In Pingle Industries Ltd. vs. CIT, 40 ITR 67 (SC), the company was carryingthe business, inter-alia, of sale of Shahbad stones, which had to beextracted from quarries, dressed and then sold. For this purpose, theappellant took under the contract the right to extract stone from certainquarries for a period of 12 years. The Jagirdars had to be paid an annualsum of Rs. 28,000/- as consideration for extracting the stone till the endof the contracting period.

The company had no right or interest on the land nor did it have any otherinterest in the quarries apart from extracting stones. The majority decisionheld that the assessee acquired, by the long-term lease, the right to winstones, and the lease conveyed to the assessee a part of the land. Thestones in situ were not the company's stock-in-trade in a business sense,but a capital asset from which, after extraction, they converted it intostones, its stock-in-trade. Here, the assessee acquired the right to extractstone and its lease included not only the stones on the top, but also thoseburied out of sight under tonnes of other stones, which could be reachedonly after extracting those above. It was in this background that this casewas held to be within the rule of those cases in which the right acquiredwas to a source from which the raw materials were to be acquired.

In Alianza Co. Ltd. vs. Bell (1904) 2 KB 666, the sale was not of thecaliche as such but of the right to win it from a deposit thereof and it wastreated as an expenditure of a capital in nature. In Stow Bardolph GravelCo. Ltd., vs. Poole (Inspector of Taxes), 27 ITR 146, the finding was thatthe sand and the gravel had to be won and it was held that they could not betreated as stock-in-trade, till they were actually won.

The doubt expressed by Lord Evershed was that if the taking of sand andgravel involved merely taking them up and putting them into trucks, thefinding would have been otherwise.

In Golden Horse Shoe (New) Ltd. vs. Thurgood, 18 Tax Cas. 280, the findingwas that the "tailings" or residuals that remained after extraction of goldfrom ore, were bargained for and paid for and became the stock-in-trade ofthe taxpayer and, therefore, was a revenue expenditure. It was the cost ofraw material already won and gotten.

In Mohanlal Hargovind vs. CIT, 17 ITR 473(PC), there was no interest in landbut trees or plants and the right of cultivation and the exclusiveness ofthe right to the leaves being insignificant, the contracts were treated asleading to acquisition of the raw materials.

The leaves on trees were treated as equal to the leaves in a shop. On thisground, the case was distinguished from that of Kauri Timber Co's. case,(1913) AC 771, in which land and interest in land in the shape of standingtimber were involved.

In Kamakshya Narain Singh vs. CIT, 11 ITR 513 (PC), the case involvedpayment of certain annual sum by way of salami for mining rights and thesewere regarded as capital receipts. There were also two other payments, viz.royalty on coal raised and a provision for minimum royalty. These wereregarded as not being capital receipt but as assessable income. In GotanLime Syndicate vs. CIT, 59 ITR 718 (SC), the appellant firm was granted alease for the right to extract limestones from certain areas. In respect ofthe lease, a fixed royalty of Rs. 96,000/- per annum had to be paid on thebasis of dead rent. The lessee, under the lease, could not carry away anyother mineral which might be found in the area and he was further obliged toallow other lessees of these minerals to go on the land and win them. He wasfurther prohibited from encroaching, without requisite permission, upon thecultivable land or bapi holdings within the leased area. It was held that inthe absence of material to show that any part of the royalty had to betreated as premium and referable to the acquisition of the mining lease, theroyalty payment, including the dead rent, had relation only to the limedeposits to be got and had, therefore, to be treated as revenue expenditure.

Although the firm did derive the advantage - assuming that that advantagewas to last at least for a period of 5 years - there was no payment once forall. No lumpsum payment was ever settled or paid; there was only an annualpayment of royalty or dead rent. The royalty was not a direct payment forsecuring an enduring advantage; it had relations to the raw materials to beobtained. It was, therefore, held to be revenue expenditure.

In a recent decision in Aditya Minerals Pvt. Ltd. vs. CIT, 239 ITR 817 (SC),the assessee had obtained a lease in which the term of the lease deed wasthat the lessor would grant lease of the land for a period of 15 years at amonthly rent per acre. The lease rent was held to be an capital account onthe principles outlined above. To sum up, any payment of lease rent for landwould normally be capital in nature, unless it is by way of a royalty forthe extraction of the minerals on the land which is variable according tothe amount of the extraction. If the payment is purely for the minerals, itwould be revenue in nature but if it is for the obtaining of the right towork the land, it would be capital in nature.