Mining lease royalties as income: recurring payments for continuing mineral rights are taxable, while a lump-sum premium is capital.

Periodical royalties under long-term coal mining leases were treated as income rather than capital because they were recurring payments for the continuing enjoyment of leasehold mineral rights, not instalments of the purchase price of the coal. A lump-sum salami or premium was characterised as capital, since it was paid once for acquisition of the leasehold rights. The Act was read broadly so that minimum royalty and tonnage royalty fell within income from other sources, and the wasting nature of the mines did not alter their tax character or justify converting income into capital.

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Issues: Whether royalties received under long-term coal mining leases were taxable income under the Income-tax Act, 1922, or were capital receipts representing the price of the mineral asset.

Analysis: The relevant receipts consisted of salami or premium, minimum royalty, and tonnage royalty. The salami was treated as a capital receipt because it was a single payment for acquisition of the leasehold rights. By contrast, minimum royalty and tonnage royalty were periodical payments arising from the covenants of the leases and were payable for the continuing enjoyment of the rights granted, not merely as instalments of purchase price for coal. The term "income" in the Act was given a broad meaning, and royalties were held to fall within "income from other sources" under Sections 6 and 12. The fact that the underlying mines were wasting assets did not alter the character of the receipts, because the Act contained no allowance for amortisation on that ground and capital depletion did not convert income into capital.

Conclusion: The royalty receipts were income chargeable to tax and not capital receipts; the assessee's contention failed.

Final Conclusion: The assessment was upheld, and the appeal was dismissed with costs.

Ratio Decidendi: Periodical royalties payable under a mining lease for the continuing enjoyment of mineral rights are income and not capital merely because the source is a wasting asset; only a lump-sum premium for acquisition of the leasehold rights is capital.

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