TMI Blog1949 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... t they were liable to pay a tax of ₹ 10 per trip per motor vehicle. Under this agreement the assessee had to pay a sum of ₹ 20,000 annually as nazrana in the beginning of each year. The assessee was, however, entitled to a proportionate reduction should the road remain impassable for more than sixty days in any one year for the number of days exceeding sixty. The agreement further provided that the assessee had to maintain a fleet of ten buses and trucks and one car to cope with traffic requirements and that they had to arrange for further extra vehicles during the rush season. The rates chargeable by the assessee were fixed in a tariff schedule attached to the agreement and the document also provided that all servants of the State travelling on duty were to travel free. There are certain other terms contained in the agreement but they do not seem to affect the decision of the question. The road was not in a motorable condition for several months in the year in question and the assessee claimed proportionate reduction and instead of ₹ 20,000 the assessee had to pay a sum of ₹ 5,000 only in the year 1942-43 commencing from 13th April, 1942. The question fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount so paid changed its character and became capital expenditure. The assessee employed seven trucks and one motor car during this year for about four months and there can be no doubt that if the assessee had to pay at the rate of ₹ 10 per trip the amount would have come to much more than ₹ 5,000, even if these vehicles had to make only one trip a day. I can find no clear evidence however as to how many trips each vehicle did during this period to enable me to come to a correct conclusion. In the agreement, which is in English, the assessee is called the monopolist and by the agreement it is said that a monopoly is being given to the assessee and the sum of ₹ 20,000 is the nazrana payable by the monopolist for the monopoly and the other advantages secured under the agreement. The question, therefore, arises whether this sum of ₹ 20,000 was paid by the assessee to acquire a monopoly right which caused a substantial increase in the value of the goodwill of the company, or it was merely a sort of tax or levy made by the State for the permission to grant the use of the road, and the exclusive right of user which was given to the assessee was only an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to an expenditure which is made once for all. There is a further test given in the judgment of Lord Atkinson, whether the expenditure could be regarded as forming part of the cost by which the profits and gains for that year have been acquired in which case it would be revenue expenditure. The Income-tax Officer as well as the Appellate Assistant Commissioner interpreted the trust deed to mean that the monopoly rights were acquired on payment of a lump sum of a lakh of rupees payable by annual instalments of ₹ 20,000. This interpretation was probably attempted to be put on the agreement to bring it within the dicta of Lord Dunedin in the case of Vallambrosa Rubber Company [1910] S.C. 519, at p. 525. The Tribunal has held that this interpretation was not correct. As a matter of fact, this interpretation was not possible on the terms of the document as the document provided for payment each year after deductions for each day beyond sixty days when the road was not passable. Great reliance is placed by Mr. Pathak, learned counsel for the assessee, on the decision in Ogden v. Medway Cinemas, Ltd. [1934] 18 Tax Cas. 691, where the respondent company had acquired by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the raw material for a period extending over several years. In Racecourse Betting Control Board v. Wild [1938] 22 Tax Cas. 182, the owners of a racecourse had erected certain buildings for the purpose of operating a totalisator and had granted to the Racecourse Betting Control Board a licence to use those buildings in consideration of an yearly payment. This annual sum was declared to be not only for the enjoyment and exercise of the right of user but also in repayment by yearly instalments of the capital value of the cost of construction. It was held by Macnaghten, J., on the interpretation of the deed that it was revenue payment. From the point of view of the buyer this was clearly a revenue payment, while from the point of view of the payee it had the appearance of a capital payment. Reliance is placed on behalf of the Commissioner of Income-tax on the case of Kneeshaw v. Abertolli [1940] 2 I.B. 295; 9 I.T.R. Suppl. 121. In that case the licensee of licensed premises had to pay certain annual instalments in respect of the monopoly value of 75 fixed by the justices under the Licensing (Consolidation) Act, 1910 (10 Edw. 7 1 Geo. 5, c. 24), Section 14. The question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a business, for extension of a business, or for a substantial replacement of equipment. (2) Expenditure may be treated as properly attributable to capital when it 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. (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. In Commissioner of Income-tax, Madras v. Siddareddy Venkatasubba Reddy and Bros. [1949] 17 I.T.R. 15 the assessee had taken on lease certain mica mines for periods varying from five to nine years for winning mica and selling it in the market. The assessee claimed the deduction of the money paid to the lessors under the four documents. It was held that this was in the nature of a capital expenditure. The decision in each case, of the question, whether an item of expenditure is revenue expenditure or capital expenditure, depends u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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