TMI Blog1972 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... years 1950-51, 1951-52 and 1952-53, the corresponding previous years being the years ending 31st March, 1950, 31st March, 1951, and 31st March, 1952, respectively. It appears from the statement of the case that the appellant carries on the business of sale of sugar and oil, that the manufacture of sugar was started in 1940 while that of oil in 1942. On April 5, 1932, the Maharana of the Udaipur State, in exercise of his sovereign powers as a Ruler, granted through the intervention of Pandit Ramakant Malaviya a licence for the manufacture of sugar to Sri Banarsi Prasad Jhunjhunwala which was to be a monopoly enuring to his benefit for 32 years. Clauses (2), (3) and (5) of the terms of licence which are relevant are as under : " (2) No permission will be granted to any other person for starting a sugar factory for a period of 32 years from the date of this order. (3) If they require land for sugarcane for this factory, it will be allotted out of the Khalsa uncultivated land not less than 5,000 and subject to a maximum of 30,000 acres as may be available in the vicinity of Jaisamand. Mr. Banarsi Prasad Jhunjhunwala will have to acquire 5,000 acres within two years of this order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t") and on March 11, 1940, Jhunjhunwala transferred to the sugar company his rights under an agreement. It is not relevant to set out all the clauses of the agreement except to notice that under one of the clauses it was provided that the transferee shall : " until the expiry of the period mentioned in the said licence and monopoly or in the event of the period thereof being extended whether in the name of the company or otherwise, so long as the monopoly rights and licence continue to be in force, under such extension, pay and continue to pay to each of the transferor and to his nominee the said Pandit Ramakant Malaviya yearly and every year 1 1/4 per centum respectively of the net profits of the business of the company to be ascertained from the audited Accounts of the company, provided however the profit payable to the transferor and the said Pandit Ramakant Malaviya shall be in respect of such business only as are provided in the said monopoly and licences. " By and under the said arrangement the appellant was carrying on the business of sugar manufacture and during the years 1950-51, 1951-52 and 1952-53 it paid to the State Government in respect of sugar Rs. 72,394, Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which survives is, whether the finding of the High Court that the payment of 2% royalty on the price of sugar manufactured by the appellant is relatable to monopoly rights and is an expenditure of a capital nature. Is this finding sustainable in law is what has to be determined. According to clause (5) the rate of 2% could be revised if after five years it was found to be excessive for the running of the the factory. This clause certainly has no relationship with any payment referable to the monopoly conferred under clause (2) of the grant. The advantages which Jhunjhunwala obtained under clauses (3) and (4) of the grant, which right has been transferred to the appellant, are advantages and facilities which any Government with progressive economic policy would grant to encourage the setting up of nascent industries in the State in any region of the State. In our view the High Court has neither properly appreciated nor correctly interpreted the grant and the agreement referred to in the question. While it recognised that the. words " no other tax will be charged " in clause (5) suggest that what was being charged was intended to be a tax in some form it seems to have been influence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for determining the nature of the expenditure have been sought to be applied to different situations arising on the facts of each case, but the difficulty in matching them with the seeming irreconcilability are perhaps explicable only on the ground that the determination in any particular case is dependent on the character of the lease or agreement, the nature of the asset, the purpose for which the expenditure was incurred and such other factors as in the facts and circumstances of that case would indicate." The determining factor, therefore, will depend largely on the nature of the trade in which the asset is employed and the quality of the payment therefor. It appears to us that on the facts of each case it will have to be determined whether a particular expenditure is a capital expenditure or a revenue expenditure. In this case the payment made is directly related to the sugar manufactured by the appellant. The decision in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, which has been relied upon by the High Court and the Tribunal, has, in our view, been misapplied. In that case the question was, whether in computing the profits of the appellant the sums of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e coal from the mine and so it was a revenue expenditure. In another case, Associated Stone Industries (Kotah) Ltd. v. Commissioner of Income-tax to which one of us (Hegde J.) was a party, the royalty was payable at a certain rate or rates on the stone excavated and an additional royalty was leviable at a certain rate on polished stone. On these facts it was held that the nature of the payment was no different from that of the minimum royalty paid and the excess royalty was not paid for getting some additional capital asset or even an enduring benefit but was paid on the basis of commercial expediency not of a capital expenditure. A consideration of all these cases certainly support the contention of the appellant that, on the facts and circumstances of this case, the expenditure incurred, i.e., 2% royalty on the sugar manufactured, is revenue expenditure. Our answer to the question, therefore, is that the two payments in respect of the monopoly rights for the years 1950-51 and 1952-53 are of capital nature while those paid for royalty for the three assessment years under consideration are of a revenue nature deductible under section 10(2) (xv) of the Act. With these answers in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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