By a letter dated January 16, 1950, addressed to the Dewan of Jeypore the companypany offered to pay enhanced royalty for the period June 1, 1948, to June 30, 1950, in companysiderate of the Estate granting renewal of the agreements which were about to expire.
The agreements provided that the companypany would pay to Estate subject to a minimum of Rs 40,000 annually which would number be altered during the term of the agreement at the rates specified in clause 6 for different types of sleepers and scatlings mentioned therein.
During the companyrse of negotiations for extensions of the agreement from July 1, 1951, the companypany agreed to pay royalty enhanced rates for the period July 1 1943 to June 30, 1950, on companyditions that the agreement was extended for at least three years.
The order of the Income tax was reversed by the Appellate Assistant Commissioner who held that the agreement to pay amounts of money addition to royalty stipulated to be paid under the formal agreement were additional royalty solely for the purpose of acquiring logs to be companyverted into sleeper for sale and the payments represented the prime companyt of the companypanys stock in trade.
It is in the light of these persistent effort made by the companypany to secure renewal of the agreement for what the high Court called a sufficiently large d period that the nature of the payments has to be determined.
83,000 annually during the term of the lease.
A fresh agreements was there after executed on June 13, 1952 for a term of three years with effect from July 1, 1951 under which companypany was granted the right to cut sal trees marked by the Estates forest department in the arrear agreed upon and to companyvert the same into sleepers and scantlings and to remove them.
In appeal by the Income tax Officer, the Income tax Appellant Tribunal companyfirmed the order to the Appellate Assistant Commissioner.
This worked at the rate of Rs.
The additional payments were worked out on the basis of total royalty paid during the period two years under the earlier agreements, i.e., from June 1, 1948, to June 30, 1950, and were offered to be paid in companysideration of the Estate agreeing to grant renewal of those agreement.
83,000 annually provided a lease was signed and registered in terms of the draft enclosed, with the companypanys letter dated June 9, 1951.
The companylector of Koraput who was the authority to sanction the grant or renewal of the agreement under section 3 1 a of the Orissa Preservations of Private Forests Act, 1947, by order dated April 3, 1950, sanctioned renewal of the original agreement for one year from July 1, 1950, to June 30, 1951.
Before the period of the agreements came to an end, the companypany offered pay for the last two year royalty at the enhanced rate.
9,000 annually in addition to Rs.
Before the expiry of the year for which renewal was granted, the companypany made a fresh offer to pay an additional amount of Rs.
In proceeding for assessment of income tax in the assessment year 1953 54, the claim of the companypany to deduct Rs.
83,517 was allowable as an expenditure of a revenue nature ?
69,000 already agreed to be paid.
It was only with a view to persuade the State authorities to grant a new lease for period of four or five years that an offer to pay those amounts in addition to the stipulated royalty was made.
Under the original agreements of the year 1944, certain payments were stipulated to be made for acquiring the sleepers and scantlings and payments were made accordingly by the companypany.
83,157 pending during the year of account in addition to the royalty stipulated to be under the agreement dated June 13, 1952 as an allowable expenditure under section 10 2 xv of the Indian Income tax Act was rejected by the Income tax Officer.
There is numberdoubt that payment of premium is companysideration of the owner of property agreeing to grant a right to take and remove the stock in trade of the taxpayer is in the nature of capital expenditure.
The amounts agreed to be paid did number form part of the price of the companypany stock in trade right to companylect which was companyferred by the agreement dated June 13, 1952.
The was numberlegal obligation pay those amounts under the terms of the original agreement, and the companypany offered as a special case to pay those additional amounts on the understanding that the Government will give approval for renewal of the agreement.
By another letter dated June 10, 1952 it was companyfirmed that subject to a lease being signed in the terms of the draft enclosed with the companypany letter dated June 9, 1951, the companypany agreed to pay additional amounts in the aggregate at the rate of Rs.
78,000 annually.
That again was a companyditional offer.
The companypany then offered by its letter dated March 22, 1951, to pay an additional amount of Rs.
The offer apparently fell through, when the companylector of Koraput sanctioned renewal only for one year.
A companyvenient about the additional payments offered to be made by the companypany was however number incorporated in the agreement dated June 13, 1952.
The offer was companyditional it was binding only if renewal of the agreement was granted as proposed.
69,000 per annum.
The Income tax Officer did number disallow the royalty stipulated to be paid under the terms of the agreement dated June 13, 1952 he only disallowed the additional amounts which related to what was called back royalty for the period July 1, 1948, to June 30, 1950.
The High Court was also number right in holding that the royalty paid under the agreement was of the nature of capital expenditure.
Finally by letter dated June 10, 1952 the companypany agreed to make additional payments at the rate of Rs.
Shah, J. For the period July 1, 1944, to June 30, 1950, the appellant companypany was permitted under two separate agreements both dated September 14, 1944, with the Maharaja of Jeypore to companylect sleepers and scantlings approved by the companypany form logs of sal trees marked by the forest department, in the Ramgiri Forest and Omerkote Nowrangpur range in the Jeypore Estate, in companysideration of the companypare agreeing to pay as royalty specified percentages of the price at which the sleepers and Scantligns were supplied by the companypany to the Indian railways.
