Case: Pingle Industries Ltd., Secunderabad Vs. Commissioner Of Income Tax, Hyderabad

point of view of rating, but compensation has the same meaning in its application to matters of taxation such as are involved in this case."38. Thus, the contention of the learned counsel for the assessee that we should treat this quolnama as merely showing a licence and not a lease creating interest in land is not correct. A lease to take out sand was described in Kanjee and Moolji Bros. v. Shanmugam Pillai, ILR 56 Mad 169 : (AIR 1932 Mad 734 ), as amounting to a transfer of interest in immovable property and also so, in connection with the Registration Act in Secy. of State v. Kuchwar Lime and Stone Co., 65 Ind App 45 at p. 54: (AIR 1938 PC 20 at p. 22). It is thus clear that what the assessee acquired was land, a part of which in the shape of stones he was to appropriate under the covenants. He was not purchasing stones, and the price paid could not in any sense be referable to stones as stock-in-trade. The stones extracted might have become his stock-in-trade, but the stones in situ were not so.39. Nor do we agree that the periodicity of payments has any significance. As was pointed out by Lord Greene, M. R. in Henriksens case, (1942) 24 Tax Cas 453 :"If the sum payable is not in the nature of revenue expenditure, it cannot be made so by permitting it to be paid in annual instalments. These payments by instalments in respect of monopoly value have not the annual quality of the payments for grant of the annual excise licence, but are of a different character altogether ....... Here the Appellants were minded to acquire as asset in the shape of a licence for a term of years." The learned Master of the Rolls added that the annual payments gave "a false appearance of periodicity".40. Applying the above test to the present case, it is obvious that the monthly payments of Rs. 1,666-10-8 did not represent the lease amount for a month. This was a case in which the assessee had acquired an asset of an enduring character for which he had to put his hand in his pocket for a very large sum indeed. He paid Rs. 96,000 down, but for the rest he asked for easy terms. The amount paid every month was not in any sense a payment of acquisition of the right from month to month. It was really the entire sum chapped into small payments for his convenience. Nor an the amount be described as a business expense, because the outgoings over purchase of stones but in discharge of the entire liability to the jagir.41. Some of the cases to which we were referred may now be briefly noted. Hakim Ram Prasad In re, (1936) 4 ITR 104 (Lah), was a case of renting of a cinema projector for 10 years. The amount paid was thus hire for the machine. In Commr. of Income-tax v. Globe Theatres, Limited, 1950-18 ITR 403 : (AIR 1952 Cal 145 ), the assessee advance Rs. 10,000 to a company for the construction of a cinema house which was never built. Since the amount was not salami or premium but only advance rent, it was held deductible. Commissioner of Income-tax v. Kolhia Hirdagarh Co. Ltd., 1949-17 ITR 545 : (AIR 1950 Bom 51 ), was a case of commission on every ton of coal raised, and it was held to be revenue expenditure. These cases are entirely different, and can be of no authority for payments, such as we have.42. Reliance was also placed upon Parmanand Haveli Ram In re, (1945) 13 ITR 157 : (AIR 1945 Lah 137), Nand Lal Bhoj Raj In re, 1946-14 ITR 181 (Lah) and Commissioner of Income-tax v. Tika Ram and Sons, 1937-5 ITR 544 : (AIR 1937 All 708) (SB). In the first two, expenditure to acquire lands bearing certain salts in the earth, which could be converted into potassium nitrate, sodium chloride or saltpetre, was regarded as revenue expenditure. They follow the line of reasoning which the same Court adopted in the Full Bench case of Benarsidas, 1947-15 ITR 185 : (AIR 1947 Lah 162), which we have considered in detail earlier. They involved short-term contracts, and in the Full Bench case it was stated that the case of long-term leases was on a different footing, though, in our opinion, the decisive factors in such cases will be the nature of the acquisition and the reason for the payment. Cases on the other side of the line where payments were regarded as capital expenditure are Commissioner of Income-tax v. Chengalvaroya Mundaliar, ILR 58 Mad 1 : (AIR 1934 Mad 617 (2) ) (SB) and Chengalvaroya Chettiar v. Commissioner of Income-tax, (1937) 5 ITR 70 : (AIR 1937 Mad 300) (SB). There the expenditure was for a lease for excavation of lime shells. Since the lease conferred exclusive privilege and a new business was started, the payment was regarded not as the price for the shells but for the right to win shells.43. All these cases turned on different facts, and it is not necessary to decide which of them in the special circumstances were correctly decided. This enquiry will hardly help in the solution of the case in hand.We are, however, satisfied that in this case the assessee acquired by his long-term lease a right to win stones, and the leases convey to him a part of land. The stones in situ were not his stock-in-trade in a business sense but a capital asset from which after extraction he converted the stones into his stock-in-trade. The payment, though periodic in fact, was neither rent nor royalty but a lump payment in instalments for acquiring a capital asset of enduring benefit to his trade. In this view of the matter, the High Court was right in treating the outgoings as on capital account.44. In the result, the appeal fails, and will be dismissed with costs.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]6. This distinction between capital and revenue, either on the receipt or expenditure side, is almost a perennial problem in Income-tax law. In general the distinction is well-recognised and is based on certain principles which are easy of application in some cases; but from time to time cases arise which make the distinction difficult of application. A large number of decisions were cited before us, but no infallible criterion of universal application emerges therefrom and each case must turn on its own facts, though the decisions are useful as illustrations and as affording indication of the kind of considerations which may relevantly be borne in mind in approaching the problem. I shall refer in this judgment to such decision only as have a bearing on the real controversy between the parties.It is, I think, an accepted position now that the expression "capital expenditure" must normally be construed in a business sense and emphasis should be placed upon the business aspect of the transaction rather than on the purely legal and technical aspect. It is not, therefore, necessary to determine whether the Quolnama in the present case was in law a lease, or a license, or a license coupled with a grant. What we have to consider is the nature of the transaction from the business point of view, and it seems to me that having regard to the terms of the Quolnama, the transaction in its true nature and quality was a sale of raw materials coupled with a license to the appellant to come on the land and remove the materials sold; the purchase price was to be paid partly in a lump sum and partly in monthly instalments. If that is the true nature of the transaction, there is no difficulty in answering the question rasied. The only answer then is that the payments in question were revenue expenditure.In the result and for the reasons given above, I hold that the expenditure in question was on revenue account and the appellant was entitled to the allowance he claimed. The answer given by the High Court was wrong and the appeal should be allowed with costs.