Bombay High Court
Commissioner Of Income-Tax vs New India Mining Corporation (Pvt.) ... on 3 April, 1987
Equivalent citations: [1987]168ITR431(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT S.P. Bharucha, J.
1. The real question in this reference, made at the instance of the Revenue, under section 256(1) of the Income-tax Act relates to the interpretation of the terms of a mining lease given to the assessee's predecessor in title by the then Governor of Bombay on April 23, 1940. The lease was of the mines, beds, veins and seams of iron ore in or under the lands referred to in Part I of the Schedule thereto. The lands referred to are at Vengurla in Ratnagiri district in the State of Maharashtra. The lease was granted from April 23, 1940, for a term of 30 years.
2. The two clauses with which we are principally concerned are clause 3, dealing with surface rent, in Part V of the lease, which is titled "Rents and Royalties reserved by this lease", and clause 17, dealing with delivery of mines, etc., in good order, in Part VII, which is entitled "The convenants of the lessee". The said clause 3 reads thus :
"3. The lessee shall pay to the Government in respect of all parts of the surface of the said lands which shall from time to time be occupied or used by the lessee under the authority of these presents rent at the rate of Re. 0-0-6 per annum per square yard of the area so occupied or used together with land revenue payable in respect of the land shown in Appendix 'A' during the period from the commencement of such occupation or use until the area shall cease to be so occupied or used and shall be restored to its original condition which rent shall be computed and shall be paid on each of the half-yearly dates hereinabove appointed for payment of the said certain half-yearly rent provided that no such rent shall be payable in respect of the occupation or use of the area comprised in any roads or ways existing on the said lands at the commencement of the term of this lease."
3. The said clause 17 reads thus :
"The lessee will at the expiration or sooner determination of the said term deliver up to the Government all mines, pits, shafts, inclines, drifts, levels, waterways, airways and other works (now existing) hereafter to be sunk or made under the said lands (except such as may have been abandoned with the sanction of the Government in an ordinary and fair course of working) and all (engines, machinery, plant, buildings, structures and other works and conveniences which at the commencement of the said term were upon or under the said lands and all) engines, machinery, plant and fixtures set up by the lessee below ground level which cannot be removed without causing injury to any mines or works under the said lands (except such of the same as may with the sanction of the Government have become disused) and all buildings and structures of brick or stone erected by the lessee above ground level in good repair, order and condition and fit in all respects for further working of the said minerals."
4. The reference relates to the assessment years 1961-62 and 1962-63, the previous years whereof ended on June 30, 1960, and June 30, 1961. In each of the two years, the assessee claimed deductions on account of "mining land restoration charges". It is an admitted position that no part of the amounts so claimed were expended in the years in question upon such restoration. The Income-tax Officer rejected the claim, as also the Appellate Assistant Commissioner before whom the matter was carried.
5. The assessee preferred a second appeal to the Income-tax Appellate Tribunal. It was contended before the Tribunal that the lease, as also section 108 of the Transfer of Property Act, made the assessee liable to restore the lands leased to it to their original condition and that the liability became real as soon as it extracted the ore year after year. What was done, it was urged, was to estimate the expenditure on restoration that could reasonably be related to the mining operations in the particular year. On behalf of the Department, it was contended that the assessee was not obliged to restore the lands as urged and no expenditure thereon had in fact been incurred. The Tribunal felt that it was necessary to find out whether there was any liability cast upon the assessee to restore the lands to their original condition, apart from the provisions of the Transfer of Property Act. The important thing, it said, was to find out whether such a liability existed in similar cases. It required the Department to ascertain whether in the mining business, especially when mining was done by the open-cast method, the lessors insisted on the restoration of the land to the original condition as far as possible. This should be ascertained by making enquiries from the Government as also from others doing similar business in the same area as the assessee or also other areas like Raniganj, Goa, Mysore, etc. If there was such liability, the further questions that should have to be answered were whether the assessee had made provisions in respect of ores mined in earlier years and, if not, why not. It was also necessary to find out whether the basis adopted by the assessee for the years in question in ascertaining the liability was a fair and reasonable one. Pursuant to the Tribunal's order, the Appellate Assistant Commissioner made a report. He did so after making enquiries with an officer of the Government of Maharashtra who stated that while the said clause 17 did not appear to impose any obligation on the assessee to restore the lands to their original condition, the said clause 3 did seem to indicate some such obligation. After considering the report, the Tribunal wrote its judgment. It found the said clause 3 to be clear and unequivocal and it imposed upon the assessee the obligation to fill up all pits which might have resulted from the mining operations. The said clause 17, however, provided that the assessee should deliver the mines in good repair, order and condition and fit in all respects for the working of the minerals. It was, therefore, necessary to construe the said two clauses harmoniously. So construed, the assessee was required to restore to its original condition that portion of the lands which had been fully exploited and/or abandoned for any other reason but this would not apply to that portion of the lands where further exploitation was still possible. In other words, while the liability to restore the lands to their original condition was squarely fixed on the assessee by the terms and conditions of the lease, such liability did not extend to the areas which were already fully exploited or abandoned for other reasons. The Tribunal added that even if it be presumed that the lease did not cast a liability on the lessee to restore the lands to their original condition, that obligation nevertheless existed by virtue of section 108 of the Transfer of Property Act which required that a lessee should leave the property in the same state in which it was when he entered it. Summing up, the Tribunal said that from whatever angle the matter be viewed, whether from the standpoint of the language employed in the lease or from the understanding of the parties to the agreement or with reference to section 108 of the Transfer of Property Act, the only conclusion that could be drawn was that the assessee was under an obligation to restore the lands to their original condition, so far as may be, upon the determination of the lease. It went on to hold that the estimated expenditure on the restoration of the lands constituted an admissible deduction in the computation of the assessee's income and that the estimated expenditure was reasonable.
6. The following questions, arising out of the Tribunal's judgment, are posed to us :
"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that both in terms of the lease agreement dated April 23, 1940, between the assessee-company and the Government and under section 108 of the Transfer of Property Act, 1882, there existed, during the relevant previous year, a liability on the company restore the land leased to it to its original condition and that, therefore, the estimated liability for "Restoration charges" was an eligible revenue expenditure under section 37(1) ?
(ii) On the facts and in the circumstances of the case, whether the Tribunal was correct in law in holding that the liability, if any, under the lease agreement towards "Restoration charges" was not a part of the price paid for acquiring the lease and did not, therefore, constitute capital expenditure ?"
7. The said clause 3, as has been pointed out appears in Part V of the lease. Part V deals with the rents and royalties reserved by the lease. The said clause 3 provides for the surface rent payable by the lessee at the rate of Re. 0-0-6 per annum per square yard of the area occupied or used together with the land revenue payable in respect of the lands shown in Appendix A to the lease. It provides for the period during which such rent shall be paid thus : from the commencement of the occupation or use until the area ceases to be occupied or used and is "restored to its original condition". It requires payment of rent on the half-yearly dates appointed for that purpose.
8. It is submitted on behalf of the assessee that the words "shall be restored to its original condition" impose an obligation on the assessee to restore the lands to their original condition. The said clause 3 does not deal with the obligation of the assessee on this account. It deals with its obligations in the matter of payment of surface rent. The assessee's obligation in respect of the condition of what is leased is dealt with elsewhere in the lease deed. The words "during the period from the commencement of such occupation or use until the area shall cease to be so occupied or used and shall be restored to its original condition" set out the starting and terminal points of the period for which the rent is payable. They cannot be read out of context as imposing upon the assessee the obligation to restore what is leased to its original condition.
9. Clause 17 contains various bracketed portions, by reason whereof its meaning is distorted. We have ascertained that these exist in the lease. It was agreed by counsel that best way to read the said clause 17 is to read it as containing no brackets.
10. The said clause 17 needs analysis. The most favourable way of reading it so far as the assessee is concerned is thus :
"The lessee will at the expiration or sooner determination of the said term deliver up to the Government :
(a) all mines, pits, shafts, inclines, drifts, levels, waterways, airways and other works now existing (or) hereafter to be sunk or made under the said lands except such as may have been abandoned with the sanction of the Government in an ordinary and fair course of working; and
(b) all engines, machinery, plant, buildings, structures and other works and conveniences which at the commencement of the said term were upon or under the said lands; and
(c) all engines, machinery, plant and fixtures set up by the lessee below ground level which cannot be removed without causing injury to any mines or works under the said lands except such of the same as may with the sanction of the Government have become disused; and
(d) all buildings and structures of brick or stone erected by the lessee above ground level;
in good repair, order and condition and fit in all respects for further working of the said minerals."
11. It is possible to read the words "in good repair, order" et seq as being part only of what we have made of sub-clause (d), but we shall proceed upon the more liberal interpretation set out above.
12. The said clause 17 as analysed, therefore, does not, in any event, oblige the lessee to restore the lands to their original condition upon the determination of the lease, as is claimed by the assessee.
13. Mr. Dastur, learned counsel for the assessee, drew our attention to the interpretation placed upon the lease by the officers of the State Government as stated in the report of the Appellate Assistant commissioner made pursuant to the interim order of the Tribunal. In our view, it was impermissible to ask one contraction party (the Government) how it interpreted the lease. Mr. Dastur submitted that this was permissible having regard to judgment of the Supreme Court in Godhra Electricity Co. Ltd. v. State of Gujarat . The Supreme court there said that when both parties subsequently said that by the word or phrase which, in the context, was ambiguous, they meant this, it only supplied a glossary as to the meaning of the word or phrase. Where the inquiry was as to the intention of the parties to be gathered from the language used, there was no reason why parties could not clear the latent ambiguity in the language by a subsequent interpreting statement. If the meaning of the word or phrase or sentence was clear, extrinsic evidence was not admissible. It was only when there was latent ambiguity that extrinsic evidence in the shape of an interpreting statement in which both parties had concurred should be admissible. The Supreme Court also followed its decision in the case of Abdulla Ahmed v. Animendra kissen Mitter, , where it had been held that extrinsic evidence to determine the effect of an instrument was permissible where there remained a doubt as to its true meaning and that evidence of the acts done under it was guide to the intention of the parties, particularly when the acts were done shortly after the date of the instrument. In the first place, we find no ambiguity in the interpretation of the lease. In the second place, the Supreme Court approved the use, where there was ambiguity, of extrinsic evidence in the shape of an interpreting statement in which both parties to the document had concurred; there is no such statement here. In the third place, in Abdulla Ahmed's case, , the doctrine of contemporaneous exposition was applied to the interpretation of an ambiguous document; the manner in which the parties to a document have acted upon it soon after its execution is indicative of the meaning they intended to give it. There is no action in evidence here, taken soon after the execution of the lease in 1940, which indicates the intention of the parties thereto.
14. Mr. Dastur drew our attention to a subsequent lease in respect of the same lands granted by the Government to the assessee in 1971. He also drew our attention to the form in which the Government granted mining leases, which was published in 1960. It is impermissible to interpret a deed in the light of another deed, though it be between the same parties and in relation to the same subject-matter, but executed thirty years later. It is equally impermissible to interpret a lease in the light of the pro forma of a similar lease that was not published until twenty years thereafter.
15. Mr. Dastur drew our attention to the judgment of the House of Lords in William Davis v. William Treharne [1881] AC 460. The House of Lords was concerned with the interpretation of a clause in a mining lease which stated that the lessee could work the mines "in the usual and most approved way in which the same is performed in other works of the like kind in the country". The observations upon which Mr. Dastur relied were made by Lord Blackburn and Lord Watson. It was said by the former that it must be taken as perfectly settled ground that as of common right the surface land had a right to be supported by subjacent strata of minerals. In common right, the person who owned the surface had a right to have properly supported below by minerals, and, if there were mineral workings under the surface, to have a proper support left for it by pillars. Lord Watson said that when the proprietor of the surface and the subjacent strata granted a lease of the whole or part of his minerals to a tenant, it was an implied term of the contract that support shall be given in the course of working to the surface of the land. Mr. Dastur submitted, upon the strength of this judgment, that there was an obligation upon every lessee of a mine de hors the terms of his lease to support the land and to restore it to its original condition. In so far as it relates to an obligation to support the land, in the sense that it should not be permitted to cave in, the submission is plausible. The judgment is not, however, an authority for the proposition that every lessee of a mine is obliged to restore the land to its original condition regardless of the terms of the lease upon which he holds the land.
16. Reliance was placed on behalf of the assessee upon section 108(m) of the Transfer of Property Act. Section 108 sets out the rights and liabilities of lessors and lessees. The provisions of the section are operative in the absence of a contract or local usage to the contrary. Under clause (m) thereof, "the lessee is bound to keep, and on the termination of the lease to restore, the property in as good a condition as it was in at the time when he was put in possession, subject only to the changes caused by reasonable wear and tear or irresistible force..." In Mr. Dastur's submission, the provisions of clause (m) can stand along with the obligations to the same end under the lease. We shall consider the effect of clause (m) without going into the question of whether or not there is a covenant in the lease that provides for the same subject-matter and, therefore, supervenes. Under clause (m), the obligation is to restore the property in as good a condition as it was in at the time when the lessee was put in possession, subject to the changes caused by reasonable wear and tear. It is crucial to remember that we are dealing with a mining lease. It would be virtually impossible for the lessee thereof to carry on the mining business for which he has taken the lease if he is required to return the land to the lessor in anywhere near the condition in which he obtained it. "Reasonable wear and tear" in the context of a mining lease must, necessarily, reduce the requirements of clause (m) to almost a cypher. In the circumstances, we cannot hold that there is an obligation of the nature claimed by the assessee cast upon it under the provisions of section 108(m).
17. Holding, as we do, that the assessee was under no "obligation to restore the lands to their original condition, so far as may be, upon the determination of the lease", we do not find that the assessee had in the years in question the right to claim a deduction on account, on a hypothetical basis, of "mining land restoration charges". Without more ado, the first question may be answered thus : There existed during the relevant previous years no liability on the assessee to restore the lands leased to it to their original condition.
18. We now deem it unnecessary to consider the further aspect of the first question, viz., as to whether the estimated liability was an eligible revenue expenditure, and the second question.
19. There shall be no order as to costs.