TaxTMI 
TaxTMI 
1982 (2) TMI 111
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.... and liabilities of whatsoever nature of the Government appertaining to or in any way concerning such land and all rights, obligations and liabilities of the Government under any contract or agreement entered into by the Governor of West Bengal with any person, firm or company in relation to the said lands or assets. (2) To expeditiously develop forest by large scale harvesting to be followed by sales or disposal of production from such forest belonging to the company. (3) To plant, replant, afforest and reafforest in such forest land, waste land or other land. (4) To encourage mechanisation of logging and extraction operations in order to minimise wastage in logging and to develop a network of roadways or pathways for tapping the hitherto inaccessible forests. (5) To market various forest produce and to explore new markets for timber hitherto less known or in use and other forest produce exploited by the company or otherwise deal with the same. (6) To encourage and establish industries based on forest produce as raw material, by_ (i) erecting factory or factories in suitable places for the manufacture of articles from various forest produce ; (ii) promoting de....
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.... provided "That with effect from the date of transfer, all sale proceeds obtained from the disposal of forest produce located in the demised areas and from other sources may be credited as revenue of the lessee (West Bengal Forest Development Corporation Limited) as the Corporation is authorised to issue its own pointed forms of receipts and permit, etc. for the purpose." By clause (5) the as was given full liberty and power to undertake all works in connection with the development of the area, extraction of Forest Produce and replantation subject to the restrictions imposed under Part III. These works will include, inter alia, construction and repairs to roads, mechanised and manual logging, construction of buildings, development of recreation facilities, etc., subject to availability of resources. 5. Part III of the agreement provided for restrictions and conditions as to the exercise of the liberties and privileges in Part II above. These restrictions, inter alia, provided that the assessee would undertake to supply all reasonable needs of the local population of small timber, firewood, charcoal and other minor forest produce at reasonable rate as per existing practice ....
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....nbsp; Royalty paid 1975-76 Rs. 1,73,254 Rs. 4,93,492 1976-77 Rs. 4,15,810 Rs. 5,67,909 1977-78 Rs. 4,15,810 Figure not available in records. The authorities below have allowed the royalty paid, but they have disallowed the dead rent as in their opinion the said amount represented capital expenditure. The reason given by the ITO for making the aforesaid disallowance was that (we are quoting from the assessment order for the assessment year 1975-76) "dead rent is payable by way of consideration money for obtaining the right of....
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....at any part of the royalty must, in view of the circumstances of the case, be treated as premium and the referable to the acquisition of the mining lease." In the present case, the dead rent was certainly referable to the acquisition of lease itself and was not related to the quantum or value of the timber extracted. *** 9. The aforesaid finding of the Commissioner (Appeals) has been challenged by the assessee before us through these appeals. The first submission of the learned counsel for the assessee was that the income of the company was exempt in terms of section 11 of the Income-tax Act, 1961, because the object of the company was not to earn income but to develop forest areas and this was, according to him, a charitable object. 10. In any case, he next contended, the finding of the Commissioner (Appeals) that the dead rent paid was on capital account was entirely erroneous and opposed to the ratios of the decisions of the Supreme Court in the cases of Gotan Lime Syndicate v. Commissioner (1966) 59 ITR 718 (SC) and Empire Jute Mills Ltd. v. Commissioner (1980) 124 ITR 1 (SC). He took us through various parts of the lease agreement, as enumerated above, and submitted t....
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....e (1980) 124 ITR 1 (SC) 3), "always presented a difficult problem and continually baffled the Courts, because it has to been possible, despite occasional judicial valour, to formulate a test for distinguishing between capital and revenue expenditure which will provide an infallible answer in all situations. There have been numerous decisions where this question has been debated but it is not possible to reconcile the reasons given in all of them, since each decision has turned upon some particular aspect which has been regarded as crucial and no general principle can be deduced form any decision and applied blindly to a different kind of case where the constellation of facts may be dissimilar and other factors may be present which may give a different view to the case". Similar was the view of Senior Bhagwati, J. In Assam Bengal Cement Co. Ltd. v. Commissioner (1955) 27 ITR 34 (SC). In K.T.M.T.M. Abdul Kayoom v. Commissioner (1962) 44 ITR 689 (SC), Justice Hidayathullah, as he then was, pointed out at p. 703 that though the decisions of the Supreme Court in the case of Assam Bengal Cement Ltd. reported in (1975) 27 ITR 34 (SC) and Pingle Industries Ltd.'s case reported in (1960) 40....
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....ad valorem. The payment of royalty was directly related with the raw material or stock-in-trade product by the assessee company from the leased area, and it, therefore, naturally went to constitute one of the elements of the cost of the send raw material or stock-in-trade. The payment of Rs. 5 per hectare per annum was, however, not related with the procurement of the forest produce at all. It had a direct relationship with the right which was given to the assessee-company to manage and administer the entire forest land, including the functions of protecting forest and the wild life there in and developing various recreational facilities and opening up inaccessible areas. This was in other words, the cost of developing the said demised area, which would ultimately benefit the assessee in the varies forms for example, by increased production of forest products, inflow of tourist traffic, starting of various kinds of industries for logging and for the manufacture of articles from various forest products, etc. The aforesaid payment, therefore, on the face of it, appears to us to be related with the sole right to exploit the leased forest land. It had nothing to do with the extraction ....
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.... cases relied upon by either sides do provide us guidance and assistance in resolving the controversy in the present case though the facts in none of them are entirely comparable with the facts of the present case. In the case of Gotan Lime Syndicate v. Commissioner (1966) 59 ITR 718 (SC) on which the learned counsel for the assessee had placed reliance, what had been paid by the assessee to the State Govt. of Rajasthan was royalty at the rate of Rs. 96,000 every year for the years 1953-54 to 1958-59. The aforesaid amount of Rs. 96,000 was held to be payable as royalty by the Mining Engineer, Jodhpur, in his letter dated 30th November, 1959. This is what the said Mining Engineer had stated in his letter: "On checking the figures of export of lime-stone, lime-kali and lime-kachra for the settlement of royalty, the figures of royalty amount payable in the following year is as under : From 1st April to 31st March year Export figures Amount Paid 1953-54 13,511 tons 30,553 10 &nbs....
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....t carry away any other minerals which might be founding the mine, and further he was obliged to allow other lessees of other minerals to go no the land and win there minerals. It is an important fact in this case that it is a case of an annual payment of royalty or dead rent... we have not been referred to any case in which payments of royalty under a mining lease have been treated as capital expenditure..... The reason why royalty has to be allowed as revenue expenditure must be the relation which the royalty has to the raw materials which is going to be excavated or extracted. The more you take the more royalty you pay; and the minimum payment or the dead-rent also has the same characteristic, i.e., it is an advance payment in respect of certain amount of raw material to be excavated..... ....... No material has been placed on record to show that any part of the royalty must, in view of the circumstances of the case, be treated as premium and be referable to the acquisition of the mining lease." The aforesaid facts and the ratio based thereon can, in our opinion, be of little assistance to resolve the present controversy in favour of the assessee for in the present case the....
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....ape of an exclusive right to fish and the payment was not related to the chanks, which it might or might not have brought to the surface in this speculative business........" 16. The facts of the present case, as mentioned by us, have some similarity with the above facts. Here payment of royalty is separate and is determined with reference to the quantity and value of the forest produce extracted by the assessee. The payment of the rent which is present under dispute is altogether of a different type and for different rights. This appears to a payment not for the stock-in-trade at all but for acquiring and reserving the source where from the stock-in-trade would be extracted. In this case the assessee had a right to extract not any particular forest produce only, as in the case of Gotan Lime Syndicate (1966) 59 ITR 718 (SC) but whatever was procurable from the said forest could be procured by the assessee. The extract existence of the items, which were to be procured was not known till the assessee went into the forest, including inaccessible areas and discovered for itself as to what were the various kinds of forest products which could be exploited by it out of that area. In t....