Case ID: 48

Judgment:
Appeal No. 103 of 1950. Appeal from a Judgment of the Bombay High Court (Chagla C.J. and Tendolkar J.) dated 25th March	 1949	 in Income Tax Reference No. 31 of 1948. M. C. Setalvad	 Attorney General for India (G. N. Joshi	 with him) for the appellant. R.J. Kolah	 for the respondent. Oct. 1. The Judgment of the Court was delivered by KANIA C.J. This is an appeal from a judgment of the High Court at Bombay and it arises out of the opinion ex pressed by the High Court in respect of a question submitted to it by the Income tax Tribunal. The material facts are these. The respondent is a textile mills company carrying on the business of manufacturing and selling textile goods. For the assessment years 1943 44 and '1944 45	 covering the accounting periods ending with the calendar years 1941	 1942 and 1943	 the respondent claimed the expenditure incurred by it in registering for the first time its trade marks which were not in use prior to the 25th February	 1937	 as revenue expenditure and an allowable deduction out of its income for the said periods	 under section 10(2) (xv) of the Indian Income tax Act. Following the decision of the Bombay High Court in Commissioner of Income tax	 Bombay vs The Century Spinning 13 and Weaving and Manufacturing Co. Ltd.(1)	 the Tribunal allowed the claim of the assessee. At the desire of the appellant	 the Tribunal submitted the following question for the opinion of the High Court : "Whether	 on the facts of the case	 the expenditure incurred by the assessee company in registering for the first time its trade marks which were not in use prior to the 25th February	 1937	 is revenue expenditure and an allowable deduction under section 10(2) (xv) of the Indian Income tax Act ?" The High Court	 following its previous decision and finding that the fact of the trade marks having come into use after the 25th of February	 1937	 made no difference in the result	 answered the question in the affirmative. The Commissioner of Income tax	 Bombay	 has come on appeal to us. It was argued on behalf of the appellant that the ques tion whether a certain disbursement was of a capital or revenue nature	 has to be decided according to the principle laid down in British Insulated and Helsby Cables Ltd. vs Atherton(2). In that case the company which carried on the business of manufacturers of insulated cables established a pension fund for its clerical and technical salaried staff. The fund was constituted by a trust deed which provided that members should contribute a percentage of their salaries to the fund and that the company should contribute an amount equal to half the contributions of the members; and further that the company should contribute a sum of pound 31	784 to form the nucleus of the fund and to provide the amount necessary in order that past years of service of the then existing staff should rank for pension. That sum was arrived at by an actuarial calculation on the basis that the sum would ultimately be exhausted when the object for which it was paid was attained. The House of Lords held that this payment was in the nature of capital expenditure and was therefore not an admissible deduction. Although in the opinions expressed by the different members of the House of Lords (1) (2) 14 the line of approach is not completely the same	 the principle stated by Lord Cave in his speech has been test distinguish capital expenditure from revenue expenditure. It was recognised that a sum of money expended	 not of necessi ty and with a view to a direct and immediate benefit to the trade	 but voluntarily and on the grounds of commercial expediency	 and in order indirectly to facilitate the carry ing on of business	 may yet be expended wholly and exclu sively for the purposes of the trade. The Lord Chancellor observed that the question appeared to be a question of fact which was proper to be decided by the Commissioners upon the evidence brought before them in each case. The test 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 considered an useful element in arriving at the decision but was not certainly the deci sive fact. The Lord Chancellor observed as follows: "But when an expenditure is made	 not only once and for all	 but with a view to bringing into existence an asset or an advan tage for the enduring benefit of the trade	 I think that there is very good reason for treating such an expenditure as properly attributable not to revenue but to capital. " In order to appreciate the true position here Correctly it is next necessary to notice the relevant provisions of the Indian . It may be noted that before this Act there was no in India but it was recognised that an action lay for infringement of a trade mark independently of an action for passing off goods. The Act opens with the preamble "whereas it is expedient to provide for the registration and more effective protection of trade marks . "Section 2(1) of the Act defines a trade mark as meaning "a mark used or proposed to be used in relation to goods for the purpose of indicating or so as to indicate a connection in the course of trade between the goods and some person having the right to use the mark	 whether with or without any indication of the identity of that person. " Section 14 permits the 15 proprietor of a trade mark to have the trade mark regis tered. The Attorney General	 on behalf of the appellant	 relied on sections 20	 21	 28 and 29 in support of his contention. He argued that before the 	 although the proprietor of a trade mark could maintain an action for infringement of his trade mark and the cause of action in such a case was quite different from the cause of action in an action for passing off goods	 by the the right of the owner of the trade mark is in creased by section 21	 and it is made assignable independ ently of the goodwill under sections 28 and 29 of the . The question thus resolves itself into whether by reason of these two incidents the case falls within the principle laid down by Lord Chancellor Cave	 as mentioned above. In our opinion	 the contention urged on behalf of the appellant must fail. It is not contended that by the a new asset has come into existence. It was con tended that an advantage of an enduring nature had come into existence. It was argued that just as machinery may attain a higher value by an implementation causing greater produc tive capacity	 in the present case the trade mark which existed before the acquired an advantage of an enduring nature by reason of the and the fees paid for registration thereunder were in the nature of capital expenditure. In our opinion	 this analogy is falla cious. The machinery which acquires a greater productive capacity by reason of its improvement by the inclusion of some new invention naturally becomes a new and altered asset by that process. So long as the machinery lasts	 the im provement continues to the advantage of the owner of the machinery. The replacement of a dilapidated roof. by a more substantial roof stands on the same footing. The result however of the is only two fold. By regis tration	 the owner is absolved from the obligation to prove his ownership of the trade mark. It is treated as prima facie proved on production of the registration certificate. It thus merely saves him the trouble of leading evidence	 in the event of a suit	 in a court 16 of law	 to prove his title to the trade mark. It has been said that registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against infringers	 Cancel the registration and he has still his right enforceable at common law to restrain the piracy of his trade mark. In our opinion	 'this is neither such an asset nor an advantage as to make payment for its registration a capital expenditure. In this connec tion it may be useful to notice that expenditure incurred by a company in defending title to property is not considered expense of a capital nature. In Southern (H. M. Inspector of Taxes) vs Borax Consolidated Limited(1). it is there stated that where a sum of money is laid out for the acqui sition or the improvement of a fixed capital asset it is attributable to capital	 but if no alteration is made in the fixed capital asset by the payment	 then it is properly attributable to revenue	 being in substance a matter of maintenance	 the maintenance of the capital structure or the capital asset of the company. In our opinion	 the advantage derived by the owner of the trade mark by registration falls within this class of expenditure. The fact that a trade mark after registration could be separately assigned	 and not as a part of the goodwill of the business only	 does not also make the expenditure for registration a capital expend iture. That is only an additional and incidental facility given to the owner of the trade mark. It adds nothing to the trade mark itself. In the judgment of the High Court some emphasis is laid on the fact that by reason of registration the duration of the trade mark is only for seven years	 and it does not thus possess that permanency which is ordinarily required of an expenditure to make it a capital expenditure and in order to prove the existence of a benefit of an enduring character. The learned Attorney General contended that the view that as the benefit of registration lasted for seven years	 i.e.	 for a limited period	 it prevented the expenses of registra tion being treated as capital expenditure	 is unsound (1) [1942] 10 I.T.R. Suppl. 17 and for that contention he relied on Henriksen (Inspector of Taxes) vs Grafton Hotel Ltd.(1). In that case	 tenants of licensing premises by agreement with the landlord paid by instalment the monopoly value fixed by the licensing jus tices when granting the licence under section 14 of the Licensing (Consolidation) Act	 1910. These were sought to be deducted as revenue expenditure but were disallowed by the Court. Lord Greene M.R. first considered that the pay ment fell into the same class as the payment of a premium on the grant of a lease or the expenditure on improvements to the property which justices may require to be made as a condition of granting a licence. Having reached that conclu sion he rejected the argument that the payment not being made in one lump sum but by instalments made a difference in the character of the payment. He observed as follows : "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 peri odical 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 shortlived. 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. " The Attorney General relied on these observations to point out that the permanence of the advantage was thus not dependent on the number of years for which it was to enure for the benefit of the proprietor of the trade mark. In our opinion	 these observations have to be read in the context in which they have been made. The learned Master of the Rolls was discuss ing only the question of payment being made by instalments as not making any difference in the nature of the (1) 3 18 expenditure. It was first held by him that the payment in question was of a capital nature and of the same character as premium paid on the grant of a lease and was therefore necessarily of a capital nature. Having come to that conclu sion	 he only rejected the contention that because the premium was paid in more instalments than one it lost its character a capital expenditure. In our opinion	 this is an entirely different thing from stating that the fact of the advantage being for a limited time altered the character of the payment in any way. As observed by Viscount Cave L.C. the question is always one of fact depending on the circumstances of each case individually. In our opinion	 the decision of the High Court reported in Commissioner of Income tax	 Bombay vs The Century Spin ning and Weaving and Manufacturing Co. Ltd.(1) is correct and in the present case also the contention of the appellant must fail. The appeal therefore fails and is dismissed with costs. Appeal dismissed.

Summary:
The expenditure incurred by a company carrying on the manufacture and sale of textile goods in registering for the first time its trade marks which were not in use prior to the 25th January	 12 1937	 is revenue expenditure and an allowable deduction under Sec. 10 (2) (xv) of the Indian Income tax Act. The fact that a trade mark after registration could be sepa rately assigned and not as a part of the goodwill of the business only	 does not make the expenditure for registra tion capital expenditure. It is only an additional and incidental facility given to the owner of the trade mark; it adds nothing to the trade mark itself. Judgment of the Bombay High Court affirmed. Commissioner of Income tax	 Bombay vs The Century Spin ning and Weaving and Manufacturing Co. Ltd. ([1947] approved. British Insulated and Helsby Cables Ltd. vs Atherton ([1926] A.C. 205)	 Southern vs Borax Con solidated Ltd. ([1942] 10 I.T.R. Supp. 1)	 Henriksen vs Grafton Hotel Ltd. ([1942] 2 K.B. 184) referred to.