Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1937-38 - Assessee carried on business of mining and selling mica - It entered into various agreements for acquiring mining rights at different places - Assessee claimed deduction under section 10(2)(xv) of 1922 Act in respect of amounts paid under aforesaid agreements - Whether money expended for acquisition of mining rights was capital expenditure - Held, yes - Whether, therefore, assessee's claim was to be rejected - Held, yesFACTSThe respondents were a registered firm carrying on business of mining mica and selling it after refinement. They entered into four agreements in writing, with persons who owned certain patta lands.Under those four documents, the assessees, in consideration of payment of sums of money in instalments, were granted the mining rights in the respective mines for periods varying from 5 to 9 years. The assessees claimed a deduction of the amounts so paid by them under section 10(2)(xv) of 1922 Act. The amounts, however, were disallowed by the ITO on the ground that they were paid for acquiring a right and the expenditure was therefore one of the capital nature. On appeal, the Appellate Assistant Commissioner came to the same conclusion. On further appeal, the appellate Tribunal came to a different conclusion and allowed the assessee's claim.On reference :HELDInstant case was a simple case of an assessee carrying on the business of winning mica and selling it, and acquiring mining rights in different plots of land. The winning of mica depended upon many uncertain factors. The mine might prove disappointing in that it might not yield much mica. It would be opposed to common sense to say that an acquisition of rights to win mica was a sale of mica as raw material. On the facts of instant case, it was abundantly clear that there was no manufacturing business and there was no sale of any raw material. The assessee carried on the business of winning and selling mica and for the business acquired mining rights in various places. Money expended for the acquisition of such…

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