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TMI Blog1972 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and the remaining should be acquired within 10 years from the date of order. If land near Jaisamand is not found suitable for cultivation of sugar-cane, some other land if available in some other Pargana of Mewar may be allotted. This land will be given without Nazrana with full ownership right (Bapi) on the condition that it will not be alienated without sanction of Durbar. No land revenue will be charged for first five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise, 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. 15,724 and Rs. 50,455 and in respect of oil Rs. 24,729, Rs. 18,168 and Rs. 13,909 respectively. It also paid to Jhunjhunwala and Malaviya for the year 1950-51, Rs. 3,072 and for the year 1952-53, Rs. 2,613 in lieu of the monopoly rights and licences at the stipulated amount of 1 1/4 per cent. The assessee claimed that the amounts paid in respect of the monopoly and licence as also those paid to the Government in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 influenced by the grant conferring important benefits to the grantee such as giving of agricultural land on favourable terms, charging water rates at a concession, exemption of customs duty for the period of the grant and the benefit of monopoly rights by undertaking not to grant permission for 32 years from the date of the grant to any persons to start a sugar factory. Referring to the several advantages set out above the High Court obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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. 5,000 and Rs. 35,000 paid to the lessor by the appellant could be deducted under section 10(2)(xv) of the Act. This payment was in addition to the rents and royalties which were agreed to be paid by the lessor and was payable for obtaining a right to acquire an asset of an enduring nature which had necessarily to be incurred for initiation of the business or trading activity. Bhagwati J., speaking for this court, observed at page 45 ..... 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