P L D 1962 Dacca 86 (PLP)

I. H. CHOWDHRY, C. J.‑-This is a Reference under sec tion 66 (1) of the Income‑tax Act at the instance of the Commis sioner of Incomer‑tax for decision by this Court of the question of law formulated by the Tribunal and referred to this Court which runs as follows :‑ "Whether on the facts and in the circumstances of the case and the agreement, between the assessee and Vie Po3tal Department, the monthly premium pail by the assessee for carrying mails is a revenue expenditure allowable under section 10 (2) (xvi) of the Income‑tax Act, 1922 ? " Facts stated in the letter of reference are as follows: The assessee, Messrs Tangail General Trading & Transport Corporation Ltd. are a public limited company carrying on business of motor transport between Mymensingh and Tangail among other places. The Postal Department granted them a mail-carrying contract for a specified period on payment of premium to the Postal Department for carrying mails between Mymensingh and Tangail everyday. The carrying of mail is associated with extra trips. Ordinarily each passenger bus gets only 10 trips up and down per month (up and down trips of one bus taken as one trip), but the mail carrying bus out of necessity will get 30 trips per month which means 20 trips more than an ordinary non‑mail carrying passenger bus. The mail carrying bus carries the usual full load of passengers in addition to carrying Postal mails. As the mail carrying bus has to run punctually it attracts more passengers than the ordinary non‑mail passenger bus. The assessee entered into a contract for carrying the mail for a period of three years. The monthly premium payable by the assessee to the Postal Department was Rs. 5,

000. After the termi nation of the contract of the assessee, another transport Com pany‑Messrs Sannyal Transport Company Limited were the con tractors on a monthly premium of Rs. 2,

325. After their term was over, the assessee again entered into a fresh contract with the Postal Department under a new tender on a monthly premium of Rs. 2,

325. The disputed contract was entered into on the 10th of January 1952 to take effect from the 1st December 1951 for a period of three years ending on the 30th November 1954. Under the terms of the contract, the contractor is to deposit a sum of Rs. 15,000 as security and the contract for three years is determinable by 4 months' notice on either side or otherwise in due course of law; that the contractor is permitted to carry passengers in the mail bus for which he is responsible for obtaining necessary permits, licenses etc., from the local authorities ; that the contractor is liable to pay penalties varying from Rs. 2 to Rs. 25 in case of delay or failures in the journeys ; that the contractor is responsible abso lutely for due and safe custody and delivery of mail and other articles and liable for damages for all losses and injuries except caused by an act of God, violence of an army or a mob or other irresponsible forces ; that vehicles to be used for the purpose of mail carrying to be approved by the Postal Authorities ; that the contractor is to pay a monthly premium of Rs. 5,000 in advance on the 1st day of each month for permitting him to carry mail in that month ; that the entire security of Rs. 15,000 is liable to be forfeited for breach of any of the covenants by the contrac tor ; and last of all the Postal authorities have got the right to rescind or determine the agreement forthwith without any notice to the contractor for failure to perform and observe any of the stipulations and conditions in the contract. The Income‑tax Officer disallowed the expenditure of Rs. 5,000 paid as a premium for the month of December 1952 and for the first assessment year 1952‑53 and Rs. 57,333 for 11 months of the next year, that is, the assessment year 1953‑54, the contract having been terminated at the instance of the assessee. In the opinion of the Income‑tax Officer the expenditure was of capital nature as it was incurred for getting the contract and it also represented purchase price of the goodwill for carrying Government mail and definite, secured and advantageous trips, or in other words, for the purchase of opportunity for earning from larger number of trips and that it did not form part of the work ing expenditure. The Appellate Assistant Commissioner affirmed the view of the income‑tax Officer holding further that the expenditure was incur red not for the purpose of conducting the business but for acquir ing exclusive right to carry the Postal mails and also to ply buses during appointed time attracting more passengers resulting in more profits. The question, whether a particular item of expenditure is to be treated as capital or revenue is a question of fact depending on the particular facts and circumstances of each case as has been held both in English and Indian decisions, It has also been held that the principle enunciated in one case cannot fully be applied to the facts of another case. The decisions, however, provide guidance for arriving at a reasonable conclusion on a particular facts of each case. On behalf of the Income‑tax Department, the following cases were relied on, namely, The Commissioner of Income‑tax v. Sir Homi M. Mehta ((1943) 11 I T R 142), Tata Hydro‑Electric Co. v. Commissioner of Income‑tax ((1937) 5 I T R 202) and Assam‑Bengal Cement Co. v. Commissioner of Income‑tax ((1952) 21 I T R 38), confirmed by the Supreme Court of India, reported in (1955): 27 I T R

34. On the other hand, the assessee -appellant relied on the following decisions in the cases of The Jagat Bus Service v. Commissioner of Income‑tax, U. P. Ajmer Merwara ((1950) 18 I T R 13), and Vithaidas Thakurdas & Co v. Commissioner of Income‑tax, Bombay ((1946) 14 I T R 822), The Tribunal after discussing the decisions in the above cases referred to by both sides and also considering the recent decision of the Dacca High Court in the case of Commissioner of Income‑tax, Dacca v. Gurudayal Sarkar and others ((1960) 10 P L R 122), has come to the conclusion on the facts of the present case and on applica tion of the law discussed in the above cases: Now on the facts of the present case already set out, the law as enunciated in the cases cited by both sides and stated by us as above has to be, applied. Even according to the dictum laid down by Viscount Cave it was not a decisive test applicable in ever‑, case. Expenditure made once and for all with a view to bringing into existence an asset or advantage for the enduring benefit of a trade is to be treated as capital in the absence of any special circumstance leading to an opposite conclusion. In the present case the benefit according to the terms of the agreement will last for a maximum period of three years with an option for either side to terminate on four months' notice. So not to speak of any lasting or per manent benefit the contract period had its shortest life for only four months and longest for three cars. In fact, the assessee terminated the contract after 2 months' duration which period can by no stretch of imagination be called as bringing into existence an advantage of enduring or lasting benefit. There is no element of permanency in the contract. On the other hand the terms of the contract are so stringent against the assessee that even for the slightest infringement of any of the terms, the agreement can be determined forthwith without notice and the whole amount of security deposit forfeited in addition to all other penalties and forfeiture provided for in the agreement." As to the question of goodwill, in the light of the decision in the case of Vithaldas Thakurdas & Co. v. Commissioner of Income‑tax, U. P. Ajmer‑Merwara (14 I T R 822) where it has been held that the payment of Rs. 5,059 for the use of the goodwill was a revenue expenditure incurred wholly and exclusively for the purpose of the business, the Tribunal held that the payment of Rs. 5,000 per month for carrying mail cannot be treated differently from that of the case reported in (14 I T R 822). Hence this reference at the instance of the Commissioner of Income‑tax. Before we take up the question for consideration, we must point out, in view of the observation of the Supreme Court of Pakistan in the case of Commissioner of Income‑tax, East Pakistan v. Luxmi Narayan Cotton Mills Limited, reported in (1960 P T D 855) that whether a particular item of expenditure is to be treated as capital or revenue expenditure is not purely a question of fact depending on the particular facts and circumstances of each case, as observed by the Tribunal in the letter of reference, because it essentially involves construction of the relevant provi sions of the statute and consequently is at least a mixed question of fact and law, "for it is by no means clear that everything which may fall within the meaning of the expression 'capital expenditure' for the purpose of the income‑tax Act, must necessarily fall within the meaning of the word 'capital' and equally, must be excluded from the meaning of the word 'investment' for the purpose of the Business Profits Tax Act. While the facts in the present case are so clear that the applica tion of the distinction between capital and investment admits of no doubt, the requirements of business of different kinds are so varied that cases may well arise in which sums laid out by a company for the protection of its interest may be treated as capital expenditure for the purposes of the Income‑tax Act as held in the Assam‑Bengal Cement Company Limited case (21 I T R 38) but sums spent for a similar purpose in a different manner may not qualify for abatement as capital under a statute relating to taxation of excess profits (vide the Gas Lighting Improve ment Company's case (1923 A C 723) cited above. The point raised by the reference was a difficult one, and it might have been expected to engage the thoughtful attention of the Division Bench to a far greater extent than it succeeded in doing." In the case of the Jagat Bus Service v. Commissioner of Income‑tax, U. P. & Ajmer‑Marwara ((1950) 18 I T R 13) Malik, C. J, after considering all the cases cited before him and referred to in his judgment held "The decision in each case, of the question, whether an item of expenditure is revenue expenditure or capital expenditure depends upon a variety of circumstances, a g., the nature of the expenditure, the source from which the money was spent, whether the payment was made once and for all or is a recurring expenditure and whether the asset acquired is going to be a source of permanent income or it exhausts itself either during the course of the year when it was acquired or within a short period thereafter. The main test is its per manency i.e. whether the value of the capital of the company or its assets or its goodwill is permanently increased by reason of such expenditure. It is impossible to lay down any test, which would meet all cases, for example, a firm carrying on the business of plying motor vehicles for hire might decide to increase its business and lay down a new road connecting two places. This would be in the nature of a capital expenditure. If, on the other hand, it spends money every year for the running repairs to the road, that might be in the nature of a revenue expen diture. Similarly, a firm dealing in machinery might buy machinery for sale, which would be revenue expenditure, while an industrial concern might buy machinery to replace worn out machinery and that would be in the nature of capital expenditure. Even In the case of an industrial concern minor repairs, which have to be frequently made and which are known as running repairs are revenue expenditure, while re placement of costly machinery is capital expenditure. It is, therefore, difficult to lay down any test, which could be applied to every case. To my mind, 'capital' means an asset which has an element of permanency about it and which is capable of being a source of Income and 'capital expenditure' must therefore, generally mean an acquisition of an asset and the asset must be intended to be of lasting value. While income or revenue expenses are generally running expenses incurred in earning profit or expenses incurred with the primary object of an immediately return or acquisition of assets which are not of lasting value and are likely to get exhausted or consumed in the process of the return or a very limited number of returns." Therefore, to be short, the question whether a particular item of expenditure Is a capital expenditure or a revenue expenditure is a difficult question to be decided with reference to the facts and circumstances of each case, as has been observed by S. K. Das, J. of the Supreme Court of India in the case of Pingle Industries Ltd. v. Commissioner of Income‑tax, Hyderabad, reported in (1960 P T D 1256). "This distinction between capital and revenue either on the receipt or expenditure side, is almost a perennial problem in Income‑tax law. In general the distinction is well‑recognised and is based on certain principles which are easy of applica tion in some cases; but from time to time cases arise which make the distinction difficult of application." Therefore, it seems to us that the Tribunal is perfectly right when it has stated that the principle enunciated in one case cannot be fully applied to the facts of another case, but the decisions, however, provide guidance for arriving at a reasonable conclusion on the particular facts of each case. In the case of Abdul Kayoom Hussain Sahib v. Commissioner of Income‑tax, Madras reported in ((1953) 24 I T R 116) referred to by the Tribunal In the letter of reference the Full Bench of the Madras High Court held; - "It may be taken that until 1926, i.e., until the decision of Viscount Cave, Lord Chancellor, in Atherton's case (1926 A. C. 205) even a working principle for the guidance of the Courts was not firmly established., In that case, however, Viscount Cave, Lord Chancellor, formulated a test, which, with slight variation, has ever since been followed both in England and in India. The Lord Chancellor considered that the opinion of Lord Dunedin in Vallembross Rubber Co. v. Farmer (1910) 5 T C 529 that in a rough way I think it is not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all, and income expenditure is a thing that is going to recur every year, was not a decisive test applicable to every case." According to Viscount Cave, the test is : "But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstance leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital." In the case of, Anglo‑Persian Oil Co. v. Dale ((1932) 1 K B 124 at p. 146) referred to in the letter of reference by the Tribunal, Romer, Lord Justice observed "It should be remembered, in connection with this passage (referring to the above passage of Viscount Cave), that the expenditure is to be attributes to capital if it be made with a view to bringing an asset or advantage into existence. It is not necessary that it should have that result. It is also to be observed, that the asset or advantage is to be for the `enduring' benefit of the trade. I agree with Rowlatt, J that by 'enduring' is meant enduring in the way that fixed capital endures. An expenditure on acquiring floating capital is not made with a view to acquiring an enduring asset. It is made with a view to acquiring an asset that may be turned over in the course of trade at a comparatively early date. Nor, of course, need the advantage be of a positive character. The advantage may consist in getting rid of an item of fixed capital that is of an onerous character, as was pointed out by this Court in Mallett v. Stavely Coal & Iron Co. (1928) 2 K B 405." In the case of Commissioners of Inland Revenue v. The Granite City Steamship Co. Ltd. ((1927) 13 T C 1 at p. 14) Lord Sands laid down yet another test which has also been adopted in a number of cases. "Broadly speaking outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business or for a substantial replacement of equipment." Besides these cases referred to in the letter of reference, the learned Advocates of the parties referred to other cases to justify their contention that it is a capital expenditure or a revenue expenditure. In the case of Assam‑Bengal Cement Co. Ltd., Calcutta v. Commissioner of Income‑tax, Calcutta, reported in (A I R 1953 Cal. 368) relied can by Mr. Mesbahuddin on behalf of the Income‑tax Commissioner it has been held: - " It is not necessary that some asset or advantage should actually be brought into existence. Expenditure is to be attributed to capital, if it is made with a view to acquiring some asset or advantage of enduring benefit; it is not further necessary that it should have that result and that "Expenditure for the purpose of a business can only be capital or revenue expenditure and any expenditure that cannot be brought under the first category must necessarily fall under the second. One is practically the converse of the other. If a positive definition of business expenditure of a revenue character is acquired, it may perhaps be said that it must belong to the operational expenses of the business laid out either to meet a continuous business demand or to get rid of some particular trading liability or to meet the normal day‑to‑day occasions for outlay in carrying on the business, but always related to the working of the organisation for producing profits and the process of production." In the case of Pyrah (Inspector of Taxes) v. Annis & Co. Ltd. reported in ((1957) 31 I T R 517) relied on by Mr. Mesbahuddin, a Company obtained an `A' licence for four articulated vehicles. In an endeavour to bring the number of articulated vehicles authorised by its licence up to seven the company in 1952 incurred expenses of 1,272 in applying to the appropriate authorities to vary its licence by the inclusion of a further three articulated vehicles. The company claimed that these expenses might properly be deducted from its trading profits for the purpose of computing its liability to income‑tax. In that case it was held that these expenses could not be so deducted since they were incurred in an attempt to make the company's fleet of lorries more advanta geous and were, therefore, attributable to capital expenditure. On the other hand, Mr. Shaukat Ali, the learned Advocate for the assessee, relied on the case of Tata Hydro‑Electric Agencies Limited, Bombay v. Commissioner of Income‑tax, Bombay Residency & Adon reported in (64 I A 215=A I R 1937 (P C) 139), where it has been held that the obligation to make the payments was undertaken by the appellants in consideration of their acquisition of the right and opportunity to earn profits, that was, of the right to conduct the business, and not for the purpose of producing profits in the conduct of the business, will be a capital expenditure. The learned Advocate also relied on the decision in the case of the Jagat Bus Service u. Commissioner of Income tax, U. P. Ajmere‑Merwara reported in (A I R 1950 All. 295=(1950) 18 I T R 13), where the question was whether a particular item of expenditure was a capital expenditure or revenue expenditure and it was held: " Capital' means an asset which has an element of per manency about it and which is capable of being a source of income and `capital expenditure' must, therefore, generally means an acquisition of an asset and the asset must be intended to be of lasting value. Income or revenue expenses are, on the other hand, generally running expenses incurred in earning profit or expenses incurred with the primary object of an immediate return or acquisition of assets which are not of lasting value and are likely to get exhausted or consumed in the process of the return or a very limited number of returns." Mr. Shaukat Ali also relied on the decision in the case of R. S. Munshi Gulab Singh & Sons v. Commissioner of Income tax, Lahore reported in (A I R 1947 Lah. 82), where it has been held : "That the expenditure incurred in canvassing custom or in securing better rates than otherwise would be obtainable for the work executed, with the object of earning increased profits was not a capital expenditure but an item to be debited to revenue account according to the ordinary commercial usage and mode of drawing up a profit and loss account. The sums were paid to the competing firms by the assessee in order to keep up the prices for the printing and publishing jobs executed at the press and thus to earn larger profits than could otherwise be realised. That was the part of the business that assessee carried as the owner of a printing press and as a person who had inherited the trade as a printer and publisher. The expenditure was not made once and for all or with a view to bring into existence an asset or an advantage for the enduring benefit of the trade but was of a recurring nature and arose in the course of the trade conferring no enduring benefit on the trade. As it only enhanced the annual profits and had no other purpose or object in view, the expenditure could not be said to be in the nature of a capital expenditure and could be deducted as business expenditure under clause 9 as it stood before the amendment of 1939 and under clause 12 after the amendment." The learned Advocate Mr. Ali also relied on the decision in the case of Messrs Mohanlal Hargovind of Jubbulpore v. Com missioner of Income‑tax, C. P. & Berar, Nagpur reported in (1960 P T D 844;) where it has been held by Their Lordships of the Privy Council "In the Act there is no definition of the expression `capital expenditure' which must be construed in a business sense save in so far as there may be rules of construction applicable to it. In a business sense this expenditure is expenditure on revenue account and not on capital account." In the case of Commissioner of Income‑tax, East Pakistan, Dacca v. Luxmi Narayan Cotton Mills Limited, Dacca reported in (1960 P T D 855), it has been observed " Capital expenditure', it has been said, is that which is spent `once for all'. It is an expenditure incurred with a view to bringing into existence an asset or advantage for the continuing benefit of the trade. It is money employed `for the purpose of acquiring the concern, not for the purpose of carrying on the concern. The land upon which a manufacturer, carries on his business is part of his fixed capital. The machinery with which a manu facturer makes the articles that he sells is part of his fixed capital." In the case of Assam‑Bengal Cement Co., Limited, v. Commissioner of Income‑tax, West Bengal, (A I R 1955 S C 89) where the decision of the Calcutta High Court reported in A I R 1953 Cal. 368 has been affirmed, it has been held: "In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. The question, however, arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expen diture is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure." "If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure." In this case, it has been further held: " Whether a payment be in a lump sum or by instalments, what has got to be looked to is the character of the payment. A lump sum payment can as well be made for liquidating certain recurring claims which are clearly of a revenue nature, and on the other hand payment for purchasing a concern which is prima facie an expenditure of a capital nature may as well be spared over a number of years and retain its character as a capital expenditure. A I R 1952 Cal.

414. Approved. The expression `once and for all' is used to denote an expenditure, which is made once and for all for procuring benefit to the business and enduring as distinguished from a recurring expenditure in the nature of operational expenses. And by the expression `enduring benefit' is meant enduring in the way that fixed capital endures.' We have quoted the principles laid down in these decisions for the purpose of our guidance in arriving at a reasonable con clusion on the particular facts of this case. Now coming to the facts of this case, what we find from the statement of facts in the letter of reference is that this assessee has already acquired a licence for plying 4 buses in the disputed route from Mymensingh to Tangail. Out of these 4 buses the assessee also obtained a contract for carrying mails of the Postal Depart ment not for remuneration but on payment of a premium of Rs. 5,000 per month in advance under the terms and conditions already stated and thereby out of necessity, will get 30 trips per month which means 20 trips more than ordinary non‑mail carrying passenger bus. As these buses are to run everyday in the morning and in the evening, their right to carry passengers in these mail carrying buses, does not depend upon the agreement on the basis of which they have got the right to carry mail, rather it is not a right but an obligation. Why the assessee has taken this obligation for carrying mails of the Postal Department? Certainly in order to get more facility to carry more passengers and thereby to make more profit in their bus plying business. Carrying passengers in these buses is on account of their licence obtained from R. T. A. (Regional Transport Authorities). Mr. Mesbahuddin, the learned Advocate for the applicant, contends that it is an acquisition of advantage though he is not ready to go up to saying that it is an acquisition of asset, means, acquisition of asset producing income. On the other hand Mr. Shaukat All Khan, learned Advocate for the assessee, contends that it is an expenditure for the purpose of augmenting the income of the already existing business and, therefore, payment of Rs. 5,000 a month is a running expenditure from. month to month and it is not of any enduring benefit and it lacks in the character of permanency. Question is whether this expenditure is to bring into existence an asset or advantage for the enduring benefit of the trade as contended by Mr. Mesbahuddin and as observed by Viscount Cave in the case of Atherton reported in 1926 A C 205, it is for having an enduring benefit of the trade which means enduring in the way that fixed capital endures as observed by Roamer, Lord Justice, in Anglo‑Persian Oil Co. v. Dale ((1932) K B 124 at p. 146) or whether, as stated by Lord Sands in the case of Commissioners of Inland Revenue v. The Granite City Steamship Co. Ltd. ((1927) 13 T C 1 at p. 14), it is an outlay deemed to be capital when it is made for the initiation of a business or for a substantial replacement of equipment. None of these tests is satisfied in this case. Now coming to the cases cited before us, in the case of the Commissioner of Income‑tax, East Pakistan, Dacca v. Luxmi Narayan Colton Mills Limited, Dacca (1960 P T D 855), our Supreme Court has laid a test as to what will constitute a capital expenditure to mean what is spent "once for all" and "It is an expenditure in curred with a view to bringing into existence an asset or advantage for the continuing benefit of the trade" arid "it is money employed for the purpose of acquiring the concern, not for the purpose of carrying on the concern." To our mind, it is money employed not for the purpose of acquiring any concern but for the purpose of carrying on the concern already in existence with more profits. Mr. Mesbahuddin for the Commissioner of Income‑tax relied on the following passage in the judgment of the Chief Justice of the Supreme Court at page 137 of the report: ‑ "It is an expenditure incurred `with a view to bringing into existence an asset or advantage for the continuing benefit of the trade' per Viscount Cave, L. J. in the British Insulated and Halsby Cables Limited case 1926 A C

205. It is a money employed `for the purpose of acquiring the concern, not for the purpose of carrying on the concern `City of London Contract Corporation Limited case 2 T C 239' or as stated differently by the Privy Council, it is expenditure 'in consideration of the acquisition of the right and opportunity to make profits, that is the right to conduct the business and not for the purpose of producing profits In the conduct of the business Tata Hydro‑Electric Agencies' case 64 I A 215." Relying on this observation of the Supreme Court Mr. Mesbahuddin contended that it is an acquisition of the right and opportunity to make profits. But unfortunately the learned Advocate has omitted the next sentence in this quotation which runs as follows: "That is the right to conduct the business and not for the purpose of producing profits in the conduct of the business." This is a quotation from the judgment of the Privy Council in the case of Tata Hydro‑Electric Agencies Limited, Bombay v. Commissioner of Income‑tax, Bombay Presidency arid Aden (64 I A 215). We think, in order to understand the implication of Their Lordships of the Privy Council it is necessary to state short facts of that case. There the managing Company Tata Sons Ltd, for the benefit of the managed company Tata Power Co. Ltd. borrowed certain money from F. E. Dinshaw Ltd., and Richard Tilden Smith, to facilitate the business of the Tata Power Co. Ltd. The assessee Tata Hydro‑Electric Agencies got the managing; agency of Tata Power Co. Ltd., by assignment with an under taking that the assessee company would pay the money borrowed from F. E. Dinshaw Ltd., and Richard Tilden Smith respectively. Question arose whether the payment of money to F. E. Dinshaw Ltd., and Richard Tilden Smith by the assignee Tata Hydro Electric Agencies was a capital or revenue expenditure. Their Lordships at page 224 of the report observed: "It was not questioned by counsel for the Crown that if the present question had arisen with Tata Sons Ltd they would, under section 10, subsection 2(ix) have been entitled on the facts stated to deduct their payments to F. E. Dinshaw Ltd., and Richard Tilden Smith as being expenditure incurred solely for the purpose of earning their profits or gains. But he submitted that after the acquisition of the agency business by the present appellants the payments assumed a different character. The appellants, he said, did not take any part in obtaining the loans, nor did they incur the liabilities in question in the course of rendering any services to their principals. The obligation to make the payments in question was taken over by them as part of the transaction whereby they acquired the agency business from Tata Sons Ltd. and the payments were therefore made not for the purpose of earning profits in the conduct of the agency business but in fulfilment of the terms on which they purchased business." If we read the observation of the Privy Council quoted in the judgment of the Supreme Court 1960 P T D 855 there cannot be any doubt that it supports the contention of the learned Advocate Mr. Shaukat Ali Khan that the payment of money of Rs. 5,000 is for the purpose of earning profits in the conduct of the assessee's business already in existence and it is not an acquisition of the right and opportunity to make profits. In this view of the matter the Supreme Court decision also supports the contention on behalf of the assessee that the payment of Rs. 5,000 a month was not for acquisition of any advantage or any asset but for the purpose of earning profits in the conduct of the business and, therefore, it is a revenue expenditure and not a capital expenditure. Next case cited by Mesbahuddin in course of his argument is the case of Assam‑Bengal Cement Co. Ltd., Calcutta v. Commis sioner of Income‑tax, Calcutta (A I R 1953 Cal. 368); where at page 312, while dealing with the test laid down by Viscount Cave, learned Judge stated (at para. 14‑15) "Taken literally, the test laid down by Viscount Cave would seem to apply both to cases where the expenditure is made at the inception of a business and those where it is made when the busi ness is running, but it is more suited to the latter type of cases and has generally been applied in relation to them. As regards expenditure laid out or undertaken at the initiation of business, a test has been laid down in another form. A terse statement of it is to be found in the well‑known words of Bowen, L. J. in the case of City of London Contract Corporation Ltd. v. Styles (1887) 2 Tax Case 239. `You do not use it for the purpose of your concern, which means for the purpose of carrying on your concern, but use it to acquire the concern.' Then the learned Judge goes on to say "In other words, if the expenditure is not for meeting the working expenses of a business after it has been started but is for the acquisition of the initial asset of advantages on the basis of which the business is to be launched, it is a capital expenditure." This observation of the learned Judge in the case reported in A I R 1953 Cal. 368 at p. 372 must be read with reference to the facts of that case. Facts of that case are that the Assam‑Bengal Cement Co., after acquiring the right of manufacturing cement, entered into an agreement with the local Government on payment of certain amount of selami or premium that limestone quarried around the factory or near about that should not be sold to any other person for the purpose of manufacturing cement. Question that arose for consideration was whether the premium paid by the company to the Government was a capital expenditure or a revenue expenditure for the purpose of profits in the business. It was held that it was an acquisition of an asset, a source of income in the sense that they have got guarantee that there will not be any other cement manufacturing company. Therefore the observation in that case is to be read with reference to the facts of that case, but that observation is on the principle laid down by Viscount Cave and Bowen, L. J. in the cases reported in 1926 A C 205 and (1887) 2 T C 239 respectively; and also of the Privy Council in the case of Tata Hydro‑Electric Agencies Ltd., Bombay. So also is the observation of Their Lordships of the Calcutta High Court in Assam‑Bengal Cement Co. case, where at page 372 (at para 15) the learned Judge observed "If a positive definition of business expenditure of a revenue character is required It may perhaps be said that it must belong to the operational expenses of the business laid out either to meet a continuous business demand or to get rid of some particular trading liability or to meet the normal day‑to‑day occasions for outlay in carrying on the business, but always related to the working of the organisation for producing profits and the process of production." This observation, as we think, is applicable to some extent though not wholly to the facts of the present case, as it relates to the working of the organisation for producing profits in the process of production. We have already pointed out that in the present case the con tract for carrying mail was in fact an obligation and not a right and that obligation was undertaken by the assessee not for any benefit arising out of it but only to facilitate his own business, i.e., plying of buses carrying passengers and getting more trips and thereby getting more profits out of it. It is nothing but a devise for winning more profits. In no sense it can be said that it is an acquisition of asset or an advantage of a permanent character or of an enduring nature from which the assessee is getting benefit. It is not an acquisition of means of income but a devise for in creasing the income to his already existing business. Because his right to carry passengers and plying buses in the route is indepen dent of it and is not on account of this agreement but on account of the licence he has obtained from the R. T. A., which was already there. It may not be strictly within the meaning of operational expenses ref the business laid out either to meet a continuous business demand or to get rid of some particular trading liability or to meet the normal day‑to‑day occasion for outlay in carrying on the business but it relates to the working off the organisation for producing profits and process of production. Even the learned Judge himself, in then case reported in A I R 1953 Cal. 368 In defining business expenditure of revenue character is not sure whether the definition is exhaustive or not as the word "perhaps" used by the learned Judge indicates. However, that observation may be appropriate with reference to the facts of that case but it cannot have a general application. Another case relied on by Mr. Mesbahuddin is the case of Pyrah (Inspector of Taxes) v. Annis & Co. ((1957) 31 I T R 517) where it has been held that expenses incurred were in an attempt to make the company's fleet of lorries more advantageous as income winning assets and were, therefore, attributable to the capital expenditure. That case is distinguishable from the facts of the present case as that is a case of acquisition of income winning asset. But in the present case there is no acquisition of asset by virtue of the agree ment of the assessee with the Postal Department. It only gets an advantage of a few more trips incidentally not directly but the trips themselves do not pay any income. The right to carry passengers is Independently of this agreement and it is due to the licence obtained from the R. T. A. and, therefore, it is a devise for augmenting the income of the existing business. In the case of Jagat Bus Service v. The Commissioner of Income‑tax U. P. & Ajmer‑Merwara, Lucknow (A I R 1950 All. 295), relied on by Mr. Shaukat Ali Khan, the learned Advocate for the assessee, Malik, C. J., observed at page 298 (paragraph 18) as follows: ‑ "To my mind, `capital' means an asset which has an element of permanency about It and which is capable of being a source of income and `capital expenditure' must, therefore, generally mean an acquisition of an asset and the asset must be intended to be of lasting value. While income or revenue expenses are generally running expense incurred in earning profit or ex penses incurred with the primary object of an immediate return or acquisition of assets which are not of lasting value and are likely to get exhausted or consumed in the process of the return of a very limited number of returns." This observation of the learned Chief Justice of the Allahabad High Court is of general application to appropriate cases and applies to the facts of the present case to mean that this recurring expenditure of Rs. 5,000 a month was for the purpose of procuring income in the running business. Next case relied on by Mr. Shaukat All Khan is the case of Pingle Industries Ltd., Secunderabad v. Commissioner of Income- tax, Hyderabad (1960 P T D 1256). In that case the appellant, a private limited company carrying on business of the sale of Shahabad stones which had to be extracted from certain quarries, dressed and then sold. For the purpose of its business the appellant took on the contract the right to excavate stones from certain quarries in six villages for a period of 12 years under a Qoulnama from Nawab Mehdi Jung Bahadur, the Then Jagirdar of the taluk on payment of annual sum of Rs. 28,000 as a consideration for extracting stone till the end of the contract period. The appellant had no right or interest In the land nor had he any other interest In the quarry apart from excavating stones therefrom. The question that arose in that case was whether the payment of annual sum of Rs. 28,000 to the Jagirdar was a capital expenditure or a revenue expenditure incurred, in other words, whether the expenditure incurred was intended to create or bringing into existence an asset or advantage of enduring character or intended to get only the stock‑in‑trade and raw‑materials for the business. Majority of the Judges of the Supreme Court of India held that it was intended to create or bringing into existence an asset or an advantage of enduring character, whereas Das, J. relying on the principle in the Privy Council cases reported in (64 I A 215 and A 1 R 1949 P C 311) held that it was intended to get only the stock‑in‑trade or raw‑materials for the business and, therefore, it was a revenue expenditure. In other words, Das, J., held that what the appellant acquired in that case was not the means of obtaining raw‑materials rather than the raw‑material itself. Relying on this observation of Das, J. Mr. Shaukat Ali Khan, the learned Advocate for the assessee contends that in the present case the money spent by the assessee is for the purpose of procuring income and not for procuring any source of income, because, according to him, the source of income is his bus‑plying business carrying passengers which the assessee derived not from the agreement with the Postal Authority but from the licence obtained from Regional Transport Authority. Mr. Mesbahuddin, the learned Advocate for the Income‑tax Commissioner, relying on the majority view in that case contends that it is an acquisition of the source of income. But in the circumstances of the present case we are unable to accept that by this payment the assessee has acquired any asset or any advantage of enduring benefit having the element of permanency. It is admitted by Mr. Mesbahuddin that the agreement with the Postal Authority does not create any right for carrying passengers in those mail carrying buses but that is on account of the licence already obtained from the (Regional Transport Authority). The learned Advocate for the assessee next relied on the case of R. S. Munshi Gulab Singh & Sons v. Commissioner of Income- tax, Lahore. There the assessee firm having ancestral business of printing and publishing books entered into arrangement with its rival firms to pay them a share in the estimated profits of the assessee in working the Government orders in consideration of the rival firms quoting uniform rates with the assessee in the tenders invited by the Government. A deduction of this payment of the claim under section 10 (2) clause (ix), (clause (xii) after amendment) on the ground that was revenue expenditure and it was held that the expenditure incurred in canvassing custom or in securing better rates than otherwise would be obtainable for the work executed, with the object of earning increased profits was not a capital expenditure but an item to be debited to revenue account according to the ordinary commercial usage. Their Lordships relied on the classical observations of Bowen, L. J. In the case of City of London Contract Corporation v. Styles ((1887) 2 T C 239 p. 243) quoted above axed the following observation of Ezhar, M. R. in the sane case "You must find new money to pay the expenses year by year but then you do find money to pay the expenses year by year and you get the receipts year by year, and the difference between the expenses necessary to earn the receipts of the year and the receipts of the year are the profits of the business for the purpose of the income‑tax" as well as the observation of Bray, J. in the case of Guest, Keen and Nettlefolds v. Fowler ((1910) 5 T C 511=(1910) 1 K B 713). "What I have to find is, and I cannot find for the appellants unless I am satisfied, that that is money wholly or exclusively laid out or expended for the purposes of such trade, Now what is the trade? The trade of the appellants is the manufacture and sale of certain goods, steel hoops. What are the main operations of that trade? First the steel hoops have to be made; secondly they have to be sold; and, as has been pointed out in more than one case, the trade includes not only the manufacture but the selling; and indeed the selling is very often the most important part; the whole of the profits depends upon the price. What does the selling consist of? It consists of two things; the finding of customer and making a bargain with the customer as to the price, the object being of course to get the highest possible price. I do not think this arrangement that is made between the three firms has anything to do with finding the customer, I think it all relates to the fixing of the price, and it is obvious that if the appellants can make an arrangement with their competitors that their competitors will not sell below a certain price, they will be able, or may be able at all events, to get that price or a higher price for their goods. That is part of the business, part of the trade they are carrying on, to get the highest price they can for their goods. What I have to see is whether this money which was expended was wholly laid out or expended for that purpose; that is for the purpose of selling their goods at the greatest possible advantage . . . There was no other object whatever of the association and, `therefore, it seems to me I am bound to find that this money was paid for the purpose of keeping up the price and thus earning the larger profits of the trade' and thus the money was `wholly or exclusively'. laid out or expended for the purpose of such trade." Relying on these observations, the learned Judge of the Lahore High Court held that the sums in that case were paid to the competing firms by the assessee in order to keep up the prices for the printing and publishing jobs executed at the press and thus to earn larger profits than could otherwise be realised and that it was not a capital expenditure. This case also supports the view that in the present case the money spent in procuring the agree ment for carrying mail is the money spent by the assessee for the purpose of the business to earn larger profits that maid otherwise be realised and forms part of the trade that the assessee carried on. The last case relied on by Mr. Shaukat Ali Khan is the case of Messrs Mohanlal Hargovind of Jubbulpore v. Commissioner of Income‑tax, C. P. and Berar, Nagpur (1960 P T D 846), where Their Lordships have held that there is no definition of the expression "capital expenditure" which must be construed in a business sense save in so far as there may be rules of construction applicable to it, and in a business sense this expenditure is expenditure on revenue account and not can capital account. That is a case where a manufacturer of bidis carrying on his business obtained a short term construct from the Forest Department of the Government of collecting and removing tendu leaves for a sum payable in instal ments as the consideration for the grant, with a permission to coppice and pollard the tendu trees and the contract was entered into for the purpose of his business, the purpose being to supply himself of one of the raw‑materials for the business, and the contract grants no interest in the land and no interest in trees them selves, but was simply and solely a contract giving to the assessee the right to pick and carry away leaves, which of course implies the right to appropriate them as his own property, the expenditure incurred in acquiring this raw‑material was an expenditure on revenue account and as such exempt and not on capital account, just as much as if the tendu leaves had been bought in a shop. This case, in principle, is similar to the case of Pingle Industries Ltd. v. Commissioner of Income‑tax, Hyderabad, where the contract was for collection of stones from the quarries of the jagirdar of the taluk, named Nawab Mehdi Jung Bahadur on payment of an annual sum of Rs. 28,000 as a consideration for extracting stones till the end of the contract period having no right or interest 9n the land nor any other interest in the quarries apart from excavation stones therefrom for the purpose of the business of the company, namely, sale of flag stones to be extracted from the quarries, dressed and then sold. Their Lordships at page 848 of the report (1960 P T D 846) observed :‑ "The question, therefore, resolves itself into the short one is expenditure of this character made in acquiring one of the raw‑materials of the appellants' manufacture capital expenditure within the meaning of this Act ? There is no definition of that expression which must in Their Lordships' opinion be construed in a business sense save in so far as there may be rules of construction applicable to it. Their Lordships feel no doubt that in a business sense this expenditure is expenditure on revenue account and not on capital account just as much as if the tendu leaves had been bought fn a shop. Under the contracts it is the tendu leaves and nothing but the tendu leaves that are acquired. It is not the right to pick the leaves or to go on to the land for the purpose‑those rights are merely ancillary to the real purpose of the contracts and if not expressed would be implied by law in the sale of a growing crop." This observation, it seems to us, fully fits in the facts of the present case and lead us to the conclusion that it is an expenditure for the purpose of increasing the income of the assessee's running business, namely, carrying passengers by plying‑buses in the same route on the basis of licence they have obtained from the Regional Transport Authorities independently of the agreement with the Postal Department for carrying mails for which the assessee had to pay a monthly sum of Rs. 5,000 having no enduring benefit and no element of permanency but for the purpose of getting more income out of the several trips they incidentally get by carrying the mails. In the circumstances, we answer the question referred to us in the affirmative and hold that the expenditure incurred by the assessee is a revenue expenditure allowable under section 10 (2) (xvi) of the Income‑tax Act, 1922. The assessee will get costs of this reference to be assessed according to the High Court Rules. A. S. CHOWDHURY, J.‑I agree with my Lord, the Chief Justice. Reference answered in affirmative.