Case: Maharaja Chintamani Saran Nath Sah Deo Vs. The Commissioner Of Income-Tax, Bihar &amp; Orissa

The appeal relates to three assessments made on the appellant for the respective assessment years 1945-46, 1946-47 and 1947-48.2. The appellant is a Zamindar and owns considerable properties. In the accounting years he granted licences to different parties to prospect for Bauxite. The particulars of the licences are :Received from Date of the Licence. Period of Licence. Assessment Year Amount Received. Rs.1. Aluminium Coroporation of India Ltd.20-1-1945 6 months 1945/46 15,290/-.2. Indian Aluminium Co. Ltd. 26-5-1945 1 year 1946/47 1,24,789/-.3. Dayanand Modi 7-5-1945 6 months 1947/48 1,500/-4. Indian Aluminium Co. Ltd. 14-8-1945 1 year 1947/48 70,146/-.The Income-tax Officer held that these amounts were received as revenue payments and were therefore taxable. On appeal to the Appellate Assistant Commissioner the amounts were held to be capital receipts but this order was set aside by the Income-tax Appellate Tribunal which held the amounts to be revenue receipts and taxable as such. At the instance of the appellant the case was referred to the High Court under S. 66(1) of the Income-tax Act and the following question was stated for the opinion of the Courtin the facts and circumstances of these cases the sums of Rs. 15,209, Rs. 1,24,789, Rs. 1,500 and Rs. 70,146 received by the assessee are income assessable to tax under the Indian Income-tax Actquestion was answered in the affirmation and the High Court held that there was material to support the finding of the Tribunal, and it was a finding of fact ; that the amounts received by the appellant were revenue receipts and not capital receipts. Against this judgment the appellant has come in appeal to this court by special leave.

Court's reasoning:
This, in our opinion, is not a correct approach to the question. What the license gave to the licensee was the right to enter upon the land to prospect, search and mine quarry, bore, dig and prove all Bauxite lying in or within the land and for that purpose the licensee had the right to dig pits, shafts, borings and to remove, take away and appropriate samples and specimens of Bauxites in reasonable quantities not exceeding 100 tons in the aggregate. It cannot be said that this amounts merely to a grant of the use of the capital of the licensor but it was really a grant of a right to a portion of the capital in the shape of a general right to the capital asset.The periods of the licences were comparatively short 6 months in two cases and a year each in the other two. Under the covenants the licensees were to cause as little damage as possible to the surface of the land. They were to give full information regarding the progress of the operations and true copies of all borings to the licensor. The licensees were also required to plug all holes made by them. The licensor covenanted to give a reasonable right of passage through and over the adjoining lands and properties and in consideration of the premium paid, the licensees could, at their option, after giving necessary notice and on payment of a further sum, get a mining lease for a term of thirty years on the terms and conditions set out in the indenture attached as schedule 2 to the licence. The Income-tax Appellate Tribunal found that the licensees were not granted any interest in land and the amounts received were revenue receipts and therefore, assessable to income-tax.There the assessee company, which carried on business in sand and gravel, purchased two unworked deposits. The company contended that the payments made to acquire the deposits were deductible being expenditure which was incurred in the acquisition of trading stock or otherwise of revenue character. It was held that the company had acquired a capital asset and not stock-in-trade. The case turned upon a finding by the special commissioners and is not helpful.In our opinion the High Court was in error and the question referred should have been decided in favour of the appellant