Annual royalty and dead-rent linked to extraction quantity are revenue expenditure, not capital, for mining deductions.

Annual mining payments described as royalty and dead-rent were held to be revenue expenditure where they were payable yearly and linked to the quantity and value of limestone extracted. The SC distinguished lump-sum payments made to acquire an enduring leasehold advantage, noting that an enduring benefit does not by itself make the expenditure capital in nature. As no part of the payment was shown to be premium for acquiring the asset, the royalty and dead-rent were allowable deductions in computing business profits.

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Issues: Whether the annual payment of Rs. 96,000 described as royalty and dead-rent for limestone extraction was revenue expenditure deductible in computing business profits, or capital expenditure incurred for acquiring an enduring asset or advantage.

Analysis: The arrangement gave the assessee rights to enter the land, win limestone, and use the area for mining purposes, but the payment was not a once-and-for-all sum for acquiring the leasehold advantage. The decisive feature was that the payment was annual and was related to the quantity and value of the raw material to be extracted. The Court distinguished cases involving lump sum payments for acquiring an enduring right, and held that an enduring advantage does not, by itself, make every related expenditure capital in nature. No part of the royalty or dead-rent was shown to be premium referable to acquisition of the asset.

Conclusion: The yearly payment of Rs. 96,000, including royalty and dead-rent, was revenue expenditure and allowable as a deduction; the answer to the reference was in favour of the assessee.

Ratio Decidendi: Where mining payments are annual and bear a direct relation to the raw material extracted, they are revenue expenditure notwithstanding that the arrangement may also confer an advantage of enduring duration.

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