Law:

Section:

section 37(1) of the income-tax act, 1961-capital on revenue expenditure-assessee took on lease certain land for excavation of earth for manufacture of bricks-under lease agreement assessee was entitled to use said land for manufacture of bricks and establish a brick kiln thereon on payment of certain lump sum-assessee could excavate earth up to a total depth of 6' over a period of seven years and after expiry of that period land was to revert to lessor-assesses did not have any right whatsoever in ownership of said land-whether lump sum payment so made could be treated as revenue expenditure and, therefore, one-seventh of said payment was to be allowed in each of relevant assessment years-held, yes section 256 of the income-tax act, 1961-reference-powers of high court-whether high court is bound to answer a reference under section 256 if party at whose instance reference was made does not appear at hearing of reference-held, no Facts The assessee took on lease various parcels of land for excavation of earth for the manufacture of bricks and also for installation of a brick kiln. Under the agreements of lease, the assessee was entitled to use the said land for the manufacture of bricks and establish a brick kiln thereon on payment of a certain lump sum. He could excavate earth up to a total depth of 6' over a period of seven years and on the expiry of the said period the land was to revert to the lessor. It was, inter alia, stipulated that the assessee would have no right whatsoever to the ownership of the said land. Accordingly, the assessee constructed a chimney and established a kiln on the said land. He also sunk a well on the land. For each of the relevant assessment years, namely, 1967-68 and 1968-69, the assessee claimed deduction of one-seventh amount of the total lease money paid under the aforesaid agreement as revenue expenditure. He also claimed that the expenditure incurred on construction of the well and chimney was revenue expenditure. The ITO, however, held that the lease money paid by the assessee for the land was in the nature of capital expenditure. Similarly, he found that the cost of construction of the kiln as well as installation of…

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