Revenue expenditure treatment confirmed for recurring mineral extraction payments made under working permission, not a valid mining lease.

Recurring annual payments made for working permission to extract rock phosphate were treated as revenue expenditure where no valid mining lease deed compliant with the Mines and Minerals (Regulation and Development) Act, 1957, the Mineral Concession Rules, 1960, and Article 299 was executed. On the facts, the assessee operated as a licensee rather than a lessee, and the payment, though described as special lease money, was for concessions and privileges to extract mineral stock-in-trade. As it did not secure any enduring asset or advantage, the amount was allowable as business expenditure.

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Issues: Whether the annual payment of Rs. 6 crores made by the assessee to the State Government for extracting rock phosphate was capital expenditure or revenue expenditure.

Analysis: The payment was made in the context of working permission granted pending execution of a formal mining lease, and no lease deed compliant with the Mines and Minerals (Regulation and Development) Act, 1957, the Mineral Concession Rules, 1960, and Article 299 of the Constitution of India had been executed. On the facts, the assessee functioned as a licensee and not as a lessee. The annual amount was described as special lease money, but its true character had to be determined from the substance of the arrangement. The payment was recurring, was made for the concessions and privileges to extract mineral stock-in-trade, and did not secure any enduring asset or advantage.

Conclusion: The amount of Rs. 6 crores was revenue expenditure and was allowable as business expenditure in favour of the assessee.

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