A No 2020 of 1972
Appeal by certificate from the judgment and order dated March 28 1968 of the Rajasthan High Court at Jodhpur in Income tax  Reference No 1 1 of 1963
N D Karkhanis and A G Ratnaparkhi for the appellant
section C Manchanda P L Juneja section P Nayar and R N Sachthey for the respondent
The Judgment of the Court was delivered by JAGANMOHAN REDDY J
This appeal is by special leave against the judgment of the High Court of Rajasthan in I an income tax reference under section 66 1  by which it answered the two questions referred to it in the negative
Before this appeal was filed Appeal No 12381969 had been filed on a certificate but that is dismissed without costs because this Court had in several cases  held that in Income tax references if the High Court does not give any reasons while granting the certificate the certificate can be revoked
The assessee a firm carrying on mining business at Udaipur with a branch at Mandal had pursuant to an invitation to tender for mica mining in accordance with the terms and conditions prescribed in the Mineral Concession Rules tendered for certain areas for Rs 157150 of which Rs 3360 was payable towards the mica scrap lying on the surface
The lease was for 20 years and the areas which were offered had been worked by other Private companies for 15 years
This offer of the appellant was accepted and the lease was granted to it
In the relevant assessment year 1952 53 for which the previous year for the head office ended on October 30 1951 and for the branch ended 362 on March 30 1952 the appellant claimed Rs 7857 being the 120th of the tender money as revenue expenditure incurred during that year
The claim of the assessee was rejected by the Income tax Officer on the ground that the money was paid for the value of the land which it had acquired because the mine granted to the assessee had already been worked by the private companies
In an appeal against this order the Appellate Assistant Commissioner confirmed the disallowance of the expenditure as in his view it was a capital nature expended for the acquisition of a capital asset
Against this order an appeal was filed to the Appellate Tribunal
The Tribunal however allowed Rs 3360paid for mica scrap lying on the surface as a revenue expenditure incurred in the acquisition of stock in trade but disallowed the claim for the balance of Rs 153800 which was paid under the tender as a capital expenditure
The assessee had also claimed Rs 3200 as the fee paid by it a the rate of Re 1 per acre per year for prospecting licence
The income tax Officer disallowed this amount under section 102 xv of the Indian Income tax Act 1922 hereinafter called the Act  on the ground that the licence was obtained by the assessee only that year that the fee was paid in addition to the royalty payable on the value of the emeralds excavated and sold and that it was an initial expenditure for procuring a right to respect mines
The Appellate Assistant Commissioner in an appeal by the assessee negatived the claim on the ground that under that licence the assessee had a right to win and commercially exploit the minerals which the assessee actually carried out
The Tribunal while dismissing the appeal filed against the order of the Appellate Assistant Commissioner observed that the prospecting licence fee cannot be equated to a payment made for the purchase of stock in trade that it was not based on any quantity of minerals that the minerals had to be won and extracted from the earth and the term prospecting licence shows that the mine had not yet started working as a mine and that the payment was to initiate the business
It also held that the period of on year for which the licence was obtained cannot justify the fee paid as a revenue expenditure
The assessee thereafter filed  application under section 661 of the Act and as in its opinion a question of law did arise the Tribunal referred the following two questions to the High Court for its opinion  1
Whether on the facts and in the circumstances of the case the prospecting licence fee of Rs 3200is allowable as revenue expenditure  2
Whether on the facts and in the circumstances of the caste the appropriate Part of Rs 153800 was allowable as revenue expenditure  363 Taking the second question first it is contended before us by the learned advocate for the appellant that Rs 153800 paid for pillars of mica standing in the land leased out after the other private companies had worked it was a revenue expenditure because the tender which was given and accepted was on the basis of the calculations in the Indian Mining Hand Book for a specific quantity of mica in the mines which was the assessee s stock intrade
The revenue however submits that the amount of the lease was a capital outlay incurred for the initiation of the business and that the pillars of mica cannot be stock in trade unless the mica was excavated and brought to the surface
A large number of cases decided in this country and in England dealing with different topics were referred and arguments addressed before us dealing with many analogies of one kind or other tendu leaves mangoes apples sand brickearth lime and other commodities all with a view to persuade us to ascertain what is the true test to be applied to the particular facts of this case  We do not however propose to refer to cases dealing with variety of topics except perhaps to determine the nature of the expenditure incurred in this case by the assessee
This Court in Pingle Industries Ltd vs Commissioner of Income tax Hyderabad1 had occasion to examine exhaustively the relevant Indian and English cases for determining what is a capital expenditure and what is a revenue expenditure
That was also a case of mining where the assessee obtained leases for excavating Shahabad stones for a period of 12 years for which an annual payment of Rs 28000 was agreed upon
The majority of Judges Kapur J and Hidayatullah J as he then was section K Das J dissenting held that the assessee acquired by his long term lease the right to win stones that the stones in situ were not its stock in trade in a business sense but a capital asset from which after extraction it converted the stones into its stock in trade
It was also held that the payment was neither rent nor royalty but a lump payment in instalments for acquiring a capital asset of enduring benefit to its trade the amounts being out goings on capital account were therefore not allowable deductions
The proposition as qualified by Lord Cave in Atherton vs British insulated and Helsby Cables
Ltd2 that in the absence of any special circumstances leading to the opposite conclusion when an expenditure is made not only once and for all but with a view to bringing it into existence an asset or advantage for the enduring benefit of a trade has been applied explained and varied from time to time as the circumstances of the particular case required
The application of these principles to the various cases and the conclusions reached by courts in those cases often 1 2 213
6 L498Sup CI73 364 lead to irreconciliable results
It is because the topic itself is a troublesome one and is not rendered any the less difficult by resorting to principles
It is not always easy observed Romer LJ in olden Horse Shoe New Ltd vs Thurgood H M Inspector of Taxes1 to determine whether a particular asset belongs to one category or the other nor does it depend in any way on what may be the nature of the asset in fact or in law
 In our own Court this difficulty has been put very tersely
if we may say so with respect by Hidayatullah J as lie then was in Abdul Kayoom vs Commissioner of Income tax2 when he said  none of the tests is either exhaustive or universal
Each case depends on its own facts and a close similarity between one case and another is not enough because even A single significant detail may alter the entire aspect
In deciding such cases one should avoid the temptation to decide cases as said by Cordozo
The nature of the Judicial Process p 20 by matching the colour of one case against the colour of another
To decide therefore on which side of the line a case falls its broad resemblance to another case is not at all decisive
What is decisive is the nature of the business the nature of the expenditure the nature of the right acquired and their relation inter se and this is the only key to resolve the issue in the light of the general principles which are followed in such cases
 The determining factor will depend largely on the nature of the tract  in which the asset is employed
The several cases which do not deal with the mining leases but are concerned with different assets are of little help in the same way as in Mohanlal Hargovind vs CIT3 cases relating to the purchase or leasing of mining quarries deposits of brick earth were considered not to be of assistance by the Privy Council in case of a contract for collecting and removing tendu leaves
The principles enunciated for determining the nature of the expenditure have been sought to be applied to different situations arising on the facts of each case but the difficulty in matching them with the seeming irreconciliabiliiy are perhaps explicable only on the ground that the determination in any particular case is dependent on the character of the lease or agreement the nature of the asset the purpose for which the expenditure was incurred and such other factors as in the facts and circumstances of that case would indicate
If we confine our attention to the mining leases what appears to us 1 3 2 at 703
36 5 to be an empirical test is that where minerals have to be won extracted and brought to surface by mining operations the expenditure incurred for acquiring such a right would be of a capital nature
But where the mineral has already been gotten and is on the surface then the expenditure incurred for obtaining the right to acquire the raw material that is the mineral would be a revenue expenditure laid out for the acquisition of stock intrade
An expenditure incurred for acquiring a right to take away sand from the surface of river beds has been treated as if the sand was stock in trade MA Jabbar vs Commissioner of Income tax1 in the same way as tendu leaves have been treated by the Privy Council in Mohanlal Hargovind s case
In the former case Bhargava J indicated a number of factors which led to the conclusion that the expenditure incurred by the assessee in obtaining the lease was revenue expenditure for the purpose of obtaining stock in trade and not capital expenditure which were  1 that the lease was for a very short period of 11 months only 2 that the sole right which was acquired by the assessee under the lease deed was to take away the sand lying on the surface of the leased land where no question of raising digging or excavating for the sand before obtaining it was involved
In other words no operation had to be performed on the land itself and is not a case where the gravel is in any true sense as appointed out in Golden Horse Shoe New Ltd s case was won from the soil  it is merely shovelled up where it lies
 In the latter case the Privy Council said that the leases for the right to collect and remove tendu leaves under which a certain sum was payable by instalments as a consideration for the grant of that was a revenue expenditure it pointed Out that the contracts were short term contacts that the picking of the leaves had to start at once or practically at once and to proceed continuously and that under the contract it is tendu leaves and nothing but tendu leaves that are acquired
At page 478 while comparing that case with the case of Kauri Timber Co Ltd I
Commissioner of Taxes2 where the company s business consisted in cutting and disposing of timber and it had in some cases acquired timber bearing lands and in other cases it purchased the standing timber the lease itself being for 99 years the Privy Council observed In the present case the trees were not acquired nor were the leaves acquired until the appellants had reduced them into their own posse ssion and ownership by picking them
The two cases can in their Lordshops  opinion in no sense be regarded as comparable
If the tendu leaves had
been stored in a 1 2 1913 AC 771
366 merchant s godown and the appellants had bought the right to go and fetch them and so reduce them into their possession and ownership it could scarcely have been suggested that the purchase price was capital expenditure
Their Lordships see no ground in principal or reason for differentiating the present case from that supposed
 The analogy referred to in the above passage is sought to be applied to the facts of this case but in our view there is hardly any justification for such a conclusion having regard to the findings of the Tribunal and the income tax authorities
The learned advocate for the assessee contends that the Income tax Officer the Appellant Assistant Commissioner and the Tribunal each of them had given different findings for coming to the conclusion that the expenditure was of a capital nature while the High Court gave yet another reason to answer the questions against the assessee
Inasmuch as the correctness or otherwise of the order depends greatly upon what has been found as facts
of this case it would be useful to examine the respective orders
The Income tax Officer as we have earlier stated held that the money was paid for the value of the land which the assessee had acquired because the mine granted to the assessee had already been worked by other private companies
This finding according to the learned advocate is contrary to the facts set out in the statement of the case by the Tribunal in which a reference was made to paragraph 5 of the invitation to tender
It reads As the area has been worked by a private com pany during the past fifteen years all the known mines and quarries and prospecting pits have acquired a value which can be determined on the principles of mine valuation 
Intending applicants are therefore requested to visit the area before April 15 1950 and assign their own value and offer it
According to the assessee as already pointed out it had offered Rs 157150 after the mica had been valued on the principles of mine valuation which represented a payment of stock in trade
The Appellate Assistant Commissioner has rejected the claim of the assessee with these observations  On merits the appellant s claim cannot be sustained because the circumstances detailed above clearly indicate that the payment of tender money was for the acquisition of capital asset and not as sought to be made out for the stock of ores
The stock was not 367 here on the surface but it was still embedded with the only difference that its availability could be more definitely gauged than in the case of an unworked area
It would not make any material difference whether the miner acquires a lease on ordinary terms for an area which does not give a clear indication of the possible existence of ore or he acquires on more expensive terms an area which is in such a condition that it gives definite indication about the possibility of existence of ore therein and also broadly the extent thereof
Acquisition in either case would be of a capital asset and payment therefore small or large a capital expenditure
 Earlier the Appellate Assistant Commissioner had stated that when the lease was allotted to the appellant by the Mining Department it was made clear that any mica scrap left by the predecessor exploiters Ms Duduwala  Co on the surface would be removed either by these exploiters within three months or if not so removed it would stand forfeited to the Rajasthan Government in any case it was not to come to the appellants
 In the light of what has been stated it is clear that the Appellate Assistant Commissioner made a distinction between mica that has been excavated and brought it the surface and the mica which was still embedded and had to be excavated even though it was more easily avail able because of the labour already expanded in the working out of the mine by the other private companies
The conclusions of the Tribunal are set out in the following passage  In our opinion the amount paid cannot be equated to payment for raw materials
The raw materials have to be won and extracted before they could be said to be stock in trade
The sum represents the price that was paid by the assessee for obtaining the right to extract and win emerald and mica in an area which had already been worked and developed by a predecessor for 15 years
If the assessee had to start running a mine it had to incur similar expenditure
In this case the amount had been incurred and was paid for by the assessee
Thus this amount in our opinion represents capital expenditure incurred for the purpose of obtaining certain benefits of a capital nature
This is not in the nature of any royalty or rent paid by the assessee to the authorities
In this connection reference was made on behalf of the assessee to the provisions of Rule 51 of the Mineral Concession Roles which prohibits premium being paid for obtaining such a licence
This rule occurs in Chapter 5 which applies to grant 368 of mineral concessions by Private persons and we do not consider that the rule is relevant for considering the question in issue before us where the grant is by the State
We do not also think that this is in the nature of any premium
This is merely for the purpose of getting benefits of certain structures and other works carried out in the area which had already been worked as a mine previously
This cannot be equated to a premium that is contemplated by rule 5 1
We therefore agree with the authorities below in holding that the assessee has not made out the claim for de duction of the amount
 The finding of the Tribunal given in the above excerpt is clear and consistent with that given by the Income tax Officer and the Appellate Assistant Commissioner in that all of them distinguished between raw materials which had already been extracted and brought to the surface and those that have still to be extracted
Apart from the objection that no question was formulated by which the findings of the Tribunal were challenged on any admissible grounds there are in our view no contradictions in the fin ding of the Tribunal as submitted by the learned advocate for the assessee because what the Tribunal was dealing with in the latter part of the passage cited above were the contentions urged on behalf of the assessee firstly that the amount was a royalty or rent paid to the authorities and secondly what was paid was in the nature of premium
While rejecting these contentions the Tribunal gave its reasons but that is not to say that the conclusion that the amount was a capital expenditure was not based on the finding that mica had to be extracted and brought to the surface before it could be considered as the assessee s stock in trade
In our view the principles which have been applied in the Pingle Industries  case are equally applicable to the facts and circumstances of this case
The test for ascertaining whether the amount spent is of a capital nature is whether it was spent for obtaining a right of an enduring character which in the case of mining leases is to acquire rights over land for winning the mineral
In other words where the mineral is part of the land and some mining operations have to be performed to extract it from the earth the amount paid to acquire a right over or in the land to win that mineral is of an enduring character and hence a capital expenditure
In this case the mica pillars which have been exposed by the mining operation of other private companies had no doubt enhanced the value of the right which was leased 369 to the appellant but nonethelessthe appellant still had to carry out some mining operations to extract the mineral from the pillars which was embedded in the land
If the private companies before the mica was exposed had taken the lease they would have paid a much lesser amount which nonetheless would have been a capital expenditure
It is the labour and expense which the private companies expanded that has enured for the benefit of the Government and enhanced the capital value of the lease
This is not a case as is contended of mica having been given so as to form part of the stock in trade of the assessee as in the case of Golden Horse Shoe New Ltd vs Thurgood H M Inspector of Taxes 1 In that case the company had acquired rights in certain dumps of tailings  or residuals that remained after the extraction of gold from ore taken from certain gold mines
It was contended on behalf of the revenue that the company s rights in tailings and dumps were part of the undertaking which the company was formed to acquire and any sum paid therefore was capital expenditure and that the company s rights in the dump was the purchase of a wasting asset
This contention was negatived and it was held that the purchase price of the tailings was an admissible deduction in computing the company s profits for income tax purposes 
Lord Hanworth MR at page 298 observed After careful consideration of the present case in the course of which my mind has fluctuated on either side I think it is to be decided upon its own facts that none of the tests suggested affords a strict rule of guid ance
It seems then that the Company bought these dumps which were no longer in a natural but in an artificial condition which were in such a state that they would not have passed under a lease of beds opened or unopened minerals see Boileau vs Heat Ch
D 301 for the purpose of treating them as the stock in trade lying stored and ready to their hand at a fair price of pound 122750 and their intention was to use them up and make what they could of them by and after treatment
They had not to win them from the soil they had been gotten already
If the metaphor of working a mine be applied it might be said that the purchase of the dumps was a capital outlay
If the metaphor of making gas or coke from coal or of a miller making flour from wheat be applied it may be said that it was an outlay to be placed in the profit and loss account
But metaphors do not provide exact definitions and are often misleading
It is safer 1 370 to give an interpretation to the facts of this case as found in the case stated and upon the law relevant to them  This passage at once indicates the difficulties which he in common with other Judges have felt When called upon determine the nature of the expenditure
The lease in this case was for a long period it conferred a right to excavate the mica because on the findings of the Tribunal mica had to be extracted from the mine though the earlier working out of the those mines by other companies had made it much easier to perform the final operations and because of it a higher amount had to be paid
Nonetheless the amount paid was for acquiring a right of enduring nature to extract and remove the mica to bring it to the surface grade it and pay royalty to the Government in accordance with the quality of Leach grade of mica extracted
We accordingly hold that the expenditure incurred is a capital expenditure and that the second question has been rightly answered
On the first question whether the prospecting licence fee of Rs 3200 is allowable as revenue expenditure the contention on behalf of the assessee is that it is a licence fee not a lease amount nor does it create an interest in the land
The Income tax Officer the Appellate Assistant Commissioner and the Tribunal have all held that the fee paid for prospecting licence was not of a revenue nature
It was submitted before the Tribunal that under a prospecing licence issued under Chapter 3 of the Mineral Concession Rules 1943 the licensee had a right to win and carry away the minerals for commercial purposes and for that reason the amount should be treated as in the nature of a purchase price of a stock in trade
In support of this contention the provisions of T 23 were referred to but the Tribunal rejected that contention because in its view the amount was paid as and by way of prospecting fees which was for initiation of a business as in the case of other minerals and that the character of the licence did not change merely because the licensee had certain rights over the minerals obtained under the prospecting licence nor was it based on any quantity  of minerals
The minerals had to be won and extracted from the earth and the term prospecting licence  shows that the mine has not yet started working as a mine
It was a fee paid irrespective of the quantity of minerals obtained which demonstrated clearly that the object of the payment was to initiate the business
That apart the period for which the licence was obtained viz one year does not also make it a revenue payment and consequently it held that the authorities Tightly disallowed the amount
The finding by the Income tax authorities as well as the Tribunal that it was a payment for 371 initiating the mining operations was a finding of fact
In oar view also the fee was paid to obtain a licence to carryout investigate search and find the mineral with the objectof conducting the business of extracting ore from the earth
It is therefore clear that the fee was paid for initiating the business and is of a capital nature
By no stretch of argument can the fee paid for a prospecting licence be equated to a payment made for the purposes of stock in trade
We think that the Income tax authorities the Tribunal and the High Court are right in coming to that conclusion
Our answer to the first question is therefore also in the negative
The two questions having been answered against the assessee the appeal is dismissed with costs
VPS Appeal dismissed


Summary:
The assessee a firm carrying on mining business took on lease for 20 years certain areas which had been worked previously by
others and in which mica pillars had been exposed by those earlier mining operations
Mica scrap was also lying on the surface
The assessee paid a sum of money part of which was towards the mica scrap lying on the surface
The assessee also paid at Re 1  per acre per year as fee for prospecting licence The assessee claimed the 120th part of the money paid for the lease as well as the fee paid for the prospecting licence as revenue expen diture for purposes of income tax
The Tribunal allowed the money paid for the mica scrap lying on the surface as revenue expenditure but disallowed the other claims
The High Court also on reference held against the assessee appellant
Dismissing the appeal to this Court HELD  The expenditure incurred for the lease as well as the fee paid for the prospecting licence were not allowable as revenue expenditure
362G H 371C 1The test for ascertaining whether the amount spent for the lease is of a capital nature is whether it was spent for obtaining a right of an enduring character which in the case of mining lease is to acquire rights over land for winning the mineral
In other words where the mineral is part of the land and some mining operations have to be performed to extract it from the earth the amount paid to acquire a right over or in the land to win that mineral is of an enduring character and hence a capital expenditure
But where the mineral has already been gotten and is on the surface then the expenditure incurred for obtaining the right to acquire the raw material that is the mineral would be a revenue expenditure laid out for the acquisition of a stock in trade
365A B 368G H In the present case the findings of the Tribunal are clear and consistent with those given by the Income tax Officer and the Appellate Assistant Commissioner in that all of them distinguished between the raw materials which had already been extracted and brought to the surface and those that are still to be extracted
The mica pillars which had been exposed by the earlier mining operations had enhanced the value of the right which was leased to the appellant but none the less the appellant still had to carry out some mining operations to extract the mineral from the pillars which were embedded in the land
The lease was for a long period and it conferred a right to excavate the mica
The amount paid was therefore for acquiring a right of an enduring nature to extract and remove the mica to bring it to the surface grade it and pay royalty to the Government in accordance with the quality of each grade of mica extracted
368C D H 369A C 370B D Pingle Industries Ltd vs Commissioner of Income tax Hyderabad  followed
361 Artherten vs British Insulated and Helsby Cables Ltd  213 Kauri Timber Co Ltd vs Commissioner of Taxes 1913 AC 771 Golden Horse Shoe New Ltd vs Thurgood HM Inspector of Taxes 18TC 280 Abdul ayoom vs Commissioner of Income Tax at 703 Mohanlal Hargovind vs CIT and MA Jabbar vs Commissioner of income Tax  referred to
2The term prospecting licence  shows that the mine has not yet started working as a mine
The finding by the authorities and the Tribunal that the fee paid for the prospecting licence was a payment for initiating the mining operations was a finding of a fact
It was in fact a fee paid irrespective of the quantity of minerals obtained showing that the object of the payment was to initiate the business
The period for which the licence was obtained namely one year does not also make it a revenue payment
The fee paid to obtain the licence to carry out investigate search and find the mineral with the object of conducting the business of extracting ore from the earth is a fee paid for indicating the business and therefore is of a capital nature and could not be equated to a payment for the purposes of stock in trade
370D H 371A B