Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment years 1955-56 and 1956-57 - Assessee individual, with object of procuring sand obtained a lease for 11 months from Govt. and paid lease money in terms of lease deed - Assessee claimed lease money paid as revenue expenditure - ITO held that right to quarry sand from river bed was a right in nature of a capital asset, so payment made to secure that right was capital expenditure - Whether lease was for a very short period of 11 months only, assessee did not obtain any capital asset of an enduring nature by obtaining that lease - Held, yes - Whether sole right which was acquired by assessee under lease deed was to take away sand lying on leased land and there was no question of raising, digging or excavating for sand before obtaining it, no operations were, therefore, to be performed on land itself - Whether expenditure incurred by assessee was not related to acquisition of an asset or a right of a permanent character, it was for specific object of enabling assessee to remove sand lying loose on surface which was stock-in-trade of business of assessee, so that expenditure had to be regarded as revenue expenditure - Held, yes FACTS The assessee, an individual, with the object of procuring sand, obtained a lease for 11 months from the Government, and in terms of the lease deed, paid the lease money in two instalments in assessment years 1955-56 and 1956-57. Both these payments were claimed by the assessee, in the proceedings for assessment to income-tax, as revenue expenditure. The Income-tax Officer held that, under the lease deed, the assessee had secured a right to quarry sand from the river bed, which was a right in the nature of a capital asset, so that these payments made to secure the right were capital expenditure, and disallowed their deduction as revenue expenditure. On appeal, the AAC, on the facts found, held that what the assessee had secured under the lease deed was only stock-in-trade of his business and not a capital asset, so that his claim that the payments made by him under the lease…

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