Law: Income Tax Act, 1922

Section: S. 10 (2) (xv)

(On appeal from the judgment and order dated the 2nd February 1960, of the High Court of East Pakistan at Dacca, in Reference Case No. 37 of 1959 under section 66(1) of the Income-tax Act).   (a) Income-tax Act (XI of 1922)--------S. 10 (2) (xv)-Cement manu facturing Company-Payments to Government (1) for protection against competition and for adequate supply of limestone, (2) payments which had to be made so long as stone quarried was less than a certain figure and which were rate ably reduced if stone quarried was more than such figure-Payment (1) disallowed being "capital" expenditure-Payment (2) allowed (by majority) as "revenue" expenditure.   The assessee Company, a factory engaged in the manufacture of cement, acquired, under a lease, the right to quarry limestone for conversion into lime or cement. Under clauses (4) and (5) of the lease, the Company was required to pay Rs. 5,000 and Rs. 35,000 per annum respectively to the lessor (the Government) who in turn, under clause (4) was not only to protect the Company against competition in certain areas but also to safeguard adequate supply of limestone to the Company, either by purchase from other quarry-holders or by extraction through its own agency. As regards payments under clause (5), if the Company had reached a certain high figure of production, the Company was entitled to an abatement in the rate of payment. The lessor had, by clause (11) a right to terminate the agreement in certain circumstances, and could impose strict limits upon the extent to which the factory could be kept idle. On the question whether each payment, procured an asset or advantage for the enduring benefit of the trade, or whether the expenditure was capital or revenue:   Held, that the payment of Rs. 5,000 under clause (4) was rightly disallowed.   Cornelius, C. J.--The payment under clause (4) which provided an asset or advantage namely, a monopoly in respect of a particu lar area to run with the lease, that lease itself being an instrument by which the Company assured to itself adequate supplies of basic raw material for its process, could be truly regarded as "capital…