P L D 1960 Dacca 389 (PLP)

(6) The Jagat Bus Service, Saharanpur v. Commissioner of Income‑tax, U. P. and Ajmer‑Merwara, Lucknow A I R 1950 All. 295. (7) The Commissioner of Income‑tax, Bombay v. The Finlay Mills Ltd. A I R 1951 S C 464. (8) Commissioner of Income‑tax, Calcutta v. Piggot Chapman & Co. A I R 1952 Cal.

414. All the above decisions save and except the one in A I R 1949 P C 311=P L D 1949 P C 147 were considered by the Supreme Court of India. In the case of Messrs Mohanlal Hargovind of Jubbulpore v. Commissioner of Income‑tax, C. P. and Berar, Nagpur the assessee appellant carried on business as manufacturer and vendors of country made cigarettes. They obtained tendu leaves which they required for rolling of the tobacco by entering into a short duration contract with the Government and other owners of forests. The expenditure of acquiring tendu leaves was claimed by them as permissible deduction under section 10 (2) (xii) as it was an expenditure laid out or expended wholly or exclusively for the purpose of business. This claim was disallowed by the Income‑tax Officer and his order was confirmed successively by the Appellate Assistant Commissioner and the Income‑tax Appellate Tribunal and the question referred to the High Court at the instance of the assessee‑company was whether the assessee‑company was entitled to the deduction in question. The High Court answered the question in the negative and the matter ultimately went to the Privy Council. The Privy Council, after referring to the agreement entered into by the Company for acquiring tendu leaves from the forests and to the facts of the case, came to the conclusion that the expenditure of this character made in acquiring one of the raw materials was not a capital expenditure within the meaning of the Income‑tax Act. According to their Lordships of the Privy Council, this expenditure was one of revenue account and not of capital account. In the above case the appellant‑company instead of buying tendu leaves from a shop went and fetched it from the forest under different contracts. Hence, obviously, the amount paid for acquiring those leaves could not be regarded as a capital expenditure. Thus the above case can in no sense be regarded as comparable to the present case. Here we may mention that the Supreme Court of India after observing that the test laid down by Viscount Cave has been adopted almost universally in India referred to the Indian cases including those on which Mr. Guha has relied. After quoting the opinion of Mahajan, J. in A I R 1947 Lah. 162 (F B), the Court observed: "This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities". Then after discussing the line of demarcation between the capital expenditure and revenue expenditure, the Court observed: "One has therefore got to apply this criteria, one after the other from the business point of view and come to a conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only it would be a deductable allowance under section 10 (2) (xv) of the Income‑tax Act. The question has all along been considered to be a question of fact to be determined by the' Income‑tax Authorities on an application of the broad prin ciples laid down above and the Courts of Law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles". Mr. Guha seems to think that the judgments of Mahajan, J. in A I R 1947 Lah. at pages 82 and 162 support him. It will suffice to say that Mahajan, J. who was a party to the Supreme Court judgment did not subscribe to that view. In our opinion, the Allahabad, Bombay and Calcutta cases on which Mr. Guha has relied is not of much assistance to him. As observed by Viscount Cave and also by the Supreme Court of India, the question always is one of fact depending upon he circumstances of each case individually. In other words, whether an item of expenditure is revenue expenditure or capital expenditure depends upon a variety of circumstances. In the above Allahabad, Calcutta and Bombay cases, the Court, on the special facts of each case and on the interpretation of particular contracts, came to the conclusion that a certain type of expenditure was revenue expendi ture. In the instant case, the facts being otherwise, those cases are not of much assistance to the assessee. The broad principle laid down in those cases has, however, been considered by the Supreme Court of India in arriving at their decision. Similarly, the decision in A I R 1951 S C 464 also does not support Mr. Guha's contention. Besides the cases referred to by Mr. Guha, the Supreme Court of India has considered the following cases in arriving at their conclusion: (1) Dovey v. Cory 1901 A C 477. (2) Countess Warwick Steamship Co. Ltd. v. Ogg (1924) 2 K B 292. (3) City of London Contract Corpn. v. Styles (1887) 2 Tax Cases 239. (4) Vallambrosa Rubber Co. Ltd. v. Farmer, Surveyor of Taxes (1910) 5 Tax Cases 529. (5) Ounsworth (Surveyor of Taxes) v. Vickers Ltd. (1915) 6 Tax Cases 671. (6) Usher's Wiltshire.‑Brewery, Ltd. v. Bruce (1914) 6 Tax Cases 399. (7) Anglo‑Persian Oil Co. Ltd. v. Dale (1932) 1 K B 124. (8) Hancock v. General Reversionary and Investment Co. Ltd. (1919)1KB25. (9) Mitchell v. B. W. Noble, Ltd. (1927) 1 K B 719. (10) Mallet v. Staveley Coal and Iron Co. (1928) 2 K B 405. (11) Golden Horse Shoe (New) v. Thurgood (H. M. Inspector of Taxes) (1934) 18 Tax Cases 280. (12) Smith v. Incorporated Council of Law Reporting for England and Wales (1914) 3 K B 674. (13) Van Den Berghs, Ltd. v. Clark (H. M. Inspector of Taxes) (1935) 19 Tax Cases 390. (14) Tata Hydro‑Electric Agencies, Ltd. Bombay v. Commis sioner of Income‑tax, Bombay Presidency and Aden A I R 1937 P C 139. (15) United Collieries Ltd. v. Inland Revenue Commissioners 1930 S C 215 (16) Southern v. Borax Consolidated.Ltd. (1942) 10 I T R Suppl. 1 (17) Commissioners of Inland Revenue v. Grantie City Steam ship Co. (1927) 13 Tax Cases I (18) Henricksen (Inspector of Taxes) v. Grafton Hotel Ltd. (1942) 2 K B

184. After referring to these string of decisions, they observed: "(30) These are the principles which have to be applied in order to determine whether in the present case the expenditure incurred by the Company was capital expenditure or revenue expenditure. Under clause 4 of the deed the lessors undertook not to grant any lease, permit or prospecting license regarding limestone to any other party in respect of the group of quarries called the Durgasil area without a condition therein that no limestone shall be used for the manufacture of cement. The consideration of Rs. 5,030 per annum was to be paid by the Company to the lessor during the whole period of the lease and this advantage or benefit was to enure for the whole period of l the lease. It was an enduring benefit for the benefit of the whole of the business of the Company and come well within the test laid down by Viscount Cave. It was not a lump sum payment but was spread over the whole period of the lease and it could be urged that it was a recurring payment. The fact however that it was a recurring payment was immaterial, because one had got to look to the nature of the payment which in its turn was determined by the nature of the asset which the company had acquired. The asset which the Company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protection acquired by the Company for its business as a whole. It was not a part of the working of the business but went to appreciate the whole of the capital asset and make it more profit yielding. The expenditure made by the Company in acquiring this advantage which was certainly an eduring advantage was thus of the nature of capital expenditure and was not an allowable deduction under section 10 (2) (xv) of the Income‑tax Act. (31) The further protection fee which was paid by the Company to the lessor under clause 5 of the deed was also of a similar nature. It was no doubt spread over a period of 5 years, but the advantage which the Company got as a result of the payment was to entire for its benefit for the whole of the period of the lease unless determined in the manner provided in the last part of the Clause. It provided protection to the Company against all competitors in the whole of the Khasi and Jaintia Hills District and the capital asset which the Company acquired under the lease was thereby appreciated to a considerable) extent". We entirely agree with the above observations. In our opinion, the decision of the Supreme Court of India in the case of Messrs Assam‑Bengal Cement Co. Ltd. v. Commissioner of Income‑tax, West Bengal referred to above is correct. We, therefore, on the facts arising in this particular case and on the interpretation of the term of the contract as evidenced by the lease, hold that the amounts in question are not items of revenue expenditure but are items of capital expenditure and hence not allowable as an admissible deduction under section 10 (2) (xvi) of Income‑taxi Act. The question raised, therefore, must be answered in the affirmative. The respondent would be entitled to the costs of the hearing in this Court. ASIR, J.‑I agree. A. H. Reference answered.