BIKANER GYPSUMS LTD.versusCOMMISSIONER OF INCOME TAX, RAJASTHAN

               BIKANER GYPSUMS LTD.
                                                                           A
                        v.
      COMMISSIONER OF INCOME TAX, RAJASTHAN

                         OCTOBER 23, 1990

   [K.N. SINGH, K.N. SAIKIA AND KULDIP SINGH, JJ.]                         B

      Income Tax Act 1922/Jncome Tax Act 1961-Section 10(2)(xv)/
Section 37( ])-Capital or revenue expenditure-Determination of in
the case of mining leases-FacJors to be considered-What are.

      The appellant-assessee carried on the business of mining gypsum.
The predecessor-in-interest of the' assessee acquired a lease from the     c
Maharaja of one of the erstwhile princely State on September 29, 1948
for mining of gypsum for a period of 20 years over an area of 4.27
square miles in the State. The lease was liable to be renewed after the
expiry of 20 years. By a deed of assignment dated December 11, 1948
the rights under the lease were assigned to the assessee company, in       D
which the State Government owned 45% shares.

      The assessee entered into an agreement with a Government of
India Public Undertaking for the supply of gypsum of minimum of
83.5% quality. Under the lease, the assessee was conferred the liberties
and powers to enter upon the entire leased land and to search for win,     E
work, get, raise, convert and carry away the gypsum for its own
benefits in the most economic convenient and beneficial manner and to
treat the same by calcinatioo and other processes. The lease agreement
consisted of several parts and each part contained several clauses.
Clause 3 of part in prescribed restrictions on mining operatfon within
100 yards from any railway, reservoir, canal or other public works.        F
This clause had beeil incorporated in the lease to PJ'Olect the railway
track and railway station which was situated within the area deiiilsed
to the lessee.

      The assessee exclusively carried on the mining of gypsum in the
entire area demised to it. The Railway Authorities extended the railway    G
area by laying down fresh track, providing for railway siding and
fOrther constructed· quarters in the leased area without the permission
of the assessee.

     The assessee company filed a civil suit for ejecting the railways
from the encroached area but it failed in the suit.                        H

                                  313
    314          SUPREME COURT REPORTS                 [1990] Supp. 2 S.C.R.

          As the assessee company on research and snrvey found that under
A
    the railway area a high quality of gypsum was available, which was
    required as raw material by the Public Sector Company, all the parties
    (Public Sector Company, the Railway Board and the assessee company)
    negotiated the matter, the Railway Board agreeing to shift the railway
    station, track and yards to an alternative area offered by the assessee,
B   the parties equally bearing the cost of the shilling.

          Under the aforesaid agreement, the assessee company paid a snm
    of Rs.3 lakbs as its share towards the cost of shifting of the Railway
    Station and other constructions, and claimed deduction of the said snm
    for the assessment year 1964-65. The Income Tax Officer rejected the
    assessee's claim on the ground that it was a capital expenditure. The
c   order was confirmed on appeal by the Appellate ~tan! Commissioner.

          On appeal by the assessee, the Income Tax Appellate Tribunal
    held thilt the payment of Rs.3 lakhs by the assessee company was not a
    capital expenditure, but a revenue expenditure. The Tribunal referred
D   the question to the High Court under section 256 of the Income Tax Act,
    1961, on an application by the revenue, which held that since on pay-
    ment of Rs.3 lakhs to the Railways the assessee acquired a new asset
    which was attributable to capital of enduring nature, the sum of Rs.3
    lakhs was a capital expenditure and it could not be a revenue ex-
    penditure.
E
          In the appeal to this Court on the question whether the payment
    of Rs.3 lakbs to the Northern Railway was a revenue expenditure and
    was a deduction allowable under the Income Tax Act, 1961.

          , Allowing the appeal, this Court,
F
         HELD: l(a) Where the assessee has an existing right to carry on a
    business, any expenditure made by it during the course of business for
    the purpose of removal of any restriction or obstruction or disability
    would be on revenue account, provided the expenditure does not
    acquire any capital asset. [326A]
G
          (b) Payments made for removal of restriction, obstruction or dis-
    ability may resnlt in acquiring benefits to the business, bot that by itself
    would not acquire any capital asset. [326B]

         Gotan Lime Syndicate v. C./. T., Rajasthan & Delhi, [1966) 59
H   ITR 718; M.A. Jabbar v. C. /. T .. Andhra Pradesh, Hyderabad, [1968)
                       BIKANER GYPSUMS v. 'C.l.T.                    315

2 SCR 413 and Commissioner of Inland Revenue v. Carron Company,              A
[1966-69] 45 Tax Cases 18, referred.

      Empire Jute Company v. C./. T., [1980] 124 ITR l, affirmed.

      In the instant case, the assessee have been granted mining lease in
respect of 4.27 square miles under which he had right to sink, dig,          B
drive, qnarry and extract mineral i.e. the gypsum and in that process
he had right to dig the surface of the entire area leased out to him. The
payment of Rs.3 lakhs was not made by the assessee for the grant of
permission to carry on 'mining operations within the railway area,
instead the payment was made towards the cost of removing the con-
struction which obstructed the mining operations. On the payment
made to the Railway Authorities the assessee did not acquire any fresh
                                                                             c
right to any mineral nor he acquired any capital asset instead, the
payment was made by it for shifting the Railway Station and track
which operated as hindrance and obstruction to the business of mining
in a profitable manner. [326C-E]
                                                                             D
      2. there may be circumstances where expenditure, even if incur-
red for obtaining advantage of enduring benefit would not amount to
acquisition of asset. The facts of each case have to be home in mind in
considering the question having regard to the nature of business, its
requirement and the nature of the advantage in commercial sense. [326F-G]
                                                                             E
     3(a) The test for considering the expenditure for the pnrposes of
bringing into existence an asset or an advantage for the enduring
benefit of a trade is not always true and conclusive. [327Bj

      3(b) In considering the cases of mining business the nature of the
lease the purpose for which expenditure is made, its relation to the         F
carrying on of the business in a profitable manner should be con-
sidered. [32f>Hj

      In the instant case, existence of Railway Station, yard and build-
ings on the surface of the demised land operated as an obstruction to the
assessee's business of mining. The Railway Anthorities _agreed to shift      G
the Railway establishment to facilitate the assessee to carry on his busi-
ness in a profitable manner and for that purpose the assessee paid a sum
of Rs.3 lakhs. The payment made by the assessee was for removal of
disability and obstacle and it did not bring into existence any advantage
of an enduring nature. There was therefore, no acquisition of any capi-
tal asset. [326H; 327A]                                                      H
    316         SUPREME COURT REPORTS              [ 1990) Supp. 2 S.C.R.

          British Insulated and Helsby Cables Ltd. v. Atherton, (1926) AC
A
    205, explained.

         Assam Bengal Cement Co. Ltd. v. The Commissioner of Income
    Tax, West Bengal, [1955] 1SCR972, referred to.

B        R.B. Seth Moo/chand Suganchand v. Commissioner of Income
    Tax, New Delhi, (1972) 86 ITR 647, distinguished.

          4. The Tribunal rightly allowed the expenditure on revenue
     account. The High Court failed to appreciate the true nature of the
     expenditure. It committed an error in interfering with the findings
C   recorded by the Income Tax Appellate Tribunal. [3278-C]

         CIVIL APPELLATE JURISDICTION: Civil Appeal No. 262
    (NC) of 1976.               .

         From the Judgment and Order dated 24.4.1975 of the Rajasthan
D   High Court in D.B. Civil I.T.R. No. 45 of 1969.

         Mrs. Anjali Verma for JBD & Co. and D.N. Misra for the
    Appellant.

         O.P. Yaish, S. Rajappa, Vinay Yaish, S.K. Aggarwal and Ms.
E   A. Subhashini for the Respondents .
           .
          The Judgment of the Court was delivered by

          SINGH, J. This appeal is directed against the judgment and
    order of the High Court of Rajasthan dated 24.4.1975 answering the
F   question referred to it by the Income Tax Appellate Tribunal in the
    negative, in favour of the Revenue and against the assessee. The ques-
    tion referred to the High Court was as under:

               "Whether on the facts and in the circumstances of the case,
               the Tribunal was right in holding that the payment of Rs.3
G              lakhs to the Northern Railway was a revenue expenditure
               and was a deduction allowable under the Income Tax Act.
               1961?"

    The circumstances leading to the reference and the appeal was neces-
    sary to be stated. The Natural Science (India) Ltd. predecessor-in-
H   interest of the assessee acquired a lease from the Maharaja of the
                      BIKANER GYPSUMS v. C.I.T. (SINGH, J.]                317

      erstwhile Bikaner State on September 29, 1948 for mining of gypsum          A
      for a period of 20 years over an area of 4.27 square miles at Jamsar.
      The lease was liable to be renewed after expiring of 20 years. The
      Natural Science (India) Ltd. by a deed of assignment dated December
      11,. 1948 assigned the rights under the lease to the Bikaner Gypsums
      Ltd., a company wherein the State Government owned 45 per cent
                                                                                  B
      share. The Bikaner Gypsums Ltd. (hereinafter referred to as 'the
      assessee') carried on the business of mining gypsum in accordance with
      the terms of conditions stated in the lease. The as,essee entered into
      an agreement with Sindri Fertilizers, a Governm~nt of India Public
      Undertaking for the supply of gypsum of minimum of 83.5 per cent
      quality. Under the lease, the assessee was conferred the liberties and
      powers to enter upon the entire leased land and to search for win,          c
      work, get, raise, convert and carry away the gypsum for its own
      benefits in the most economic, convenient and beneficial manner and
      to treat the same by calcination and other processes. Clause 2 of Part
      II of the lease authorised the lessee to sink, dig, drive, quarry, make,
      erect, maintain and use in the said lands any borings, pits, shafts,
      inclines, drifts, tunnels, trenches, levels, water-ways, airways and
      other works and to use, maintain, deepen or extend any existing works
      of the like nature in the demised land for the purpose of winning and
      mining of the mineral. Clause 3 granted liberty to erect, construction,
      maintain and use on or under the land any engines, machinery, plant,
      dressing, floors, furnaces, brick kilns, like kilns, plaster kilns etc.
      Clause 4 conferred liberty on the lessee to make roads and ways and         E
      use existing roads and ways. Clause 7 granted liberty to the assessee to
      enter upon and use any part of parts of the surface of the said lands for
      the purpose of stacking, heaping or depositing thereon any produce of
      the mines or works carried on and any earth materials and substance

I    'dug or raised under the liberties and powers. Clause 8 conferred
      liberty on the lessee to enter upon and occupy auy of the surface lands
      within the demised lands other than such as are occupied by dwelling
                                                                                  F

      houses or farms and the offices, gardens and yards. Clause 9 conferred
      power on the lessee to acquire, take up and occupy such surface lands
      ih the demised lands as were then in the occupation of any body other
      than the Government on payment of compensation and rent to such
      occupiers, and if the lessee is unable to acquire such land from the        G
    ' tenants and occupiers, the Government undertook to aequire such
      surface land for the lessee at the lessee's cost. Clause 15 of Part II
      <;onferred liberty and power on the lessee to do all things which may be
      necessary for winning, working getting the said minerals and also for
      calcining, smelting, manufacturing, converting and making merchantable.
                                                                                  H
    318           SUPREME COURT REPORTS               [1990) Supp. 2 S.C.R.

          Part 111 of the lease contained restrictions and conditions to the
A
    exercise of the liberties and powers and privileges as contained in Part
    II of the lea£e. Clause 2 of Part Ill provided that the lessee ;hall not
    enter upon or occupy surface of any land in the occupation of any
    tenant or occupier without making reasonable compensation to such
    tenant or occupier. Clause 3 prescribed restriction on mining opera-
B   tion within 100 yards from any railway, reservoir, canal or other
    public works. It reads as urider:

                  "Clause 3: No mining operations or working shall be car-
                  ried on or permitted to be carried on by the lessee in or
                  under the said lands at or to any point within a distance of
                  100 yards from any railway, reservoir, canal or other :oublic
c                 works or any buildings or inhabited site shown on the plan
                  hereto annexed except with the previous permission in
                  writing of the Minister, or some officer authorised by him
                  in that behalf or otherwise then in accordance with such
                  instructions, restrictions and conditions either general or
D                 special which may be attached to such permission. The said
                  distance of 100 yards shall be measured in the case of a
                  Railway Reservoir or canal horizontally from the outer of
                  the bank or of outer edge of the cutting as the case may be
                  and in the case of a building horizontally from the plinth
                  thereof."
E
    The above clause had been incorporated in the lease to protect the
    railway track and railway station which was situate within the area
    demised to the lessee. Clause 5 of Part VIII of the agreement stated as
    under:

F                 "Clause 5: If any underground or mineral rights in any
                  lands or mines covered and leased to the lessee in accor-
                                                                                  I
                  dance with the provisions of those presents be claimed by
                  any 'Jagirdar' 'Pattedar', 'Talukdar', tenant or other person
                  then and in all such cases the Government shall upon notice
                  from the lessee forthwith put the lessee in possession of all
G                 such lands and mines free of all costs and charges to the
                  lessee and any compensation required to be paid to any
                  such "Jagirdar", 'Pattedar', 'Talukdar', tenant or other
                  person claiming to have any underground or mineral rights
                  shall be paid by the Government."                               ,'

H         I The   assessee company exclusively carried on the mining of
                  BIKANER GYPSUMS v. C.I.T. [SINGH, J.]                 319

gypsum in the entire area demised to it. The Railway authorities
                                                                               A
extended the railway area by laying down fresh track, providing for
railway siding. The Railways further ~onstructed quarters in the lease
area without the permission of the assessee company. The assessee
company filed a suit in civil court for ejecting the Railway from the
encroached area but it failed in the suit. The assessee company, there-
upon, approached the Government of Rajasthan which had 45 per                  B
cent share of it and the Railway Board for negotiation to remove the
Railway Station and track enabling the assessee to carry out the min-
ing operation under the land occupied by the Railways {hereinafter
referred to as the 'Railway Area'). Since, on research and survey the
assessee company found that under the Railway Area a high quality of
gypsum was available, which was required as raw material by the
Sindri Fertilizers. All the four parties namely, Sindri Fertilizers,           c
Government of Rajasthan, Railway Board and the assessee company
negotiated the matter and ultimately the Railway Board agreed to shift
the railway station, trak and yards to another place or area offered by
the assessee. Under the agreement the Railway authorities agreed to
shift the station and all its establishments to the alternative site offered   D
by the assessee company and it was further agreed and all the four
parties, Sindri Fertilizers, Government of Rajasthan, Indian Railway
and the assessee company shall equally bear the total expenses of
Rs. 12 lakhs incurred by the Railways in shifting the railway station, yards
and the quarters. Pursuant to the agreement, the assessee company
paid a sum of Rs.3 lakhs as its share to the Northern Railway towards          E
the cost of shifting of the Railway Station and other constructions. In
addition to that the assessee company further paid a sum of Rs. 7 ,300
to the Railways as compensation for the surface rights of the leased
land. On the shifting of the Railway track and Station the assessee
carried out mining in the erstwhile Railway Area and it raised gypsum
to the extent of 6,30,390 tons and supplied the same to Sindri                 F
Fertilizers.

      The assessee company claimed deduction of Rs.3 lakhs paid to
the Northern Railway for the shifting of the Railway Station for the
assessment year 1964-65. The Income-Tax Officer rejected the asses-
see's claim on the ground that it was a capital expenditure. On appeal by      G
the assessee, the Appellate Assistant Commissioner confirmed the
order of the Income-Tax Officer. On further appeal by the assessee the
Income Tax Appellate Tribunal held that the payment of Rs.3 lakhs by
the assessee company was not a capital expenditure, instead it was a
revenue expenditure. On an application made by the Revenue the
Income Tax Appellate Tribunal (hereinafter referred to as 'the                 H
       320         SUPREME COURT REPORTS               [1990] Supp. 2 S.C.R,

    Tribunal') referred the question as aforesaid to the High Court under
A
    s. 256 of the Income Tax Act, 1961. The High Court held that since on
                                   '
    payment of Rs.3 lakhs to the Railway  the assessee acquired a new asset
  . which was attributable to capital of enduring nature, the sum of Rs. 3
    lakhs was a capital expenditure and it could not be a revenue expendi-
    ture. On these findings the High Court answered the question in the
B negative in favour of the Revenue against the assessee and it set aside
    the order of the Tribunal by the impugned order.                  ·

             Learned counsel for the appellant contended that since the entire    i
       area had been leased out to the assessee for carrying out mining opera-    l
       tions, the assessee had right to win, the minerals which lay under the
       Railway Area as that land had also been demised- to the assessee.
c      Since, the existence of railway station, building and yard obstructed
       the mining operations, the assessee paid the amount of Rs.3 lakhs for
       removal of the same with a view to carry on its business profitably. The
       assessee did not acquire any new asset, instead, it merely spent money
       in removing the obstruction to facilitate the mining in a profitable
j'.)   manner. On the other hand, learned counsel for the Revenue urged
       that in view of the restriction imposed by Clause 3 of Part Ill of the
       lease, the assessee had no right to the surface of the land occupied by
       the Railways. The assessee acquired that right by paying Rs.3 lakhs
       which resulted into an enduring benefit to it. It was a capital expendi-
       ture. Both the counsel referred to a number of decisions in support of
E      their submissions.
                                                                                  •
              The question whether a particular expenditure incurred by the       ~
       assessee is of Capital or Revenue nature is a vexed question which has
       always presented difficulty before the Courts. There are a number of       ~
       decisions of this Court and other courts formulating tests for distin-
F      guishing the capital from revenue expenditure. But the tests so laid
       down are not exhaustive and it is not possible to reconcile the reasons
       given in all of them, as each decision is founded on its own facts and
       circumstances. Since, in the instant case the facts are clear, it is not
       necessary to consider each and every case in detail or to analyse the
       tests laid down in various decisions. However, before we consider the
G      facts and circumstances of the case, it is necessary to refer to some of
       the leading cases laying down guidelines for determining the question.
       In Assam Bengal Cement Co. Ltd. v. The Commissioner of Income
       Tax, West Bengal, [1955] 1 SCR 972,-this Court observed that° in the
       great diversity of human affairs and the complicated nature of business
       operation, it is difficult to lay down a test which would apply to all
H      situations. One has, therefore, to apply the criteria from the business
                          BIKANER GYPSUMS v. C.I.T. !SINGH, J.l                321

        point of view in order to determine whether on. fair appreciation of the
                                                                                      A
        whole situation the expenditure incurred for a particular matter is of
        the nature of capital expenditure or a revenue expenditure. The Court
        laid down a simple test for determining the nature of the expenditure.
        It observed:     ·

                     "If the expenditure is made for acquiring or bringing into       B
                     existence an asset or advantage for the enduring benefit of
                     the business it is properly attributable to capital and is of
                   . the nature of capital expenditure. If on the other hand it is
                     made not for the purpose of bringing into existence any
                     such asset or advantage but for running the business or
                     working it with a view to produce. the profits it is a revenue
                     expenditure. If any such asset or advantage for the endur-       c
                     ing benefit of the business is thu.s acquired or brought into
                    .existence it would be.immateriai whether the source of the
                     payment was the capital or the income of the concern or
                     whether the payment was made once and for all or. was
                     made periodically. The aim and object of the expenditure         D
                     would determine the character of the expenditure whether
                     it is a capital expenditure or a tevenue expenditure.,.

               In K. T.M. T.M. Abdul Kayoom and Another v. Commissioner of
         Income Tax, [ 1962] 44 ITR 589, this Court after considering a number
         of English and Indian authorities held that each case depends on its         E
         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. The Court observed that 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      F
         such cases. In that case the assesse.e claimed deduction of Rs.6, 111
         paid by it to the Government as lease money for the.grant of exclusive
         rights, liberty and authority to fish and carry away all chank shells in
         the sea off the coast line of a certain area specified in the lease for a
         period of three years. The Court held that the amount of Rs.6, 111 was
       · paid to obtain an enduring benefit in the shape 9f an exclusive right to     G
         fish; the payment was not related to the chanks, instead it was an
         amount spent in acquiring an asset from wh.ich it may collect its stock-
         in-trade. It was, therefore, an expenditure of a capital nature.

             In Bombay Steam Navigation Co. Pvt. Ltd. v. Commissioner of
        Income Tax, Bombay, [ 1965] l SCR 770, the assessee purchased the             H
    322         SUPREME COURT REPORTS               [ 1990] Supp. 2 S.C.R.

    assets of another Company tor purposes of carrying on passenger and
A
    ferry services, it paid part of the consideration leaving the balance
    unpaid. Under the agreement of sale the assessee had to pay interest
    on the unpaid balance of money. The assessee claimed deduction of
    the amount of interest paid by it under the contract "of purchase from
    its income. The court held that the claim for deduction of amount of
B   interest as revenue expenditure was not admissible. The Court
    observed that while considering the question the Court should con-
    sider the nature and ordinary course of busin~ss and the object for
    which the expenditure is incurred. If the outgoing or expenditure is so
    related to the carrying on or conduct of the business, that it may be
    regarded as an integral part of the profit-earning process and not for
    acquisition of an asset or a right of a permanent character, the posses-
c   sion of which is a condition for the carrying on of the buisness, the
    expenditure may be regarded as revenue expenditure. But, on the facts
    of the case, the Court held tltat the assessee's claim was not admissi-
    ble, as the expenditure was related to the acquisition of an asset or a
    right of a permanent character, the possession of which was a condi-
D   tion for carrying the business.
                                                                                     •
          The High Court has ·relied upon the decision of this Court in
    R. B. Seth Moo/chand Suganchand v. Commissioner of Income Tax,
    New Delhi, (1972] 86 !TR 647, in rejecting the assessee's contention.
    In Suganchand's case .the assessee was carrying on a mining business,
E   he had paid a sum of Rs.1,53,800 to acquire lease of certain areas of
    land bearing mica for a period of 20 years. Those areas had already
    been worked for 15 years by other lessees. The assessee had paid a sum



F
    of Rs.3,200 as fee for a licence for prospecting for emerald for a period
    of one year. In addition to the fee, the assessee had to pay royalty on
    the emerald excavated and sold. The assessee claimed the expenditure
    of Rs.3,200 paid by it as fee to the Government for prospecting licence
                                                                                -
    as revenue expenditure. The assessee further claimed that the
    appropriate part of Rs. 1,53,800 paid by it as lease money was allow-·
    able as revenue expenditure. The Court held that while considering
    the question in relation to the mining leases an empirical test is that
    where minerals have to be won, extracted and brought to surface by
G   mining operations, the expenditure incurred for acquiring such a right ·
    would be of a capital nature. But, where the mineral has already been
    gotten artd is on the surface, then the expenditure incurred for obtain-
    ing the'tight to acquire the raw material would be a revenue expendi-
    ture. The Court held that since the payment of tender money was for
    acquisition of capital asset, the same could not pe treated as a revenue    .•
H   expenditure. As regards the claim relating to the prospecting licence
                        4
                 BIKANER GYPSUMS v. C.I.T. [SINGH, J.J               323

fee of Rs.3,200 the Court held that since the licence was for prospect- A
ing only and as the assessee had not started working a mine, the
payment was made to the Government with the object of initiating the
business. The Court held that even though the amount of prospecting
licence fee was for a period of one year, it did not make any difference •
as the fee was paid to obtain a licence to investigate, search and find
the mineral with the object o_f conducting the business, extracting ore B
from the earth necessary for initiating the business. The facts in.valved
in that case are totally different from the instant case. The assessee in
the instant case never claimed any deduction with regard to the licence
fee or royalty paid by it, instead, the claim relates to the amount spent
on the removal of a restriction which obstructed the carrying of the
business of mining within a particular area in respect of which the
assessee had already acquired mining rights. The payment of Rs.3 C
lakhs for shifting of the Railway track and Railway Station was not
made for initiating the business of mining operations or for acquiring
any right, instead the payment was made to remove obstruction to
facilitate the business of mining. The principles laid down in Sugan-
chand's case do not apply to the instant case.                             D

     In British Insulated and He/sby Cables Ltd. v. Atherton, [1926]
AC 205, Lord Cave laid dowh a test which has almost universely been
accepted. Lord Cave observed:

           ·· ... when an expenditure is made, not only once and for        E
           all, but with a view to bringing into existence an asset or an
           advantage for the enduring benefit of a trade, I think that
           there is very good reason (in the absence of special cir-
           cumstances leading to an opposite conclusion) for treating
           such an expenditure as properly attributable not to revenue
           out to capital."                                                 F

This dictum has been followed and approval by this Court in the cases
of Assam Bengal Cement Co. Ltd. (supra); Abdul Kayoom (supra) and
Seth Suganchai:zd (supra) and sever\' other decisions of this Court.
But, the test laid down by Lord Cave has been explained in a number
of cases which show that the tests for considering the expenditure for      G
the purposes of bringing into existence, as an asset or an advantage for
the enduring benefit of a trade is not always true and perhaps Lord
Cave himself had in mind that the test of enduring benefit of a trade
would be a good test in the absence of special circumstances leading to
an opposite conclusion. Therefore, the test laid down by Lord Cave
was not a conclusive one as Lord Cave himself did not regard his test       H
     324           SUPREME COURT REPORTS             [1990] Supp. 2 S.C.R.

     as a conclusive one and he recognised that special circumstances might
A
     very well lead to an opposite conclusion.
               '
 c       In Gotan Lime Syndicate v. C.I. T., Rajasthan & Delhi, [1966] 59
   ITR 718, 'the assessee which carried on the business of manufacturing
   lime from limestone, was granted the right to excavate limestone in
B certain areas under a lease. Under the lease the assessee had to pay
   royalty of Rs.96,000 per annum. The assessee claimed the payment
   of Rs.96,000 to the Government as a revenue expenditure. This
   Court after considering its earlier decision in Abdul Kayoom 's case
   (supra) and also the decision of Lord Cave in British Insulated (supra),
   held that the royalty paid by the assessee has to be allowed as revenue
   expenditure as it had relation to the raw materials to be excavated and
c  extracted; The Court observed that the royalty payment including the
   dead rent had relation to the lime deposits. The Court observed
   although the assessee did derive an advantage and further even though
   the advantage lasted at least for a period of five years there was no
   payment made once for all. No lump sum payment was ever settled,
D. instead, only an annual royalty and dead rent was paid. The Court held
   that the royalty was not a direct payment for securing an enduring
   benefit,' instead it had relation to the raw materials to be obtained. In    •
   this decision expenditure for securing an advantage which was to last
   at least for a period of five years was not treated to have enduring
   benefit. In M.A. Jabbar v. C.I. T. Andhra Pradesh, Hyderabad, [1968]
E  2  SCR 413, the assessee was carrying on the business of supplying
   lime and sand, and for the purposes of acquiring sand he had obtained
   a lease of a river bed from the State Government for a period of 11
   months. ,Under the lease he had to pay large amount of lease money
   for the grant of an exclusive right to carry away sand within, under or
   upon the land. The assessee in proceedings for assessment of in come-
F tax claimed deduction with regard to the amount paid as lease money.
   The Court held that the expenditure incurred by the assessee was not
   related to the acquisition of an asset or a right of permanent character
     instead the expenditure was for a specific object of enabling the asses-


G
     see to remove the sand lying on the surface of the land which was
     stock-in-trade of the business, therefore, the expenditure was a
     revenue expenditure.
                                                                                    -
           Whether payments made by an assessee for removal of any rest-
     riction or obstacle to its business would be in the nature of capital or
     revenue expenditure, has been considered by courts. In Commissioner
     of Inland Revenue v. Carron Company, [1966-69] 45 Tax Cases 13 the
H    assessee carried on the business of iron founders, which was incor-
                 BIKANER GYPSUMS v. C.l.T. (SINGH, J.l              325

porated by a Charter granted to it in 1773. By passage of time many of
                                                                           A
its features had become archaic and unsuited to modern conditions and
the· company's commercial. performance was suffering a progressive
decline. The Charter of the company placed restriction on the com-
pany's borrowing powers and it placed restriction on voting rights of
certain members. The company decided to petition for a supplemen-
tary Charter providing for the vesting of the management in Board of       B
Directors and for the removal of the limitation on company's borrow-
ing powers and restrictions on the issue and transfer of shares. The
company's petition was contested by dissenting share-holders in court.
The company settled the litigation under which it had to pay the cost of
legal action and buy out the holdings .of the dissenting share-holders
and in pursuance thereof a supplementary Charter was granted. In
assessment proceedings, the company claimed deduction of payments
                                                                           c
made by it towards the cost of obtaining the Charter, the amounts paid
to the dissenting share-holders and expensed in the action. The Special
Commissioner held that the company was entitled to the deductions.
On appeal the House of Lords held that since the object of the new
Charter was to remove obstacle to profitable trading, and the engage-      D
ment of a competent Manager and the removal of restrictions on bor-
rowing facilitated the day-to-day trading operation of the company,
the expenditure was on income account. The House of Lords con-
sidered the test laid down by Lord Cave L.C. in British Insulated
Company's case and held that the payments made by the company,
were for the purpose of removing of disability of the company trading      E
operation which pre judicea its operation. This was achieved without
acquisition of any tangible or intangible asset or without creation of
any new branch of trading activity. From a commercial and business
point of view nothing in the nature of additional fixed capital was
thereby achieved. The Court pointed out that there is a sharp distinc-
tion between the removal of a disability on one hand payment for           F
which is a revenue payment, and the bringing into existence of an
advantage, payment for which may be a capital payment. Since, in the
case before the Court, the Company had made payments for removal
of disabilities which confined their business under the out of date
Charter of 1773, the expenditure was on revenue account. In Empire
Jute Company v. C./. T, [ 1980] 124 !TR 1, this Court held that expendi-   G
ture made by an assessee for the purpose of removing the restriction
on the number of working hours with a view to increase its profits, was
in the nature of revenue expenditure. The Court observed that if the
advantage consists merely in facilitating the assessee's trading opera-
tions of enabling the management and conduct of the assessee's busi-
ness to be carried on more efficiently or more profitably while leaving    H
      326         SUPREME COURT REPORTS               [ 1990] Supp. 2 S.C.R.

      the fixed capital untouched, the expenditure would be on revenue
A
      account even though the advantage may endure for an indefinite
      future. We agree with the view taken in the aforesaid two decisions. In
      our opinion where the assessee has an existing right to carry on a
      business, any expenditure made by it during the course of business for
      the purpose of removal of any restriction or obstruction or disability
B     would be on revenue account, provided the expenditure does not
      acquire any capital asset. Payments made for removal of restriction,
      obstruction or disability may result in acquiring benefits to the busi-
      ness, but that by itself would not acquire any capital asset.

            In the instant case the assessee had been granted mining lease in
      respect of 4.27 square miles at Jamsar under which he had right to
c     sink, dig, drive, quarry and extract mineral i.e. the gypsum and in that
      process he had right to dig the surface of the entire money, licence fee
      and other charges for securing the right of mining in respect of the
      entire area of 4.27 square miles including the right to the minerals
      under the Railway Area. The High Court has held that on payment cf
D     Rs.3 lakhs, the assessee acquired capital asset of an enduring nature.
      The High Court failed to appreciate that Clause 3 was only restrictive
      in nature it did not destroy the assessee's right to the minerals found
      under the Railway Area. The restriction operated as an obstacle to the
      assessee 's right to carry on business in a profitable manner. The
      assesse paid a sum of Rs.3 lakhs towards the cost of removal of the
E     obstructions which enabled the assessee. to carry on its business of
      mining in an area which had already been leased out to it for that
      purpose. There was, therefore, no acquisition of any capital asset.
      There is no dispute that the assessec completed mining operations on
      the released land (Railway Area) within a period of 2 years, in the
      circumstances the High Court's view that the benefit acquired by the
F     assessee on the payment of the disputed amount was a benefit of an
      enduring nature is not sustainable in law. As already observed, there
      may be circumstances where exPenditure, even if incurred for obtain-
      ing advantage of enduring benefit may not amount to acquisition of
      asset. The facts of each case have to be borne in mind in considering
      the question having regard to the nature of bu,iness its requirement
G     and the nature of the advantage in commercial sense.

            In considering the cases of mining business the nature of the
      lease the purpose for which expenditure is made, its relation to the
      carrying on of the business in a profitable manner should be consi-
      dered. In the instant case existence of Railway Station, yard and build-
1-1   ings on the surface of the demised land operated as an obstruction to
                  BIKANER GYPSUMS v. C.I.T. [SINGH. l.J               327

the assessee's business of mining. The Railway Authorities agreed to         A
shift the Railway establishment to facilitate the assessee to carry on his
business in a profitable manner and for the purposes the assessee paid
a sum of Rs.3 lakhs towards the cost of shifting the Railway construc-
tion. The payment made by the assessee was for removal of disability
and obstacle and it did not bring into existence any advantage of an
                                                                             B
enduring nature. The Tribunal rightly allowed the expenditure on
revenue account. The High Court in our opinion failed to appreciate
the true nature of the expenditure.

     We are, therefore, of the opinion that the High Court committed
error in interfering with the findings recorded by the Income Tax
Appellate Tribunal. We, accordingly, allow the appeal, set aside the         C
order of the High Court and restore the order of the Tribunal. The
appellant is entitled to its costs.

N.V.K.                                                  Appeal allowed.