Law: Income Tax Act, 1922

Section:

Income-tax-----Capital or revenue expenditure---Mining lease--Railway station, yard and quarters on part of Area leased---Restriction in lease on mining operation near area occupied by Railway---Amount paid for removal of Railway station, yard and quarters to another area being merely for purpose of removal of disability was a revenue expenditure. The appellant company took over a lease of 4.27 square miles for mining lump sum for a period of 20 years (with provision for renewal for a further period of 20 years), and carried on the business of mining gypsum in accordance with the terms and conditions of the lease. One of the clauses in the lease deed provided that no mining operation shall be carried on in or under the lands within a distance of 100 yards for any railway, reservoir, canal or other public works or any buildings, etc. except with previous permission. The railway authorities extended the railway area on the leased land by laying down fresh track, providing railway siding and also constructing quarters. The suit of the appellant for ejecting the railway was dismissed. Thereafter, under an agreement with the Government, the Railway Board and the Sindri Fertilisers to whom the appellant company supplied gypsum, the railway station, track, etc. were removed to another area offered by the appellant company. Out of the total expenses of Rs.12 lakhs incurred by the railway for the shifting, the appellant company paid Rs.3 lakhs as its share under the agreement. The appellant claimed deduction of the sum of Rs.3 lakhs in computing its profits. The Appellate Tribunal held that the sum was allowable as a deduction as it was a revenue expenditure. But the High Court, on a reference, held that the amount was capital expenditure. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that the amount was spent on the removal of a restriction which obstructed the carrying on of the business of mining within a particular area in respect of which the appellant had already acquired mining rights. The payment of Rs.3 lakhs was not made for initiating the business of mining operations or for acquiring any right; the payment was made: for…

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