Capital expenditure on mining rights paid to landowners before operations began was not deductible as revenue cost.

Amounts paid to ryotwari pattadars before mining commenced, in return for the right to dig the surface and carry on iron ore extraction, were held to form part of the cost of acquiring the means of working the mine. Because the mineral right required securing both Government sub-soil rights and pattadars' surface and occupancy rights, the payments were treated as consideration for obtaining a permanent advantage rather than recurring surface-damage expenses. Such outlays were therefore capital in nature and not deductible as revenue expenditure.

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Issues: Whether the amounts paid to the landowners for extracting iron ore were capital expenditure or revenue expenditure.

Analysis: The payments were made under agreements with the ryotwari pattadars before the mining operations commenced and were consideration for obtaining the right to dig the surface of the land and carry on mining operations. The right to extract minerals required acquisition of rights from both the Government, which owned the sub-soil rights, and the pattadars, who held the surface and occupancy rights. The payments were therefore part of the cost of acquiring the means of working the mine and not recurring surface-damage payments arising in the course of operations. Amounts laid out to acquire a right or advantage of a permanent character are capital in nature and are not deductible as revenue expenditure.

Conclusion: The amounts paid to the landowners were capital expenditure and not allowable as revenue expenditure.

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