which enabled the assessee to carry on its business of mining in an area which had already been  leased out to it for that purpose. There  was,  there- fore,  no acquisition of any capital asset. here is no  dis- pute  that the assessee completed mining operations  on  the released land (Railway Area) within a period of 2 years,  in the  circumstances  the High Court’s view that  the  benefit acquired  by  the assessee on the payment  of  the  disputed amount  was a benefit of an enduring nature is not  sustain- able in law. As already observed, there may be circumstances where expenditure, even if incurred for obtaining  advantage of enduring benefit may not amount to acquisition of  asset. The facts of each case have to be borne in mind in consider- ing the question having regard to the nature of business its requirement  and the nature of the advantage  in  commercial sense.     In  considering the cases of mining business the  nature of the lease the purpose for which expenditure is made,  its relation to the carrying on of the business in a  profitable manner  should be considered. In the instant case  existence of Railway Station, yard and buildings on the surface of the demised land operated as an obstruction to 327 the  assessee’s business of mining. The Railway  Authorities agreed to shift the Railway establishment to facilitate  the assessee to carry on his business in a profitable manner and for  the  purposes  the assessee paid a sum  of  Rs.3  lakhs towards  the cost of shifting the Railway construction.  The payment  made by the assessee was for removal of  disability and obstacle and it did not bring into existence any  advan- tage of an enduring nature. The Tribunal rightly allowed the expenditure on revenue account. The High Court in our  opin- ion failed to appreciate the true nature of the expenditure.     We  are, therefore, of the opinion that the  High  Court committed error in interfering with the findings recorded by the  Income Tax Appellate Tribunal. We,  accordingly,  allow the  appeal, set aside the order of the High Court  and  re- store  the order of the Tribunal. The appellant is  entitled to its costs. N.V.K.                 Appeal allowed. 328