l Appeals Nos 1494 to 1498 of 1971
Appeals by special leave from the judgment and order dated November 15 1967 of the Calcutta High Court in Income tax Reference No 13 of 1963
section T Desai section K Aiyar R N Sachthey and B D Sharma for the appellant in all the appeals
N A Palkhivala T A Ramachandran and D N Gupta for the respondent in all the appeals
The Judgment of the Court was delivered by Khanna J
This judgment would dispose of five Civil Appeal Nos 1494 to 1498 of 1971 by Special Leave filed by the Commissioner of Income tax West Bengal against the judgment of Calcutta High Court whereby the question referred to that Court under section 661 of the Indian Income tax Act 1922 hereinafter referred to as the Act for five assessment years was answered in favour of the assessee respondent Coal Shipments P Ltd
During the pendency of the appeals the name of the respondent was changed to Heilgers Investment Ltd The matter relates to the assessment years 1951 52 1952 53 1953 54 1954 55 and 1955 56 the corresponding accounting years for which ended on 31 3 1951 31 3 1952 31 3 1953 31 3 1954 and 31 3 1955 respectively
The respondent was one of the companies which exported coal from India to Burma before the Second World War
Amongst the other exporters were Messrs Karamchand Thaper  Bros Ltd Messrs Macheill Barry Ltd Messrs Andrew Yule  Co Ltd and Messrs R V Low  Co Ltd The shipment of coal to Burma Railways before the war was the subject of open tender
After the cessation of hostilities in 1946 it became possible to resume the export of coal to Burma
In order to overcome the difficulties in the conduct of the trade following the war the members of the coal trade in Bengal formed an association styled Coal Exporters and Charters Association
The respondent company as well as Ms H V Low  Co Ltd were two of the major members 1091 of the said association
When Ms H V Low  Co learnt of the resumption of coal export to Burma by the respondent in 1946 they also expressed intention to export coal to Burma
Thereupon the two companies came to an understanding and arrived at a mutual arrangement or agreement on the following lines  i Ms H V Low  Co Ltd would not export coal to Burma during the subsistence of the agreement
ii Ms H V Low  Co Ltd would assist the respondent in procuring coal for shipment to Burma
iii The respondent would carry on the coal shipping business and pay Ms H V Low  Co Ltd Rs 151 per ton subsequently raised to Rs 1 5 per ton of coal shipped to Burma
According to the respondent the last shipment of coal under the above arrangement was made in June 1954 after which the arrangement came to an end automatically and the Government of Burma made some other arrangement for its coal requirement
The assessee respondent claimed to have made the following payments to Ms H V Low  Co Ltd or their nominees in pursuance of the aforesaid agreement during the period of five accounting years from 1st April 1950 to March 311955 Rs 1951 52    91149 1952 53   
177898 1953 54    303631 1954 55    232355 1955 56     79917 The amounts mentioned above were taxed in the hands of Ms H V Low  Co Ltd The respondent claimed the payment of the above amounts as admissible business expenditure for the assessment years in question
The Income tax Officer held that the expenditures claimed could not be allowed as there was no written agreement in proof of the alleged arrangement and it was not possible to say that the payments were made for the purpose of the assessee s business
The Income tax Officer further held that even assuming that the payments were made to keep off Ms H V Low  Co Ltd from the Burma trade they were payments to secure a monopoly and were not therefore allowable as revenue expenditure
The Appellate Assistant Commissioner on appeal upheld the order of the Income tax Officer
When the matter came up in second appeal before the Income tax Appellate Tribunal the Tribunal found that there was some 1092 discrepancy in the facts stated on behalf of the assessee and the Revenue
The Tribunal thereupon required the respondent company to swear an affidavit in support of the facts relied upon by it
In pursuance thereof Sir Walter Michelmore Director of Managing Agents of the respondent company filed an affidavit
Sir Walter was also examined orally before the Tribunal
The case was thereupon remanded to the Income tax Officer to verify the facts as stated in the affidavit of Sir Walter and report back to the Tribunal
The Income tax Officer after making further investigation submitted his report
In deciding the appeal the Tribunal formulated two points for its decision  1 Were the payments made for the purpose of the assessee s trade in terms of the alleged agreement 2 If the answer to the above question is in the affirmative did the assessee acquire a monopoly by such payment  Both the questions were answered in favour of the respondent by the Tribunal
It was held that the payments were made in pursuance of the alleged agreement in the interest of the respondent s trade
The version of the respondent about its agreement with Ms H V Low  Co Ltd was accepted
According to the agreement Ms H V Low  Co Ltd agreed to assist the respondent in procuring coal for export to Burma whenever asked to do and further agreed not to export coal to Burma during the subsistence of the arran gement
The agreement was found to have been acted upon and it was held that Ms H V Low  Co Ltd supplied varying quantities of coal to the respondent for shipment to Burma
It was further held that the respondent company did not acquire any monopoly rights to carry on Burma trade and the impugned payments were made to carry on the trade in a more facile and profitable manner
The Tribunal found that the arrangement arrived at verbally between the respondent and Ms H V Low  Co Ltd was a temporary measure liable to be terminated at will and the respondent company did not derive any advantage of an enduring character by such payments
The expenditures in question were in the opinion of the Tribunal attributable to revenue and not to capital
As such they were held to be permissible expenditures under section 102 xv of the Act
On application filed by the Revenue the following question was referred to the High Court Whether on
the facts and in the circumstances of the case the payments made by the assessee to Ms H V Low  Co Ltd or their nominees were of a capital nature and as such not allowable under section 102 xv of the Income tax Act 1922  109 3 lm0
It was not disputed before the High Court that there was an
agreement between the respondent and Ms H V Low  Co Ltd on terms stated by the respondent and that the payments in question were made under that agreement
The High Court held that the arrangement entered into by the respondent with Ms H V Low  Co Ltd was not such as was likely to have an enduring beneficial effect
In the opinion of the High Court there was no cert ainty of duration and the arrangement could be terminated or revoked at any time
The consideration of the arrangement it was observed was not paid once for all but was related to uncertain shipments to be made
The arrangement it was further held did not create any monopoly or bring about any capital advantage to the assessee
The respondent was held entitled to claim the deduction of the expenditures under section 10 2 xv of the Act
In the result the question referred to the Court was answered in the negative and in favour of the assessee
We have heard Mr Desai on behalf of the appellant and Mr Palkhiwala on behalf of the respondent and are of the opinion that there is no merit in these appeals
The Tribunal has found that the amounts in question were paid by the respondent to Ms H V Low  Co Ltd in pursuance of the agreement according to which Ms H V Low  Co Ltd were to assist the respondent in procuring coal for shipment to Burma and were themselves not to export coal to Burma during the subsistence of the agreement
The above findings of fact are for the purpose of these proceedings binding upon the appellant and consequently no attempt was made either in the High Court or in this Court to assail them
The payments which were made by the respondent to Ms H V Low  Co Ltd it would thus appear were because of the assistance rendered by them for shipment of coal to Burma and for abstaining from exporting coal to Burma during the subsistence of the agreement
So far as the payment is concerned which was made to Ms H V Low  Co Ltd for assistance to the respondent in procuring coal for shipment to Burma it was admittedly an item of revenue expenditure
The controversy between the parties has centered on the point as to whether that part of the payment which was made because of Ms H V Low  Co Ltd having agreed riot to export coal to Burma during the subsistence of the agreement constituted capital expenditure or revenue expenditure
Mr Desai on behalf of the appellant contends that as the payment was made for warding off competition by rival coal exporter that payment should be held to be a capital expenditure
The fact that there was no certainty of the duration of the arrangement between the respondent and Ms H V Low  Co and the same could be terminated at any time according to the learned counsel 1094 is wholly immaterial
As against that Mr Palkhiwala argues that in order to constitute capital expenditure the object of the expenditure should be to secure an advantage of enduring nature
When there is no certainty of the duration of the arrangement and the same can be revoked at any time the advantage cannot be said to be of an enduring character and the expenditure cannot be held to be of a capital nature
Further
as the payment was related to the quantum of coal shipped to Burma in the course of trading activity and was not connected with the capital value of the assets the payment Mr Palkhiwala submits should be considered to be revenue expenditure
In our opinion there is considerable force in Mr Palkhiwala s submission
Judicial decisions have from time to time laid down some broad principles in order to determine whether an expenditure is of a capital nature or revenue nature
Despite the enunciation of those principles it is not always easy to decide the question in the context of the circumstances of an individual case
Considerable difficulty is experienced in border line cases
It was in this connection that Hidayatullah J as he then was observed in Abdul Kayoom vs Ccommissioner of Income tax1 that none of the tests laid down in various authorities is either exhaustive or universal
Each case must depend on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect
In deciding such cases one should avoid the temptation to decide cases  by matching the colour of the one case against the colour of another
It may be apposite at this stage to refer to some of the broad tests which have beenlaid down to distinguish the capital expenditure from revenue expenditure
In the case of Atherton vs British Insulated and Helsby Cables Ltd2  Lord Cave LC laid down the following criterion which has been referred to in most of the subsequent cases  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 the special circumstances leading to an oppo site conclusion for treating such an expenditure as properly attributable not to revenue but to capital The Courts have to bear in mind according to the dictum laid down in the above case whether it was an expenditure forming  part of the cost of the income earning machine or structure as 1 
2 1095 opposed to part of the cost of performing the income earning operations
In that case the House of Lords dealt with a fund which had been created by the respondent company as a nucleus of a pension fund for its employees
After handing over the money to trustees for the employees the company claimed that the money should be charged to revenue
The claim of the company was rejected by the House of Lords on the ground that the payment of money created for itself an enduring benefit or advantage which was of a capital nature
In the case of Robert Addie and Sons  Collieries Limited vs The Commissioners of Inland Revenue1 Lord President Clyde gave the following test It is necessary accordingly to attend to the true nature of the expenditure and to ask one s self the question is it a part of the Company s working expenses  is it expenditure laid out as part of the process of profit earning  or on the other hand is it a capital outlay  is it expenditure necessary for the acquisition of property or of rights of a permanent character the process of which is a condition of carrying on its trade at all  The expression once and for all  used in the dictum laid down in Atherton s case supra was referred to by Bhagwati J speaking for this Court in the case of Assam Bengal Cement Co Ltd vs Commissioner of Income tax West Bengal2 and it was observed that the expression was used to denote an expenditure which is made once and for all for procuring an enduring benefit to the business as distinguished from a recurring expenditure in the nature of operational expenses
The character of the payment can be determined it was added by looking at what is the true nature of the asset which has been acquired and not by the fact whether it is a payment in a lump sum or by instalments
It is also an accepted proposition that the words permanent  and  enduring  are only relative terms and not synonymous with perpetual or ever lasting
There are some other tests like those of fixed capital and circulating capital for determining the nature of the expenditure
An item of disbursement can be regarded as capital expenditure when it is referable to fixed capital
It is revenue when it can be attributed to circulating capital
It is not the case of any party that this test of fixed and circulating capital can be invoked in this case nor has reference been made to some of the other tests
The case which has been set up on behalf of the revenue is that as the object of making the payments in question was to eliminate competition of a rival exporter the benefit which enured to the respon 1 2 109 6 dent was of an enduring nature and as such the payment should be treated as capital expenditure
We find ourselves unable to accede to this contention because we find that the arrangement between the respondent and Ms H V Low  Co Ltd was not for any fixed term but could be terminated at any time at the volition of any of the parties
Although an enduring benefit need not be of an ever lasting character it should not at the same time be so transitory and ephemeral that it
can be terminated at any time at the volition of any of the parties
Any other view would have the effect of rendering the word enduring  to be meaningless
No cogent ground or valid reason has been given to us in support of the contention that even though the benefit from the arrangement to the respondent may not be of a permanent
or enduring nature the payments made in pursuance of that arrangement would still be capital expenditure
Such a contention indeed was repelled by the Judicial Committee in the case of Commissioner of Taxes vs Nchanga Consolidated Copper Mines Ltd1
The respondent company in that case together with two other companies Rhokana Corporation Ltd and Bancroft Mines Ltd formed a group for carrying on the business of copper mining
Following a steep fall in the price of copper in the world market the group in common with other producers decided voluntarily to cut their production by 10 per cent
In effecting the cut it was agreed that Bancroft Mines Ltd should cease production for one year and that the respondent company and Rhokana Corporation Ltd should undertake between them the whole group programme for the year reduced by the overall cut of 10 per cent
It was further agreed to pay a sum of Bancroft Mines Ltd to compensate it for the abandonment of the production for the year
Question arose whether the compensation which the respondent company had paid to Bancroft Mines Ltd was expenditure of capital nature  The Judicial Committee held that the compensation paid was an allowable deduction in determining the respon dent company s taxable
 income
The expenditure in the view of the Judicial Committee had no analogy with expenditure for the purpose of acquiring a business or a benefit of long term or enduring contract
Viscount Radcliffe who delivered the judgment while dealing with the question of expenditure observed It bought one right only the right to have Bancroft out of production for 12 months
While no doubt money paid to a cquire a business or to shut a business down for good or to acquire some contractual right to last for years may well be capital expenditure it seems a contradiction in terms to speak of what Nchanga thus acquired which exhausted itself and was created 1 1097 to exhaust itself within the 12 months  period within which profits are ascertained as constituting an enduring benefit or as an accretion to the capital or incomeearning structure of the business
If the expenditure is to be treated as capital expenditure at all it cannot be for any reason such as that
Although we agree that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time
How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and the facts of each individual case
In the case of Assam Bengal Cement Co Ltd1 the appellant company acquired from the Government of Assam a lease of certain lime stone quarries for a period of twenty years for the purpose of carrying on the manufacture of cement In addition to the rent and royalties the appellant agreed to pay the lessor annually a sum of Rs 5000 during the whole period of the lease as a protection fee and in consideration of that payment the lessor undertook not to grant to any person any lease permit or prospecting licence for lime stone in a group of quarries without a condition that no limestone should be used for the manufacture of cement
The appellant also agreed to pay Rs 35000 annually for five years as a further protection fee and the lessor in consideration of that payment gave a similar undertaking in respect of the whole district
It was held by this Court that as a result of the annual payment of the amounts of Rs 5000 and Rs 35000  there enured an advantage to the appellant for the whole period of the lease and as such it was capital expenditure
Apart from the above we find that the payments made to Ms H V Low  Co Ltd were related to the actual shipment of coal in the course of the trading activities of the respondent and had no relation to the capital value of the assets
The payments were not related to or tied up in any way to any fixed sum agreed between the parties
The dictum laid down by this Court in Travancore Sugars and Chemicals Ltd vs Commissioner of Income tax Kerala2 in the circumstances is attracted
The appellant company in that case was to take over the assets of sugar manufacturing concern a distillery and a tincture factory of the Government of Travancore
The promoters of the appellant company in that connection entered into an agreement with 1 2 18 LI 19 Sup Cl72 1098 the Government
The cash consideration for the sale of the assets of the  sugar manufacturing concern was Rs 325lakhs that for the sale of the distillery was agreed to be arrivedat as a result of joint valuation and that for the sale of the assets of the tincture factory was the book value
The Government agreed to recognise the transfer of the licence for the distillery to the appellant company and to secure the continuance of the licence for a period of 5 years after the termination of the existing licence
The Government also agreed to purchase the pharmaceutical products manufactured by the appellant company
Apart from the cash consideration clause 7 of the agreement provided that the Government would be entitled to 20 per cent of the annual net profits subject to a maximum of Rs 40000 after providing for depreciation and remuneration of the secretaries and treasurers
Clause 7 was amended in January 1947 to the effect that the Government would be entitled to 10 per cent of the annual net profits
Question arose whether an amount of Rs 42480 which was payable under clause 7 of the agreement was a permissible expenditure under section 10 of the Incometax Act
It was held that the above payment was in the nature of revenue expenditure and not capital expenditure
Ramaswami J speaking for the Court dealt with the matter in the following Words  Examining the transaction from this point of view it is clear in the present case that the consideration for the sale of the three undertakings in favour of the appellant was  1 the cash consideration mentioned in the principal agreement viz clauses 3 4a and 5a and 2 the consideration that Government shall be entitled to twenty per cent of the net profits earned by the appellant in every year subject to a maximum of Rs 40000 per annum
With regard to the second part of the consideration there are there importan t points to be noticed
In the first place the payment of commission of twenty per cent on the net profits by the appellant in favour of the Government is for an indefinite period and has no limitation of time attached to it
In the second place the payment of the commis sion is related to the annual profits which flow from the trading activities of the appellant company and the payment has no relation to the capital value of the assets
In the third place the annual payment of 20 per cent commission every year is not related to or tied up in any way to any fixed sum agreed between the parties as part of the purchase price of the three undertakings
There is no reference to any capital sum in 1099 this  part of the agreement
On the contrary the very nature of the payments excludes the idea that any connection with the capital sum was intended by the parties
The above observations in our opinion have a direct bearing on the present case
Mr Desai has referred to the following observations of Lord Greens in Henriksen Inspector of Taxes vs Grafton Hotel Ltd1  It appears to me that there can be no difference in principle between a payment out and out for monopoly value and a payment in respect of a term
Each licence granted for a term must stand by itself since an application for its renewal falls to be treated as an application for a new licence
This is what I mean when I say that there is a false appearance of periodicity about these payments
Whenever a licence is granted for a term the payment is made as on a purchase of a monopoly for that term
When a licence is granted for a subsequent term the monopoly value must be paid in respect of that term and so on
The payments are recurrent if the licence is renewed they are not periodical so as to give them the quality of payments which ought to be debited to revenue account
The thing that is paid for is of a permanent quality although its permanence being conditioned by the length of the term is short lived
A payment of this character appears to me to fall into the same class as the payment of a premium on the grant of a lease which is admittedly not deductible
Particular reliance has been placed by Mr Desai upon the concluding part of the above observations
The portion relied upon in our opinion has to be read in the context of the preceding lines and the facts of that case
The lessees of the licenced premises in that case under
a covenant in their lease paid annually certain sums imposed by the licensing justices as instalments of the monopoly on the grant and renewal of the licence for three years period
It was contended that those sums were not capital payments but should be regarded as revenue payments
It was held that monopoly value payments were imposed for the term of the licence on grant or renewal though the fact that permission was given to pay by yearly instalments gave a false appearance of periodicity
Such payments
in the opinion of the Court fell into the same class as a premium paid 1 1100 on the grant of a lease and as such should be regarded as of capital nature
It is obvious that the question involved in that case was different and the appellant can derive no assistance from it
The appeals consequently fail and are dismissed with costs
One set of costs
VPS Appeals dismissed


Summary:
In pursuance of an agreement between the assessee respondent and another firm L  Co by which L agreed to assist the respondent in procuring coal for export whenever asked to do so and not to export any coal during the subsistence of the agreement L supplied various quantities of coal to the respondent and the respondent made payments as pet the agreement
The respondent claimed the payments as admissible expenditure under section 102xv of the Income tax Act 1922 during the relevant assessment years
The Department held that they were payments
to secure a monopoly and were therefore not allowable as revenue ex penditure
The Tribunal found that the respondent did not acquire any monopoly rights that the payments were only made to carry on trade in a more facile and profitable manner that the arrangement was a temporary measure liable to be terminated at will that the respondent did not derive any advantage of an enduring character and that therefore
the expenditure was attributable to revenue and not to capital
and held in favour of the assessee
The High Court on reference agreeing with the findings of the Tribunal and holding that the consideration was not paid once for all but was related to uncertain shipments to be made decided in favour of the assessee
In appeal to this Court it was contended that though the payment for assistance to the Respondent in procuring coal was an item of revenue expenditure that part of the payment which was made because of L agreeing not to export coal during the subsistence of the agreement constituted a capital expenditure and not a revenue expenditure
Dismissing the appeal HELD  Although payments made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time
How long the period of contemplated advantage should be in order to constitute an enduring benefit would depend upon the circumstances and facts of each individual case
An enduring benefit need not be of an everlasting character but it should not at the same time be so transitory and ephemeral that it can be terminated at any time at the volition of any of the parties
1096 B 1097 B C Further the payments were related to the actual shipments of coal in the course of the trading activities of the respondent and had no relation to the capital value of the assets
The payments were not related to or tied up in any way to any fixed sum agreed between the parties
It was not a case of monopoly value payments being permitted to be paid in instalments giving a false appearance of periodicity
1097 F G 1099 G H 1090 Travancore Sugars and Chemicals Ltd vs CIT Kerala  followed
Atherton vs British Insulated and Halaby Cables Ltd 10 TC 155 Robert Addie and Sons  Collieries Ltd vs Commissioners of Inland Revenue 1 Assam Bengal Cement Co Ltd vs C I T West Bengal  Commissioner of Taxes vs Nchanga Consolidated Copper Mines Ltd 58 ITR 241 and Hanrikesen Inspector of Taxes vs Grafton Hotel Ltd  referred to