Mining lease royalty treated as income: recurring mineral payments were held taxable, not capital receipt.

Royalty received under long-term mining leases for coal and other minerals was treated as income, not as a capital receipt or purchase price of minerals. The leases conferred ancillary rights to enter land, sink pits, erect buildings and carry on mining operations, and the recurring payments were fixed by reference to output with a minimum royalty. The Court characterised the royalty as rent or a periodical return from a definite source and held that such receipts were taxable under Indian income-tax law. Earlier Indian authorities treating mineral royalties as income were followed, while English cases were distinguished because of the different statutory setting.

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Issues: Whether royalty received under mining leases for coal and other minerals constituted income liable to income-tax, or was capital receipt in the nature of purchase price of minerals.

Analysis: The royalties were payable under long-term mining leases which conferred not merely a right to remove minerals, but also ancillary rights to enter the land, sink pits, erect buildings, and carry on mining operations, with a premium and recurring payments fixed by reference to output and subject to a minimum royalty. The Court held that, under the Indian income-tax law, such recurring receipts were not to be dissected as mere price of coal. The leases were treated as leases governed by the Transfer of Property Act, and the recurring royalty was characterised as rent or periodical return from a definite source. The earlier Indian decisions consistently treated mineral royalties as income, and the Court declined to treat the English cases as controlling in view of the different statutory setting.

Conclusion: Royalty received under the mining leases was income and was rightly included in taxable income; the assessee's contention that it was capital receipt failed.

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