COMMISSIONER OF EXCESS PROFIT TAX BOMBAY CITY versus SRI LAKSHMI SILK MILLS LTD.

The Supreme Court Reports.

COMMISSIONER OF EXCESS PROFIT TAX BOMBAY CITY v.

1951

Sept. 18.

i

SRI LAKSHMI SILK MILLS LTD. [ SAIYID FAZL ALI, MEHR CHAND MAHAJAN AND MuKHERJEA JJ.]

Excess Profits Tax Act (XV of 1940), s. 2 (5)-"lncome from business"-Manufacturing company-Rent o:f plant and machin· ery let out to others-Whether income from business.

The respondent, a company formed for the purpose of manu- facturing silk cloth, installed a plant for dyeing silk yarn as a part of its business. During the chargeable accounting period (1st January, 1943, to 31st Decembell, 1943) owing to difficulty in obtaining silk yarn on account of the war, it could make no use of this plant and it remained idle for some time. In August, 1943, the pl_ant was let out to' another company on a monthly rent. The question being whether the income received by the respond- ent company in the year 1943 by way of rent of this plant was income from business and assessable the High Court of Bombay held that, as the assessee was not able to use the plant as a commercial asset, it had ceased to be a com- received was mercial asset. in the assessee's hands and the rent not income from business. On appeal:

to excess profits

tax,

1

Held, that an asset which was acquired and used for the pur- . pose of the business by a company formed for carrying on busi- ness and earning profits, does not cease to be . a commercial asset of that business as soon as it is temporarily put out of use or let out to another person for use in his business or trade ; the income from the asset would be profit of the business irrespective of the manner in which that asset is exploited by the owner, and the rent therefore income from business and assess- able to excess profits tax. No general principle, however, can be laid down which is applicable to all cases. Each case has to be decided on its own circumstances. . Cas. 63 relied on.

Sutherland v. Commissioners of Inland Revenue [1918] 12 Tax

in question was

Inland Revenue Commissioners v. Iles (1_?47] 1 A.E.R. 798, Croft v. Sywell Aerodrome Co., Ltd. [1942] 1 A.E.R. 110, Inland Revenue Commissioners v. Broadway Car Co., Ltd. [1946] 2 A.E.R. 609 distinguished.

Judgment of the Bombay High Court reversed.

1951

Commissioner of Excess Profits Tax, Bombay City v. Sri Lakshmi Silk Mills Ltd.

SUPREME COURT REPORTS

[1952]

CML

APPELLATI!

No. 46 of 1950.

J U!USDICTION :

Civil Appeal

Appeal by special leave from a judgment of the High Court of Judicature at Bombay dated 23rd March, 1948, (Chagla C.J. and Tendolkar J.) in Income Tax Reference No. 16 of 1947.

M. C. Setalvad, Attorney-General Singh, with him) for the appellant.

for India ( Gopal

N. C. Chatterjee

(B. Sen, with him)

for

the

res-

pondent.

1951. September 18. The Judgment of the Court was

delivered by

MAHAJAN J.-The sole controversy

this appeal centres round the point as to whether or not excess the sum of Rs. 20,005 is payable on tax profits respondent from Messrs Parakh & Co. the received by by way of rent for the dyeing plant let out to them during the chargeble accounting period.

in

it was

The respondent (Sri Lakshmi Silk Mills Ltd.) is a manufacturer of silk cloth, and as a part of its business the it installed a plant for dyeing silk yarn. During chargea\jle accounting Jl<lr~od (1st January, 1943, to 31st December, 1943) owing to difficulty in obtaining silk yarn on account of the war it could make no use of this plant and it remained idle for some time. On the 20th August, 1943, to Messrs E. Parakh & Co. on a rent of Rs. 4,001 per month. The Excess Profits Tax Officer by his assessment order dated 11th June, 1945, included the sum of Rs. 20,005 realized as rent for five months, in the profit~ of the business of the respondent and held that excess profits tax was payable on amount. This order was confirmed on appeal by the Appellate Assistant Com- missioner and on further appeal by the Income-tax Tribunal. The Tribunal, however, on being asked law to the High referred Court for its opinion :

the following question of

let out

this

"Whether in

the assessee's income of Rs. 20,005 is profits from business

circumstances of the case,

the

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1951 _ . . / . "ommzsszoner o

1~1 • Excess Profits Tax, ~ombay City . v. Sri Lakshmi Silk. Mills Ltd.

Mahajan /.

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SUPREME COURT REPORTS

_3

.within the meaning of section Profits Tax Act and therefore pay excess profits tax?" --The High Court negative. This is an this decision.

aiiswered appeal by

2 (5) of the Excess or otherwise liable to_ .,.

the question 'in the special leave from

income

the assessee' s business

It · was contended on behal£ of the Commissioner before the High Court that the dyeing plant was a commercial asset of the purpose of earning profit and if this commercial asset in .any particular manner, it yielded was income from the assessee's business for the purpose that it of _was immaterial whether asset yields income by use of the assessee himself or its being us~d by someone else. This contention was disposed of by the learned Chief Justice in these words:-

the Exces15 Profits Tax Act. It was said

a commercial

to him

for

"Mr. Joshi seems

to be right but with this quali- fication that the commercial asset must be at the time it was let out in a condition to be used as a commercial If it has ceased to be a com- asset by mercial asset, if its use as a commercial asset has been discontinued, then if the assessee lets it out, he is not putting to use something which is a commercial asset at the time ..

the assessee.

that reason

"Now, on the facts found by the Tribunal, it is clear that when the assessee let out this dyeing plant, it had remained idle for some time. He could. not obtain silk yarn on account of the war and therefore it was not possible to make use of it as a commercial asset as far as the assessee himself was concerned and it was only for let i:t out to Messrs that he E. Parakh & Co. I can understand the principle for which Mr. Joshi is contending that it -makes no dif- ference what an assessee does with commercial asset belonging to him. He may use it as he likes. So long as it yields income it is ~he income of his business. Various cases have been cited at the Bar and I think that those cases reconcilable if we accept this principle to be the correct prin<;iplc

though apparently conflicting are

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SUPREME COURT REPORTS

[1952]

1951

Commissioner of Excess Profits Tax, Bombay City v. Sri Lakshmi Silk Mills Ltd.

Mahajan /.

these and apply this ratio as 'the ratio emerging from cases and I will state the principle and the ratio again that if an assessee derives income from a commercial asset which is capable at the time of being used as a commercial asset, then it is income from his business, whether he uses that commercial asset himself or lets it out the commercial asset is not capable of being used as such, then its being let ou~ does not res.ult in an income which is the income of the business."

to somebody else

to be used. But

if

Mr. Justice Tendolkar concurred in this view and

observed as follows:-

' '•

the assessee himself for

"The ratio of all these cases to my mind is that if there is a commercial asset which is capable of being worked by the purpose of the assessee instead of doing so, earning profits and to use either voluntarily allows someone else it on payment of a certain sum or is compelled by law to allow then what he if the com- receives income from business. But mercial asset has ceased to be a commercial asset in ,the hands of the assessee and thereafter he gets what he can out of it by letting it out to be used by others, then the rent he receives is not income from any busi- ness that he carried on."

to be used in such manner,

it

is

•

to use

is unable

the The learned Attorney-General pointed out that nature of a commercial asset is not changed because a particular person it. The inability of the assessee to make use of it in certain circumstances does not in any way affect the nature of tlhe asset and cause an infirmity in the asset itself. It was contend- ed that when the dyeing plant became idle for a short time during the chargeable accounting period it did not cease to be a commercial asset of the respondent for it had no other business; that all the assets of the respondent including the dyeing plant were the assets of the business, that whatever income was derived by the use of these assets including that an !en out was the business asset income of the assessee, and that there was no warrant

fetched by

the income

itS being

S.C.R.

SUPREME COURT REPORTS

5

law for

the proposition

that a commercial asset in which yields income must be used as an asset by the respondent himself before its income becomes charge- . able to tax.

respondent urged

The learned counsel for the

that as soon as the assessee found difficulty in obtaining yarn the dyeing plant bec:me redundant for its business asset of its business and any and ceased to be an income derived from the rent by letting out this asset from other was assessee the sources and therefore was not chargeable to excess profits tax.

received

income

by

1951

Commissioner of Excess Profits Tax, Bombay City v. Sri Lakshmi Silk Mills Ltd.

Mahajan f.

is

is

the

by in if

the effect

income of

respectfu1ly

to be used

himself. We

learned Chief

income which

is sound. The High · Court was

Justice not capable of

as a commercial asset concur that being

In our opinion, the contention raised by the learned in Attorney-General error in engrafting a proviso on the rule deduced by it that from the authorities considered by it, to a commercial asset of a business concern which yields income must at the time it was let out be in a condi- tion the assessee the the op11110n of commercial asset used as such, then its being let out to others does not result the business, the in an but we cannot accept the view that an asset which was acquired and used the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else. · Suppose, for instance, in a manufacturing concern the use of its plant and to machinery can advantageously paucity_ of raw materials only for six hours in a working day, and in order to get the best yield out of it, another person who has got the requisite raw materials is allowed to use it as a licensee on payment of certain

the purpose of

be made

owing

for

~

1951

'Commissioner of Ercess Profits T•r, Bombay City v. Sri l..llk_shmi Silk_ Mills Lttl.

M•h•i•n f.

6

SUPREME COURT REPORTS

[1952)

In

the

the

any

that

consideration for three hours; can it be said in such a situation with amount justification realized from the licensee is not a part of the business income of the licensor. this case the company was incorporated purely as a manufacturing concern with the object of making profit. It installed plant and machinery for the purpose of its business, and it was open to it if at any time it found that any part of its plant "for the time being" could not be advantage- ously employed for earning profit by company itself, to earn profit by leasi1Ilg it to somebody else. It income thus earned by is difficult to hold that the the commercial asset is not income from the business of the company that has been solely incorporated for the purpose of doing business and earning profits. There is no material whatever for taking the view that the assessee incorporated with any other object than of carrying on business or trade. Owning properties and letting them was not a purpose for which it was formed and that being so, the disputed income cannot be said- to fall under any section of the Indian section 10. Cases of Income-tax Act this nature stand on an entirely undertakings of different footing and are distinguishable froni cases of individuals or companies acquiring lands or buildings and making income by letting them on hire. These latter cases may specific provisions of section 9 or section 12, though the High Courts in this country are by no means unanimous on this subject; but for is unnecessary to resolve that conflict.

legitimately fall under the

the purpose of rthis case

company was

other

than

it

to be decided on

It may be observed that no general principle can be laid down which is applicable to all cases, and each its own circumstances. case has Decisions of the English the Finance Acts, the scheme of which_ is different from the Indian Income-tax statutes, are not always very help- ful in dealing with matters arising under the Indian -law and analogies and inferences drawn from those decisions are at times misleading. We, however, are in the observations of Lord respectful agreement with

courts given under

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SUPREME COURT REPORTS

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President Strathclyde in Sutherland v. The Commis sioners of Inland Revenue(1) that if a commercial asset is susceptible of being put to a variety of different uses in which gain might be acquired, whichever of -these uses it was put to by the appelfant, the profit asset of the same business. -earned was a user of the A mere substituted use of the commercial asset does ·not change or altered the nature of that asset. Whatever ·the commercial asset produces is income of the business ,of which 'it is an asset, the process; by which the asset makes the income. being immaterial.

1951

CommissiQner of E%cess Profits Ta%, Bombay City v. Sri Lrikshrni Silk Mills Ltd..

Mahajqn_ J.

to

this

Mr. Chatterjee for the respondent stressed the point. ;that as the dyeing plant in the present case could not the assessee in its manufacturing be made use of by -business owning it the non-availability of yarn, to ·ceased to be a commercial asset of the business of the that business and :.assessee and became . redundant :that being so, any income earned by this asset which had ceased to be a commercial asset was not an ·income of the business but must be held to have been <derived from a source other than business and fell within the ambit of section 12 of the Indian Income- :ta{{ Act, and on income excess profits tax was not payable. He contended that .the facts of this case Inland Revenue Com were analogous to the case of missioners v. lles<2) and it should be similarly decided. In that case the taxpayer carried on the business of ·sand and gravel merchant on certain land and at the same time he granted licences to three firms to enter his land and win gravel for themselv~ in ret:urn for them a royalty for each which he It was held that cubic yard of gravel the royalties were not part of the profits of the business taxpayer was ibecause, <exploiting his rights of ownersh~p in the ·land and was :not carrying on his business of a sand and gravel -merchant. The income was held taxable as an income from an investment and did not fall under Schedule D which concerns profits earned from a trade. Mr. Chat- terjee also laid emphasis on the observations of Lord

from taken away.

in granting

licences, the

received

the

(1) (1918) 12 Tax Cas. 63.

(2) [1947] 1 A.E.R. 798.

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SUPREME COURT REPORTS

[1952J

1951

Commissioner of Excess Profits Tax, Bombay City v. Sri Lakshmi Silk Mills Ltd.

Mahajan /.

Green M. R. whercin the learned Master of follows:

in Croft v. Sywell Aerodrome Ltd. ('), the Rolls observed as-

"I cannot myself see that a person who leases the· to others, or grants licences to others to come land upon it, than exploiting his own rights of property, even if the ~enant or licensee is, by the terms of the lease or licence, entitled himself to carry on a trade on the land."

is doing anything more

\..

!

It was urged that what the assessee was doing in this case was exploiting his righus of property by letting the dyeing plant to other persons precisely in the same manner as the owner of land in the case cited above was exploiting his own rights to property by granting a licence ~o come on his land. attractive, is The argument, in our opinion, fallacious. The analogy between the case of land and of a dyeing plant for the purpose of taxing statutes is inappropriate. The distinction becomes apparent from in Atkinson. J.'s the following passage which occurs judgement in Iles's case( 2

to another

though

) : -

the use of those

"Then it was suggested by counsel for the Crown that the case was like the Desoutter case('), where it was held that, if you make use of a patent in your business and also receive royaities from the patent by others royalties. licensed to use it, cannot be investment .. regarded as receipts from an In other words, the door has to he eiilher open or shut. A patent is either an is not. The investment or suggestion was that the same land freehold if you carry on business on part of it, position, and whatever you do with the rest by way of licensing or letting cannot be· regarded as producing income from investment. That, however, is dead in the teeth of the judgement in the Broadway Car Co. case("). Tbe same argument was tried there, but Tucker L. J. said he thought the Desoutter case(") had very little to do with it, as there was a great difference between land (3) [1946] 1 A.E.R. 58. ( 4) [1946] 2 A.E.R. 609.

(1) [1942] 1 A.E.R. 110. (2) [1947] 1 A.E.R. 798.

it is in

1951

Commissioner of Excess Profits Tax, Bombay City v. Sri Lakshmi Silk. Mills Ltd.

Mahajan /.

S.C.R.

SUPREME COURT REPORTS

the Desoutter and a patent, and he did not case(') threw any light on the matter ...... A patent is quite different from freehold land."

think

I

These observations appositely apply to the case of a company incorporated for ·the purpose of doing busi- ness and . earning profit by the process of manufacture. Letting out a part of its machinery in a certain situa- tion in order to make the business advantageous as a whole does not alter the nature of the income. The case of an owner of land letting out his land and carrying on exploitation of part of that land by selling gravel out \. of it, as at present advised, in our opinion, would fall Income-tax Act, as under income earned, no matter by whatever method, from land, ai1d specifically dealt with by that section. The Iles's case(2) can have observations no apposite application to the case of a manufacturing concern letting out a part of its machinery temporarily which it cannot advantageously use itself.

section 9 of · the

therefore made in

Indian

In those circumstances

rent of £750. By 1940

Mr. Chatterjee also Bid stress on the decision of the Court of Appeal in Inland Revenue Commissioners v. Broadway Car Co. Ltd.(3). In this case the company the business of motor car agents and carried on land held on lease from 1935 to 1956 at repairers on the company's an annual business had wdindled under war conditions to such an extent that no more than one third of the land was remainder was required. sublet for fourteen years at an annual rent of £1,150. The general commissioners of income-tax decided that the difference of £400 between the outgoing of £750 for the incoming of £1,150 for the the land retained and land disposed of was "income received from an invest- ment," and, the business not being one within the special categories mentioned in the Finance Act, 1939, that £400 was n{)lt taxable. It was held that the word "in- vestment" must be construed in the ordinary, popular sense of the word as used by businessmen and not as a

the

( 1) ! 1946] 1 A.E.R. 58. (2) 11947] 1 A.E.R. 798 .

(3) [1946] 2 A.E.R. 609.

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1951

Commissioner of Excess Profits Tax, Bombay City v. Sri Lakshmi Silk Mills Ltd.

Mahajan/.

10

SUPREME COURT REPORTS

[1952]

the company had dwindled,

installing a heating apparatus for

term of art having a defined or technical meaning and that it was impossible to say that the commissioners had erred in law in coming to the conclusion that the resulted in an investment. Scott. L. J. in transaction delivering his judgment laid emphasis on the point that after the business of it partitioned part of the land from the rest and sublet it the suh-lessee. by It was found that war conditions had reduced the com- pany's business to very small proportions and they cut their loss by gomg out of business in respect of the major part of their land and put it out of their power for 14 years to resume business there. In this situation they were dealing that m that case it was observed with part of the property of the company which had become redundant and was sublet purely to produce the ordinary income-a business activities of the company. It was pointed out that the question whether a particular source of income was income or not must be decided, as it could be, according to ordinary commensense principles.

transaction quite apait from

The short question to decide in this case is whether on the facts found, it could be said reasonably that the dyeing plant had become redundant for its business as the circums- a silk manufacturing concern, simply by tance that for the time being it could not be used by it personally for the purpose of dyeing silk yarn owing It 1s difficult to con- to the non-availability of yarn. that the company would not have immediately ceive it became available. started dyeing Instead of dyeing yarn, another person was allowed to the assessee company making dye jute (we are told), In this income out of its use as a situation it is not possible to hold that the income thus earned was not a part of the income of the business and for the business by its commercial was not asset or that this commercial asset had become redun- dant to the company's business of manufacture of silk. The analogy of Broadway Car Co. Ltd.(') therefore does not hold good for the decision of the present matter.

commercial asset.

yarn as soon as

earned

(!) [1946] 2 A.E.R. 609.

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1951 -·- Commissioner of Excess Profits Tax, Bombay . City v. Sri Lakshmi Silk Mills Ltd.

Mahajan /.

S.C.R.

SUPREME COURT REPORTS

11

We are therefore of the opinion that it was a pan of the normal activtties of the assessee's business to earn money by making use of its machinery by either em- ploying it in its own manufacturing concern or tem- porarily letting it to others for making profit for that business when for the time being it could not itself run it. The High Court therefore was in error in holding that the dyeing plant had ceased to be a commercial asset of the assessee and the income earned by it and received from the lessee, Messrs Parakh & Co., was not · chargeable to excess profits tax. The result therefore is that we hold that the answer returned by the High Court to the question referred to it by the Tribunal was wrong ;:ind that the correct answer to the question would be in the affirmative and not in the nagative.

The appeal is allowed, but in the circumstances of the case we make no order as to costs. We have not thought it necessary to refer to all the cases cited as the Bar as none of them really is in point on the short question that we were called upon to decide and analo- gies drawn from them would not be helpful in arriving at our decision.

Appeal, a/,lowed.

Agent for the appelant : P. A. Mehta. Agent for the respondent : P. K. Chatterjee.

COMMISSIONER OF INCOME TAX, BOMBAY v. FINLAY MILLS LTD. [HARILAL KANIA c. J., MEHR CHAND MAHAJAN AND CHANDRASEKHARA AIYAR JJ.]

1951

Oct. I.

Indian Income-tax Act (XI of 1922), s. 10(2) (xv)-Expenditure registration of trade mark-Whether business expen

incurred for diture-Effect of registration.

The expenditure incurred by a company carrying on the manu- facture and sale of textile goods in registering for the first time its trade. marks which were not in use prior to the 25th January,,

1951

.Commissioner of Income Tax, Bombay v • . Finlay Mills

Ltd.

12

SUPREME COURT REPORTS

[ 1952]

Indian

1937, is revenue expenditure and an allowable deduction under Sec. 10 (2) (xv) of the Income-tax Act. The fact that a trade mark after registration could be separately assigned and not the business only, does not n1ake the as a part of the goodwill of expenditure for only an capital registration facility given to the owner of the trade additional and incidental mark; it adds nothing to the trade mark itself.

expenditure.

It

is

Judgment of the Bombay High Court affirmed.

Commissioner of lncome~tax, Bonibay v. The Century Spinning and Weaving and Manufacturing Co. Ltd. ([1947] 15 l.T.R. 105) approved. British Insulated and Helsby Cables Ltd. v. Atherton ([1926] A. C. 205), Southern v. Borax Consolidated Ltd. ([1942] 10 l.T.R. Supp. 1), Henriksen v. Grafton Hotel Ltd. ([1942] 2 K. B. 184) referred to.

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Civ1L

APPELLATE

JuR1smcTioN

: Civil 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.

Attorney-General ( G. N. Joshi, with him) for the appellant.

Setalvad,

C.

for

India

R. /. Kolah, for the respondent.

1951. Oct. 1. The

Judgment of

the Court was

delivered by

to it by

KANIA C. J .-This is an appeal from a judgment of the High Court at Bombay and it arises out of the opinion expressed by the High Court in respect of a question submitted the Income-tax Tribunal. The material facts are these. The respondent is a tex- tile mills company carrying on the business of manufac- . For the assessment textile goods. turing and selling years 1943-44 and accounting 1944-45, covering 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 tp 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 in Commis decision of the Bombay H'igh Court $ioner of Income-tax, Bombay v. The Century Spinning

the

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,and Weaving and Manufacturing Co. Ltd.(1), the Tri- bunal 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 :-

incurred by

"Whether, on the facts of

the expendi- the case, ture the assessee company in Jegistering for the first time its trade marks which were not in use prior to the 25th February, 1937, is revenue expen- ;diture 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 the 25th of February, 1937, made no into use after ... d'ifference in the result, answered the question in the affirmative. The Commissioner of Income-tax, Bom- -·bay, has come on appeal to us.

1951

Commissioner of I ncorne Tax, Bombay v. Finluy Mills Ltd.

Kania.C. f.

a

that

laid down

in British

the appellant the · It was argued on behalf of _question whether certain disbursement was of a • capital or revenue nature, has to be decided according Insulated and -to the principle J Helsby Cables Ltd. v. Atherton(2). In that case the com- : pany which carried on the business of manufacturers of "' · 1nsulated cables established a pension fund for its clerical and technical salaries staff. The fund was constituted · by a trust deed which provided that members should _,contribute a percentage of their salaries the fond 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 · ,£31,784 to form the nucleus of the fund and to prov~de 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 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 therefore not an , .admissible deduction. Although the opinions ex- 1;Pressed by the different members of the House of Lords , . .

nature of capital expenditure and was in

(1) [1?47] 15 I.T.R. 105.

(2) [1926] A.C. 205.

~. ·. .;1-

the

to

1951

Commissioner of Income· Tax, Bombay v. Finlay Mills Ltd.

Kania C. /.

14

SUPREME COURT REPORTS

[1952t

the purposes of

the line of approach is not completely the same, the principle stated by Lord Cave in his speech has been accepted as a safe test to distinguish capital expendi- It was recognised that ture from revenue expenditure. a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial ex- pediency, and \n order indirectly to facilitate the carry- ing on of business, may yet be expended wholly and exclusively for the trade. The Lord Chancellor observed that the question appeared to be a question of fact which was proper to be decided by the evidence brought before the Commissioners upon them in each case. The test that capital expenditure is a thing that is going to be spent once and for all and income expendiure 1s a thing that is going to recur every year was considered an useful element in arriving at the decision but was not certainly the decisive fact. The Lord Chancellor observed as follows :-"But when an expenditure is made, not only once and for all, but into existence an asset or an with a view to bringing advantage for the enduring benefit of the trade, I think that there is very good reason for treating such an ex- penditure 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 Trade Marks Act, 1940. It may be noted that before this Act there was no Trade Marks Act in India b'ut 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 pream- ble "whereas it is expedient to provide for the regist- ration 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 the

Section 14 permits

that · person."

•

1951

Commissioner of Income Tax, Bombay v. Finlay Mills Ltd.

Kania C. f.

S.C.R.

SUPREME COURT REPORTS

15

proprietor of a trade mark to ·have the trade mark re- gistered. The Attorney-General, on behalf of the appel- lant, relied on sections 20, 21, 28 and 29 in support of his contention. He argued that before the Trade Marks the proprietor of a trade mark could Act, although maintain an action for infringement of his trade mark and the cause of action in such a case was quite differ - ent from the cause of action in an action for passing off goods, by the Trade Marks Act the right oif the owner of the trade mark is increased by section 21, and it is made assignable independently of the goodwill under sections 28 and 29 of the Trade Marks Act. The ques- tion thus resolves itself into whether by reason of these laid two incidents· the case falls within the principle down by Lord Chancellor Cave, as mentioned above.

fail.

expenditure.

It was argued

thereunder were

In our opinion, the contention urged on behalf of the It is not contended that by the appellant must Trade Marks Act a new assets has come into existence. It was contended that an advantage of an enduring nature had come into existence. that just as machinery may attain a higher value by an im- plementation causing greater productive · capacity, in the present case the trade mark which existed before the Trade Marks Act acquired an advantage of an enduring nature by reason of the Trade Marks Act and in the ·the fees paid for registration nature of capital this analogy is fallacious. The machinery which aquires a greater productive capacity by reason of its improve- ment by the inclusion of some new invention naturally becomes a new and altered asset by that process. So long as the machinery lasts, the improvement continue~ 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 Trade Marks Act is only two-fold. By regis- tration, the owner is absolved from the obligation to It is treated prove his ownership of the trade mark. as prim a f acie proved on production of the registra- tion certificate. It thus merely saves him the trouble of leading evidence, in the · e\rent of a· suit~ · in a court

In our opinion,

2-2 S. C. india/71

• ,/

•

1951

C-ommissioner of Income Tax, Bombay v. Finlay Mills Ltd.

Kania C. J.

16

SUPREME COURT REPORTS

[1952]

for

incurred by a

that expenditure

to make payment

its In this connection

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 inf ringers. Cancel the registra- tion and he has still his right enforceable at common In our law to restrain the p'iracy of his trade mark. opinion, this is neither such an asset nor an advantage registration a capital as to it may be useful expenditure. in company notice is not considered expense defending title to property In Southern (H. M. Inspector of of a capital nature. Taxes) v. Borax Consolidated Limited('), it is there stated that where a sum of money is laid out for the improvemer.t of a fixed capital asset ~cquisition or the to capital, but 'if no alteration is 1t 1s attributable then made in to revenue, being in sub- it stance a matter of maintenance, the maintenance of the capital structure or the capital asset of the com- pany. In our opinion, the advantage derived by the the trade mark by registration falls within owner of this class of expenditure. The fact that a trade mark after registration could be separately assigned, and not as a pan of the goodwill of the business only, does not a capital the expenditure for registration also make expenditure. That is only an additional and incidental facility given to the owner of the trade mark. It adds nothing to the trade mark itself.

the fixed capital asset by the payment,

is properly attributable

thus possess

required of an expenditure

In the judgment of the High Court some emphasis is laid on the fact that by reason of registration the duration of the tra<le mark is only for seven years, and that permanency which is it does not ordinarily 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 year., i.e., for a limited period, it prevented the expenses of registra- is unsound treated as capital expenditure, tion being

(1) [1942] 10 I.T.R. Suppl. 1.

i

,.

1951

Comtp/~sion.er .qf l11cpme T.ax, /)o,11J.b.ay .y. Finlay Mills Lt,d.

~m;i_a C. /.

S.C.R.

:SUP:RE,ME cou1rr REPORTS

17

as

':the

the licensing

fofilows:-"Whenever

j'ustices when gran11ling

.and for that contention he relied on He?Jriksei:z (Ins pector of Taxes) v. Grafton Hotel Ltd.(1). In that case ten.ants .of licensing premises by agreement with the landlord paid by instalment the monopoly value fo:;ed licence by under section 14 of of the Licensing (Consolidation) Act, 1910. These were sought to be deducted revenue the Court. Lord expenditure but were disall0wed by Greene M. R. first considered that the payment foll into the same class as the payment of a premium on the grant of a lease or the expenditure on improve- ments to the property which justices may require to be made as a conditiqn of granting a licence. Having reached that conclusion 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. H~ observed a as 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 periodical 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 is shortlived. A payment of the into this character appears the same to fall the grant of a class as the payment of a premium on admittedly not deductible." The lease, which these observations to point Attorney-General relied on out tha~ the permanence of the advantage was thus not dependent · on the number of years for which it was to enure for the benefi~ of the proprietor of the trade In our opinion, these observations have to be mark. read in the context in which they have been made. the Rolls was discussing only The the quest.Ion of payment .being made by instalments in ,the nature of the as not making any

length of the term,

learned Master of

d,i,ffere1~ce

to me

is

(I) [1942] 2 K. B. 184.

)

1951

Commi'ssWner of Income Tax, Bombay v. Finlay Mills Ltd.

Kania.C. /.

18

SUPREME COURT REPORTS

[1952]

this

therefore

necessarily of a capital

It was first held by him that the pay- expenditure. ment in question was of a capital nature and of the same character as premium paid on the grant of a, lease and was nature. Having come to that conclusion, he only rejected the contention that because the premium was paid in more instalments than one it lost its character of a capital is an entirely dif- expenditure. ferent thing from stating that the 'fact of the advant- age being for a limited time altered the character of in any way. As observed by Viscount the payment Cave L. C. the question is always one of fact depend- ing on the circumstances of e~h case 'individually .

In our opinion,

• In our opinion, the decision of

the High Court re- ported in Commissioner of Income-tax, Bombay v. The Century Spinning and Weaving and Manufacturing Co. Ltd.(') 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.

Agent for the appellant : P. A. Mehta. Agent for the respondent : R. A. Govind. (1) [1947] 15 I.T.R. 105.

1951

Oct. 4

BHIM SEN for R. S. MALIK MATHRA DAS v. THE STATE OF PUNJAB UNION OF INDIA-Intervener.

PREM NATH for CH. HARBANS LAL

fl. THE STATE OF PUNJAB

BHIM SEN for RA TT AN CHAND fl. THE STATE OF PUNJAB

..

;

S.C.R.

SUPREME COURT REPORTS

19

CH. HANS RAJ for KANWAR KISHORE

ti.

THE STATE OF PUNJAB ATMA SINGH for SHANTI SAROOP

ti.

1951

Bhim Sen v. ! he State of Punjab.

THE STATE OF PUNJAB [HARILAL KANIA c. J., MEHR CHAND MAHAJAN AND CHANDRASEKHAAA AIYAR JJ.J Preventive Detention Act (IV of 1950), s. 3(1)-Preveniive deten tion for black-marketing-Order based on past activities-Validity -Power of Court to consider sufficiency of grounds-Effect of estab lishment of Advisory Boards under Preventive Detention (Amending) /let, 1951.

to prevent black-marketing cannot be An order of detention held to be illegal merely because for such deten· tion the detaining authority has referred only to the past activi- instances of past activi- ties of the person detained, inasmuch as is that ties may give rise from indulging in necessary to detain such person black-marketing in the future.

to a subjective mental conviction

in the grounds

to prevent him

it

Under

the . Preventive Detention Act, 1950, the test as to whether an order of detention should be made is the subjective the Court has no power •atisfaction of the detaining authority; the grounds supplied by the authority are to consider whether rufficient to give rise to such satisfaction. The establishment of the Advisory Board by the Amending Act of 1951 has not made the matter a justiciable one, and even after the Amending Act the Court has no power to c<lnsider whether the grounds supplied are sufficient for making an order of detention.

CRIMINAL

APPELLATE

JURISDICTION :

Appeals Nos. 45 to 49 of 1951.

Criminal

Appeals from the judgments and orders dated 20th the High Court of Judicature at in Criminal Writ

(Bhandari and Soni JJ.)

August, 1951, of Simla Cases Nos. 46 to 50 of 1951.

Jai Gopal Sethi (R. L. Kohli and Sri Ramkumar, with him) for the appellants in Cr. Appeals Nos.- 45 and 49.

...

1951

Rhim Sen v. The State of Punjab.

Kania C. /.

20

SUPREME COURT REPORTS

[1952]

N. C. Chatterjee (Hardayal Hardy and R. L. Kohli,

with him) for the appellant in Cr. Appeal No. 46.

Hardyal Hardy for the appellant in Cr. Appeal No. 48. S. M. Sikri, Advocate-General of the Punjab (N. S. Doabia, with him) for the respondent in all the appeals.

M. C. Setalvad, Attorney-General

Joshi, with him) No. 45.

for

the

for India ( G. N. Intervener in Cr. Appeal

1951. October 4. The Judgment of

the Court was

delivered by

KANIA C. }.-These are five companion appeals from the judgments of the High Court of East Punjab and the principal point argued before us is as to the lega- lity of the Preventive Detention Act on the ground that they are engaged

in black-marketing in cotton piecegoods.

the appellants under

the detention of

4 ~

the Government

the Essential Supplies Act.

The Jullundur Wholesale Cloth Syndicate was form- to work out the distribution of cloth under the ed Government of Punjab Control (Cloth) Order passed under Certain persons who held licences as wholesale dealers in cloth formed themselves into a corporation and all cloth controlled by the Government was distributed in the district to the retail quota holders through them. The Govern- ment allotted quotas to the retailers and orders were issued by retailer If some certain bales under the distribution control. of the retail licence holders did not take delivery of the quotas allotted to them under the Notification of the 4th of October, 1950, issued by the Government of India, Department of Industries and Supplies, it was, inter alia, provided that the wholesale syndicate may give the bales not so lifted to another retail dealer. It may be noted that all along the price for the cloth to fixed under be Government orders. The Synilicate was suspected to in black market and had been warned be dealing against its activities by of Jullundur the 7th of June, 1951,

sold wholesale and retail had been

the District Magistrate

several times. On

for giving each

1951

BhimBen v. The State of Punjab.

J(ania O. J.

S.C.R.

SUPREME COURT REPORTS

21

an order was issued by the District Organiser, Civil Supplies and Rationing, Jullundur, to the managing agents of the wholesale cloth corporation, Jullundur City ,intimating that they were strictly forbidden to dispose of any unlifted stock against unexpired terms without "his prior permission in writing. They were further directed that thenceforth no such stock would be allowed •to be sold to an individual retailer, but permission would be granted to sell the same to asso- ciations of retailers only. It was stated that this letter was not in accordance with clause 5 of the Notification of the Government of India dated tile 4th October, 1950, which authorized the wholesale syndicate to be at liberty to sell unlifted cloth to any other retailer or an association of retail dealers of the same district. It · may be further noted that the Cotton Cloth Control Order was in operation even prior to 1950. · For some time control on the distribution of cloth was lifted but the price remained under the control of· the Govern- ment. During that time it has beeen alleged that the appellants and several others sold cloth at rates higher than those fixed by the Government. Even when the. distribution and price were both controlled, the manu- facturing mills were allowed to sell at prices fixed by .. the Government a certain percentage of cloth which was not taken by the Government under its control. This was described as free sale cloth and it was alleged that the appellants and several others were doing black-marketing in this free sale cloth.

·

By ari order passed by the District Magistrate on 19th June, 1951, he directed that the appellants be detained under section 3 (2) of the Preventive Deten- tion· Act to prevent them from acting in a manner· prejudicial to the maintenance of supplies of cloth, essential to the community. On the 2nd July, 1951, the District Magistrate, Jullundur, directed that the appellants be committed to District Jail, J ullundur • from the 2nd July until the 1st October, 1951. Th~ appellantswere detained accordingly. The grounds for their detention were given to them on the morning of the 6th July. The grounds set out the activiti~s of

•

•