Capital expenditure treatment for acquisition of surface rights: outright purchase to enable de pillaring held capital and not deductible.

Whether payment for surface land to enable de pillaring constitutes a revenue deduction was decided by applying the capital versus revenue distinction: payments that create a permanent right or asset are capital, whereas recurring indemnity type payments may be revenue. The factual finding that the sum purchased an outright, permanent surface right to permit mining operations led to its characterisation as capital outlay analogous to restoration or acquisition payments. Outcome: the expenditure is capital in nature and thus not allowable as a deduction under the applicable proviso.

---

---

Issues: Whether the amount of Rs. 10,266 paid for the surface land by the company for the purpose of winning coal by de-pillaring operations is an admissible deduction under section 10(2)(xv) of the Income-tax Act.

Analysis: The payment was made as an outright purchase of the surface right from the surface owners at the outset of de-pillaring operations rather than as progressive or recurring payments made year by year or acre by acre. Authorities distinguishing recurring indemnity-type payments from payments which acquire a permanent right or asset were applied. Where a payment secures a right to work the underlying coal at the cost of sacrificing surface value, the price of acquiring that right constitutes capital outlay. The facts show the expenditure created a permanent right in respect of the surface, analogous to cases holding restoration or acquisition payments to be capital in nature.

Conclusion: The amount of Rs. 10,266 is capital expenditure and is not deductible under section 10(2)(xv) of the Income-tax Act; answer in favour of the revenue and against the assessee.

---