TMI Blog1971 (10) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... 1954-55 and 1955-56, the corresponding accounting years for which ended on March 31, 1951, March 31, 1952, March 31, 1953, March 31, 1954, and March 31, 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 Thapar Bros. Ltd., Messrs. Macneill Barry Ltd., Messrs. Andrew Yule Co. Ltd. and Messrs. H. 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 Charterers Association. The respondent-company as well as Messrs. H. V. Low Co. Ltd. were two of the major members of the said association. When Messrs. H. V. Low Co. Ltd. learnt of the resumption of coal export to Burma by the respondent in 1946, they also expressed an intention to export coal to Burma. Thereupon, the two companies came to an understanding and arrived at a mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 M/s. H. V. Low Co. Ltd. was accepted. According to the agreement, M/s. 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 arrangement. The agreement was found to have been acted upon and it was held that M/s. H. V. Low Co. Ltd. supplied varying quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which M/s. 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 M/s. 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 M/s. 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 M/s. H. V. Low Co. Ltd. having agreed not 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 special circumstances leading to an opposite 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 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 Ltd. v. Commissioners of Inland Revenue, Lord President Clyde gave the following test: "It is necessary according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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 v. Nchanga Consolidated Copper Mines Ltd. The respondent-company in that case together with two other companies--Bhokana 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 Bhokana Corporation Ltd. should undertake between them the whole group programme for the year reduced by the overall cut of 10 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to grant to any person any lease, permit or prospecting licence for lime-stone in a group of quarries without a condition that no lime-stone should be used for the manufacture of cement. The appellant also agreed to pay Rs. 35,000 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. 5,000 and Rs. 35,000, 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 M/s. 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 to between the parties. The dictum laid down by this court in Travancore Sugars and Chemicals Ltd. v. Commissioner of Income-tax in the circumstances is attracted. The appellant-company in that case was to take over the assets of a sugar manufacturing concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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 to between the parties as part of the purchase price of the three undertakings. There is no reference to any capital sum in 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 Greene in Henriksen (Inspector of Taxes) v. Grafton Hotel Ltd.: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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