AI Drafter 
TaxTMI 
TaxTMI 
1962 (12) TMI 87
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....the agreement with regard to the Ramgiri forest are important. The terms with regard to the Nowrangpur forest are practically the same: "1. That for and in consideration of the sums of money to be paid by the company in the manner and at the times and rates hereinafter specified and subject to the terms and conditions hereinafter appearing the Maharajah agrees to sell and the company agrees to buy all the sal trees, for the manufacture of sleepers and scantlings, which may be marked by the forest department for felling in the reserved, protected and unreserved lands of the Ramgiri Range (hereinafter known as the 'leased area'), the boundaries of which are delineated and shown on the map hereunto annexed and more particularly described in the schedule hereunto appended. 2. That the company shall have the right and liberty within the said area to fell all sal trees so marked as aforesaid and to convert the same into sleepers in the leased area and to export the timber so converted therefrom during a period of six years from July 1, 1944, to June 30, 1950: Provided that the Maharajah, at the request of the company, renews this lease for a further period of five years ....
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....ted some time prior to 16th January, 1950, but this was to become effective only upon the Government sanction being granted. It was however realised that the Government grant could be for a period of less than five years. In that case, it was agreed that the back-royalty payable would be calculated proportionately. For example, if the total back-royalty for five years was Rs. 2,00,000 and the Government sanction for the said lease was only for two years, the actual back-royalty payable would be 2/5th of Rs. 2,00,000, namely, Rs. 80,000, which would be payable in two annual instalments of Rs. 40,000 each, per year. All this appears clearly from a letter written on behalf of the assessee-company to the Dewan of Jeypore dated 16th January, 1950, a copy of which is annexed as annexure "C" to the said statement of case. The next thing that happened was that the District Magistrate and Collector of Koraput, acting under the Orissa Preservation of Private Forests Act, 1947, accorded sanction to the extension of lease only for one year from July 1, 1950, to June 30, 1951. It appears that on the 21st March, 1951, an agreement was arrived at between the company and the Jeypore Estate by whic....
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....n its return for the assessment year 1953-54, the assessee claimed a sum of Rs. 69,157 on account of the additional royalty paid during the year. This amount was not debited to the account but was claimed by the assessee in the computation of the income filed with the return. A sum of Rs. 14,000, described as a lump sum grant but paid as additional royalty was debited in the account and claimed in the return. These figures will be explained if we look at the letter dated 10th June, 1952, from which the figures have been quoted above. The lump sum payment of Rs. 14,000 obviously refers to Rs. 9,000 and Rs. 5,000 mentioned therein and Rs. 69,157 relates to the amount of Rs. 69,000 appearing therein. It is not clear what the extra Rs. 157 denotes. The company claimed that the additional royalty of Rs. 69,157 and Rs. 14,000 should be allowed as revenue receipt and deducted in the computation of income, because these were paid as price of trees out of which the sleepers were made. This contention was, however, rejected by the Income-tax Officer. He held that the additional royalty was paid because, without the payment of additional royalty, the Jeypore Estate would not have agreed to si....
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....e Industries Ltd. v. Commissioner of Income-tax** and Abdul Kayoom v. Commissioner of Income-tax***. A passage appearing in the judgment of Hidayatullah J. in the last mentioned case sums up the legal position and may be stated thus: "What is attributable to capital and what to revenue has led to a long string of cases here and in the English courts. The decisions of this court reported in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax[1955] 27 I.T.R. 34 ; [1955] 1 S.C.R. 972 and Pingle Industries case[1960] 40 I.T.R. 67 ; [1960] 3 S.C.R. 681] have considered all the leading cases, and have also indicated the tests, which are usually applied in such cases. It is not necessary for us to cover the same ground again. Further, none of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo The Nature of the Judicial Process, p. 20) by matching the colour of one case against the colour of another. To decide, therefore, on ....
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....d return from the lands upon which the said trees were situate was granted for the purpose of felling, cutting and sawing up and carrying away the same. The purchase price was paid in two large sums and was not a periodical payment. The number of trees and their nature were specified. The purchaser could mark such trees as were presumed to be ripe for cutting and it was only upon the purchaser felling the trees that the property in the timber passed. The agreement contained no time-limit for the felling and carrying away of the timber. The question was whether these two sums paid were in the nature of capital or revenue expenditure. The relevant terms of the agreement have been set out in the judgment of Lord Keith appearing at page 841 onwards. To a certain extent the terms are analogous to the terms in the present case. The first clause in the agreement was that the vendors will sell and the purchaser will buy all the timber specified in the first part of the schedule, then standing and growing in or upon the forests mentioned in the said agreement. The other terms have been indicated above. Lord Morton delivered a short judgment but laid down the principle upon which the matter ....
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....tain no property in any part of a tree till he had felled it to the ground. I find it impossible to hold that this very peculiar right is capable of being treated as stock-in-trade of the appellant. The nature of the right, the indefiniteness of the period for its exercise, and the lack of identification of the trees on which the right was to be exercised, to which may be added the size of the transaction and the absence of any evidence of intention or means to complete it within any foreseeable time, all, in my opinion, negative the idea that the appellant had anything that could be called stock-in-trade. In my opinion, what the appellant acquired here was merely a right to go on to the company's land to mark, cut and carry away such trees, up to a specified number, as fell within the size and description mentioned in the agreements. The money paid for this right was, in my opinion, a capital and not a revenue expenditure." The other case that has been cited, and which is on the other side of the border line, is a decision of the Privy Council in Mohanlal Hargovind v. Commissioner of Income-tax[1949] 17 I.T.R. 473 (P.C.)]. The facts in that case were as follows: The a....
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.... the facts of the Privy Council case than that of the House of Lords. As has been stated above, it is very difficult to equate the facts of one case with another, and even a single fact might turn the scale. However, what we have got to find out is the principles upon which our decision should rest. If I have understood the principle laid down in the cases above mentioned, it is this: If a trader or businessman buys a quantity of goods which forms his stock-in-trade, and this he may do in an infinite number of ways, then it is a part of his revenue expenditure. In other words, he is buying stock-in-trade in order to carry on his business, and looking at it from a commercial point of view, the expenditure incurred is one solely for the purposes of his business and cannot be for any other purpose. A distinction is, however, to be made if instead of buying his stock-in-trade, he acquires a right whereby he will be in a position to acquire his stock-in-trade. The most obvious case is one which is exemplified by the Pingle Industries case[1960] 40 I.T.R. 67 ; [1960] 3 S.C.R. 681]. In that case, the assessee-company carried on business of selling flag-stones. He entered into an agreement....
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....and sale of sal sleepers, specials and scantlings from the Kotpad, Omerkote and Nowrangpur range forests". In the agreement itself, it has been clearly stated that only such trees could be felled which were of the specified girth and marked for felling by the Forest Department. The vendor was to specify the particular area which was to be worked from time to time. The most important term of the agreement is that property would only pass when the timber had been felled and converted into sleepers and when such sleepers had been passed for delivery. The next most important thing to be considered is that the agreements make it perfectly clear that the main object of the purchase was the making of "sleepers" for supply to the railways. As is well known, the railway companies are the principle purchasers of sleepers which are utilised for the laying of railway tracks, and this is done periodically by calling for tenders and then entering into contracts with contractors. It is not stated anywhere in the agreements that the purchaser had already received a certain contract from the railways which it was seeking to implement by entering into these agreements. It is quite clear that the ass....
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.... the railways and others, as and when it liked, within the specified period of three years. It may be that within this period it would not be able to implement all its contracts, but regard being had to the history of these contracts, it certainly hoped for a continuation of the contracts for a subsequent period. In my opinion, therefore, what was being acquired was not stock-in-trade but the right to acquire it and, therefore, upon the principles laid down above, it was an acquisition of a capital asset of an enduring nature and not an expenditure on revenue account. Although this conclusion would be sufficient to dispose of this case, yet fortunately there is another aspect which, in my opinion, makes the problem easier of solution. In this particular case, the history of the contracts has been set out above. It will appear therefrom that the amount that we are concerned with in this case is not royalty which is payable or stated to be payable under the agreement of June, 1952. This agreement makes no mention of the "back-royalty". What has happened is as follows: The assessee had two contracts which expired on the 30th of June, 1950. In these contracts, there was a provision ....