ivil Appeal No 2395 of 1989
From the Judgment and Order dated 21788 of the Jammu  Kashmir High Court in Second Appeal No 2 of 1978
Altar Ahmed and SK Bhattacharya for the Appellants
DD Thakur EC Agrawala Atul Sharma and Miss Purnima Bhatt for the Respondents
The Judgment of the Court was delivered by NATARAJAN J
Leave granted
Though the High Court has accepted the ease of the State and dismissed the second appeal preferred by the respondents herein the State has been prompted to file this appeal because of the observations made by the High Court that Sections 8 and 14 of the Evacuee Administration of Proper ty Act 2006 hereinafter referred as to the Act have outlived their purpose and hence the concerned officers of the State need not entertain any applications made in future under Section 8 of the Act by persons laying claim to properties which have been notified as evacuee property under the Act
To appreciate the grievance of the State over the pro nouncement of the High Court about the relevancy and opera tional force of Section 8 of the Act a few facts require mention
Respondent No 1 claimed to be the owner of Evacuee Property House No 437 situate in Talab Khatikan Jammu and sold the same to respondents 2 and 3 for a total considera tion of Rs 16000 under a sale deed dated 12121970
By an order dated 521973 the custodian third appellant held that the sale was invalid since the property was evacuee property and belonged to one Shah Mahmood who had migrated to Pakistan during the disturbances of 1947 and continued to live there as an evacuee
Against 472 the order of the custodian the respondents preferred an appeal to the Custodian General second appellant
The Custodian General dismissed the appeal but observed that if any application had been made by the first respondent under Section 8 regarding the house the Custodian may dispose of the same in accordance with law
He also observed that if the respondents felt that they were entitled under law to make a claim under Section 25 of the Act they may move the appropriate forum in that behalf
Thereafter the respond ents made two applications one under Section 8 on 1431974 and another under Section 25 on 2441974 to the Custodian
The Custodian noticed that the application under Section 8 had been presented beyond the prescribed limitation period of two months after the order dated 521973 had been passed but even so he considered the application on merits and rejected it
Likewise the application under Section 25 was also rejected
Once again an appeal was preferred to the Custodian General and he dismissed the appeal holding that there was no need for the custodian to have gone into the merits of the case when the direction given in the earlier appeal was only to see if any application under Section 8 had already been presented and was pending consideration
Against the order of the Custodian General the respond ents filed Second Appeal No 278 before the High Court and sought reliefs in their favour
The High Court saw no merit in their contentions as the Custodian and Custodian General had rendered concurrent findings on questions of fact and had held that the property claimed by the respondents was unquestionably evacuee property
The High Court noticed that the findings had been rendered after proper appreciation of evidence and hence there was no warrant for interfering with those findings and dismissed the second appeal
However while declining to interfere with the findings of fact rendered by the Custodian and the Custodian General the High Court frowned upon the attempts of unscrupulous ele ments to misuse and abuse the provisions of Section 8 of the Act in order to grab evacuee property for themselves
Feel ing concerned over the abuse of Section 8 of the Act the High Court thought it necessary that resort to Section 8 in future should be put an end by declaring that Sections 8 and 14 have served the purpose for which they had been provided in the Act and since they have outlived their utility the authorities should not in future entertain any application made under Section 8 for a claim being made to any evacuee property
The declaration made in Sections 8 and 14 and the direc tions given by the High Court which have given rise to this appeal by the 473 State are in the following terms
There is no justification for entertaining any application by any person in the State of Jammu and Kashmir under Section 8 of the Act after about 39 years of its passing
Sec 8 of the Act in my opinion has outlived its utility and is a redundant piece of legislation still existing on the statute book regarding which the legislature of the State may pass appro priate legislation directing its deletion from the provisions of the Act
The Custodian in the instant case has rightly held the applica tionobjections of Mahmood Ahmed to be barred by time
There being no justification for entertaining an application under Section 8 of the Act the authorities under the Act are directed not to entertain any application under Section 8 of the Act hereafter which may actually result in the deprivation of the evacuees of their properties
It cannot be conceived that a person whose property was declared or vested in the Custodian would keep silent for a period of about 39 years and not prefer a claim if he had any
Claims pre ferred hereafter should be deemed to be fic tituous concocted and mala fide intended to destroy and eliminate the evacuee properties to the detriment of the evacuees who may ultimately be restored such properties if they return to the State under a valid law in existence or to be enacted for the purpose Mr Altar Mohammed learned Advocate General appearing for the appellants stated that the High Court went too far in making the above pronouncement and therefore the observa tions made and the directions given by the High Court as extracted above should be set aside
The learned counsel stated that when the High Court saw no grounds to interfere with the concurrent findings on questions of fact rendered by the Custodian and the Custodian General there was no need or necessity for the High Court to have gone into the question whether Section 8 has outlived its utility and whether it continues to have relevance after more than 40 years have passed by since the Act was enacted
Another argument was that Section 8 is closely interlinked with Section 6 of the Act which deals with the powers of a Custo dian to notify a property as evacuee property under the Act and in as much as Section 6 has currency even now because notifications could still be made under the Section in appropriate cases to notify a property as evacuee property Section 8 also will have to be on the Statute Book
It was pointed out that still a portion of the State is in 474 the hands of an alien government and hence the possibility of a property becoming an evacuee property even now is very much there
The learned Advocate General therefore stated that as long as Section 6 has relevancy and operative force and notifications could still be made under that Section Section 8 also will have to be retained and made use of by genuinely affected parties and as such the High Court was wrong in taking the view that Section 8 has outlived its utility and the State should delete it by appropriate legis lation
We find the contentions of the learned Advocate General to be well founded
Mr Thakur learned counsel for the respondents did not controvert the contentions of the Advo cate General and in fact he placed reliance on Sec 8 and sought to contend that the Custodian and Custodian General ought to have considered the first respondent s application under Section 8 as one made within time and sustained his claim to the property
Consequently confining over scrutiny to the limited question we are called upon to decide in the appeal we hold that the observations of the High Court extracted above are not legally correct and sustainable and also according ly set aside
The appeal is allowed in the manner indicated above
There will be no order as to costs
RSS Appeal al lowed


Summary:
The appellant assessee a company engaged in the manu facture of penicillin in order to increase its production entered into an agreement with a Japanese firm Meiji for supply of sub cultures of penicillin producing strains technical know how training written description of the process on a pilot plant design and specifications of the main equipment in such pilot plant and to advise the asses see in the largescale manufacture of penicillin for a limit ed period of two years
As per the agreement the assessee paid Rs239625 to Meiji and claimed the same as revenue expenditure in its Income tax assessment for the assessment year 1964 65
Disallowing the claim the Income Tax Officer held that the expenditure was for the acquisition of an asset or advantage of an enduring benefit and thus a capital outlay
The Appel late Assistant Commissioner confirmed the order of the Income Tax Officer
The further appeal of the assessee was dismissed by the Income Tax Appellate Tribunal holding that the payment made to Meiji was once for all payment  made for the acquisition of a capital asset
At the instance of the assessee the Tribunal referred to the High Court the question as to whether the sum paid to Meiji was a revenue expenditure
The High Court answered the question in the negative
The present appeal is against that order of the High Court
The assessee also moved an application before the High Court 303 seeking a direction to the Tribunal to refer another ques tion of law as to whether a new plant was obtained or in stalled by the assessee consequent upon the agreement
Declining to interfere the High Court observed that the Tribunal has not recorded a finding to the effect that a completely new plant was obtained by the assessee and the Tribunal s decision that the assessee had obtained a new process and a new technical know how from Meiji was not without evidence
Against the above order of the High Court the assessee preferred an appeal to this Court which was formally dis posed of with a direction to the Tribunal to draw up a supplementary statement of the case and refer for the opin ion of this Court the further question of law as sought for by the assessee and such a question to be considered in the present appeal
On behalf of the assessee it was submitted that the Tribunal was influenced by an erroneous assumption that the agreement envisaged the setting up of a new plant whereas the objective of the agreement was only to increase the yield of penicillin in the existing plant itself
The Revenue contended that there was a new venture based on a new technology and know how of unlimited duration which required a new plant for its commercial exploration
Allowing the appeal HELD 1
The financial outlay under the agreement was for the better conduct and improvement of the existing business and should therefore be held to be a revenue expenditure
There is also no single definitive criterion which by itself is determinative whether a particular outlay is capital or revenue
The once for all  payment test is also inconclusive
What is relevant is the purpose of the outlay and its intended object and effect considered in a common sense way having regard to the business reali ties
The rapid strides in science and technology in the field should make this Court a little slow and circumspect in too readily pigeon holing an outlay such as this as capital
The circumstance that the agreement in so far as it placed limitations on the right of the assessee in dealing with the know how and the conditions as to non partibility confidentiality and secrecy of the know how incline towards the inference that the right pertained more to the use of the know how than to its exclusive acquisition
319A B C 317D E CIT vs CIBA of India Ltd   CIT Bombay vs 304 Associated Cement Co Ltd JT 282 2 287 relied on
The idea of once for all  payment and enduring benefit  are not to be treated as something akin to statuto ry conditions nor are the notions of capital or revenue a judicial fetish
What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business
The expression asset or advantage of an enduring nature was evolved to emphasise the element of a sufficient degree of durability appropriate to the context
313C Herring vs Federal Commissioner of Taxation   referred to
In computing the income chargeable under the head Profits and Gains of Business or Profession section 37 of the Income tax Act enables the deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business or profession as the case may be
The fact that an item of expenditure is wholly and exclusively laid out for purposes of the business by itself is not suffi cient to entitle its allowance in computing the income chargeable to tax
In addition the expenditure should not be in the nature of a capital expenditure
In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises it is well nigh impossible to formulate any general rule even in generality of cases sufficiently accurate and reasonably comprehensive to draw any clear line of demarcation
Howev er some broad and general tests have been suggested from time to time to ascertain on which side of the line the out lay in any particular case might reasonably be held to fail
These tests are generally efficacious and serve as useful servants but as masters they tend to be over exact ing
The question in each case would necessarily be whether the tests relevant and significant in one set of circum stances are relevant and significant in the case on hand also
310C F 312G City of London Contract Corporation vs Styles  Vallambrosa Rubber Co vs Farmer  British Insulated Helsby Cables Ltd vs Atherton  Assam Bengal Cement Co Ltd vs Commissioner of Income tax  Sitalpur Sugar Works Ltd vs Commissioner of Income tax 1963 49 ITR SC 160 Laksh miji Sugar Mills Co Ltd vs Commissioner of Income tax  Travancore Cochin Chemicals Ltd vs Commissioner of Income tax  Sun News Papers 305 Ltd  Associated News Papers Ltd vs Federal Commissioner of Taxation   Regent Oil Co Ltd vs Strick and BP Australia vs Commr
of Taxa tion of the Commonwealth of Australia  re ferred to 4
The improvisation in the process and technology in some areas of the enterprise was supplemental to the exist ing business and there was no material to hold that it amounted to a new or fresh venture
The further circumstance that the agreement pertained to a product already in the line of assessee s established business and not to a new product indicates that what was stipulated was an improve ment in the operation of the existing business and its efficiency and profitability not removed from the area of the day to day business of the assessee s established enter prise
318G H 5
There was no material for the Tribunal to record the finding that the assessee had obtained under the agreement a completely new plant  with a completely new process and a completely new technical know how from Meiji
Indeed the High Court recognised the fallacy in this assumption of the Tribunal that a completely new plant was obtained by the assessee though however the High Court attributed the inaccuracy to what it considered to be some inadvertence or misapprehension on the part of the Tribunal in that regard
But the High Court was inclined to the view that a complete ly new process and technical know how was obtained from Meiji under the agreement
Certain assumptions fundamental to and underlying the approach of the High Court are that the agreement envisaged a new process and a new technology so alien to the extent infra structure equipment plant and machinery in the assessee s enterprise as to amount to an entirely new venture unconnected with and different from the line of assessee s extant business
It is in that sense that the expense was held not incurred for the purposes of the day to day business of the assessee but for acquiring a new capital asset
But mere improvement in or updating of the fermentation process would not necessarily be inconsistent with the relevance and continuing utility of the existing infra structure machinery and plant of the assessee
315A D 317B The New Encyclopaedia Britannica Micropaedia Vol
II Encyclopedia of Chemical Technology Kirk Othmen 3rd Edn
2 referred to