Contractual royalty on abandoned minerals was held revenue in nature and taxable as income.

Where a lease and related agreement required payment on abandonment of unworked coal, the lump sum received by the estate was referable to that contractual royalty obligation and not to any purchase of a surrender right. On substance, the amount represented royalty that would have accrued had the coal been worked, so it was revenue in nature rather than a capital or casual receipt. It was therefore assessable to income-tax as royalty.

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Issues: Whether the sum of Rs. 1 lakh received by the estate from the coal company was assessable to income-tax as royalty on abandoned coal, or was a capital receipt or casual receipt arising from relinquishment of the lease and agreement.

Analysis: The lease, read with the later agreement, preserved the lessee's right to terminate or abandon the working, but imposed a liability to pay royalty on coal remaining unworked at the time of abandonment. The payment was thus referable to clause 7 of the agreement and to the contractual obligation to pay for coal left in the seams, not to the purchase of a new right of surrender. On the substance of the transaction, the amount represented royalty that would otherwise have accrued had the coal been worked, and it was neither a capital receipt nor an unforeseen casual receipt.

Conclusion: The sum of Rs. 1 lakh was assessable to income-tax as royalty and the question was answered in the affirmative.

Ratio Decidendi: Where a lease or allied agreement expressly provides for payment on abandonment of unworked minerals, a lump sum received in discharge of that obligation is revenue in nature and taxable as income, not capital.

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