Mining lease payments as capital expenditure where the lease secures an enduring right to win minerals from land.

Payments made to obtain a quarry lease for extracting napa or cuddapah slabs were treated as capital expenditure because the lease conferred an exclusive, enduring right to work the quarry under the statutory mining regime. The decisive test was whether the outlay formed part of the profit-earning process or secured an asset or advantage of enduring character. On the facts, the leasehold right itself was the profit-earning source, and the expenditure was not merely for stock-in-trade. The distinction applicable where mineral is already on the surface did not apply on the facts stated, so the amounts were not allowable as revenue expenditure.

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Issues: Whether the amounts paid for the quarry lease to extract napa or cuddapah slabs were capital expenditure or revenue expenditure.

Analysis: The lease was granted under the statutory mining regime for minor minerals and was not merely a short-term supply arrangement. The payment secured an exclusive right to work the quarry for a fixed period with renewals, and the business required the lessee to invest in equipment and labour to win the mineral from the land. The decisive test was whether the outlay was part of the process of profit-earning or was made to acquire an asset or advantage of enduring character. On the facts, the leasehold right was an enduring profit-earning source and not merely the acquisition of stock-in-trade. The distinction drawn in cases where the mineral is already on the surface was not available because no finding supported such a factual position here.

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

Ratio Decidendi: Where payment secures a mining lease conferring an enduring right to win minerals from the land and the right is obtained as a profit-earning source, the expenditure is capital in nature even if the consideration is structured as annual or recurring payments.

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