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PETITIONER: C.I.T. WEST BENGAL II, CALCUTTA

       Vs.

RESPONDENT: COAL SHIPMENT (P) LTD.

DATE OF JUDGMENT14/10/1971

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ HEGDE, K.S. GROVER, A.N.

CITATION:  1972 AIR  541            1972 SCR  (1)1089  1971 SCC  (3) 736

ACT: Income- tax  Act, (11 of 1922). s.10(2) (xv)--Payments  made to  rival  trader to ward off  competition-When  constitutes revenue or capital  expenditure.

HEADNOTE: In pursuance of an agreement between the assessee-respondent and  another firm L & Co., by which, L agreed to assist  the respondent in procuring coal for export whenever asked to do so and not to export any coal during the subsistence of  the agreement,  L  supplied various quantities of  coal  to  the respondent  and  the  respondent made payments  as  pet  the agreement.    The   respondent  claimed  the   payments   as admissible expenditure under s. 10(2)(xv) of the  Income-tax Act,  1922,  during  the  relevant  assessment  years.   The Department  held  that  they  were  payments.  to  secure  a monopoly  and  were therefore not allowable as  revenue  ex- penditure.   The Tribunal found that the respondent did  not acquire  any  monopoly rights, that the payments  were  only made  to  carry  on trade in a more  facile  and  profitable manner, that the arrangement was a temporary measure  liable to be terminated at will, that the respondent did not derive any  advantage of an enduring character and that  therefore. the  expenditure  was  attributable to revenue  and  not  to capital.  and  held  in favour of the  assessee.   The  High Court,  on,  reference, agreeing with the  findings  of  the Tribunal  and  holding that the consideration was  not  paid once  for all but was related to uncertain shipments  to  be made, decided in favour of the assessee. In  appeal  to this Court it was contended that  though  the payment  for assistance to the Respondent in procuring  coal was an item of revenue expenditure, that part of the payment which  was  made because of L agreeing not  to  export  coal during  the  subsistence  of  the  agreement  constituted  a capital expenditure and not a revenue expenditure. Dismissing the appeal, HELD  :  Although payments made to ward off  competition  in business,  to  a  rival  dealer  would  constitute   capital expenditure  if  the  object of making that  payment  is  to derive an advantage by eliminating the competition over some length of time, the same result would not follow if there is

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no  certainty of the duration of the advantage and the  same can  be put to an end at any time.  How long the  period  of contemplated  advantage should be in order to constitute  an enduring  benefit  would depend upon the  circumstances  and facts of each individual case.  An enduring benefit need not be  of an everlasting character, but it should not,  at  the same  time,  be so transitory and ephemeral that it  can  be terminated  at  any  time  at the volition  of  any  of  the parties. [1096 B; 1097 B-C] Further,  the payments were related to the actual  shipments 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 between the parties.  It was not a case of monopoly value payments being permitted to be paid in  instalments  giving a false appearance  of  periodicity. [1097 F-G; 1099 G-H] 1090 Travancore  Sugars and Chemicals Ltd. v. C.I.T.,  Kerala  62 I.T.R. 566, followed. Atherton v. British Insulated and Halaby Cables Ltd. 10 T.C. 155, Robert Addie and Sons’ Collieries Ltd. v. Commissioners of Inland Revenue, 8 T. C 67 1, Assam-Bengal Cement Co. Ltd. v.  C.  I. T., West Bengal, 27 I.T.R.  34,  Commissioner  of Taxes  v. Nchanga Consolidated Copper Mines Ltd.  58  I.T.R. 241  and  Hanrikesen (Inspector of Taxes) v.  Grafton  Hotel Ltd., 11 I.T.R. 10, referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION: Civil Appeals Nos.  1494  to 1498 of 1971. Appeals by special leave, from the judgment and order  dated November  15, 1967 of the Calcutta High Court in  Income-tax Reference No. 13 of 1963. S.   T. Desai, S. K. Aiyar, R. N. Sachthey and B. D. Sharma, for the appellant (in all the appeals). N.   A. Palkhivala, T. A. Ramachandran and D. N. Gupta,  for the respondent (in all the appeals). The Judgment of the Court was delivered by Khanna, J. This judgment would dispose of five Civil  Appeal Nos.  1494  to 1498 of 1971 by Special Leave  filed  by  the ,Commissioner   of  Income-tax,  West  Bengal  against   the judgment  of  Calcutta  High  Court  whereby  the   question referred  to that ,Court under section 66(1) of  the  Indian Income-tax  Act, 1922 (hereinafter referred to as  the  Act) for  five  assessment  years was answered in favour  of  the assessee-respondent-Coal  Shipments  (P)  Ltd.   During  the pendency  of  the appeals, the name of  the  respondent  was changed to Heilgers Investment Ltd. The matter relates to the assessment years 1951-52, 1952-53, 1953-54,  1954-55 and 1955-56, the corresponding  accounting years  for which ended on 31-3-1951,  31-3-1952,  31-3-1953, 31-3-1954 and 31-3-1955 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 Thaper &  Bros. Ltd.,  Messrs" Macheill Barry Ltd., Messrs.  Andrew  Yule  & Co. Ltd. and Messrs.  R. 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

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Bengal  formed  an  association styled  Coal  Exporters  and Charters  Association.   The respondent company as  well  as M/s.  H. V. Low & Co. Ltd. were two of the major members                             1091 of the said association.  When M/s.  H. V. Low & Co.  learnt of the, resumption of coal export to Burma by the respondent in  1946,  they also expressed intention to export  coal  to Burma.  Thereupon the two companies came to an understanding and  arrived  at a mutual arrangement or  agreement  on  the following lines :-               (i)   M/s.   H.  V. Low & Co. Ltd.  would  not               export coal to Burma during the subsistence of               the agreement.               (ii)  M/s.  H. V. Low & Co. Ltd. would  assist               the respondent in procuring coal for  shipment               to Burma.               (iii) The  respondent would carry on the  coal               shipping  business and pay M/s.  H. V.  Low  &               Co.  Ltd.   Rs. 151-  per  ton  (subsequently               raised to Rs. 1-5- per ton) of coal shipped to               Burma. According to the respondent, the last shipment of coal under the above arrangement was made in June, 1954 after which the arrangement came to an end automatically and the  Government of   Burma  made  some  other  arrangement  for   its   coal requirement. The  assessee respondent claimed to have made the  following payments to M/s.  H. V. Low & Co. Ltd. or their nominees  in pursuance  of the aforesaid agreement during the  period  of five accounting   years  from  1st  April,  1950  to   March 31,1955:-                                      Rs.      1951-52.....................  91,149      1952-53................... .      1,77,898      1953-54......................     3,03,631      1954-55.......... ..............  2,32,355      1955-56....... ..................   79,917 The amounts mentioned above were taxed in the hands of  M/s. H. V. Low & Co. Ltd.  The respondent claimed the payment  of the above amounts as admissible business expenditure for the assessment  years in question.  The Income-tax Officer  held that the expenditures claimed could not be allowed, as there was no written agreement in proof of the alleged arrangement and  it was not possible to say that the payments were  made for the purpose of the assessee’s business.  The  Income-tax Officer  further held that even assuming that the  payments were  made to keep off M/s.  H. V. Low & Co. Ltd.  from  the Burma  trade,  they were payments to secure a  monopoly  and were not, therefore, allowable as revenue expenditure.   The Appellate Assistant Commissioner on appeal upheld the  order of the Income-tax Officer. When the matter came up in second appeal before the  Income- tax  Appellate Tribunal, the Tribunal found that  there  was some 1092 discrepancy  in the facts stated on behalf of  the  assessee and  the  Revenue.   The  Tribunal  thereupon  required  the respondent company to swear- an affidavit in support of  the facts  relied upon by it. In pursuance thereof,  Sir  Walter Michelmore,  Director of Managing Agents of  the  respondent company  filed an affidavit.  Sir Walter was  also  examined orally before 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

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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 arran gement.   The agreement was found to have  been  acted upon  and  it  was  held that M/s.  H. V.  Low  &  Co.  Ltd. supplied  varying quantities of coal to the  respondent  for shipment to Burma.  It was further held that the  respondent company  did  not acquire any monopoly rights  to  carry  on Burma trade and the impugned payments were made to carry  on the  trade  in  a more facile and  profitable  manner.   The Tribunal  found  that the arrangement  arrived  at  verbally between the respondent and M/s.  H. V. Low & Co. Ltd. was  a temporary  measure liable to be terminated ,at will and  the respondent  company  did  not derive  any  advantage  of  an enduring  character by such payments.  The  expenditures  in question were, in the opinion of the Tribunal,  attributable to  revenue and not to capital.  As such, they were held  to be permissible expenditures under section 10(2) (xv) of  the Act. On application filed by the Revenue, the following  question was referred to the High Court               "Whether   on.   the   facts   and   in    the               circumstances  of the case, the payments  made               by the assessee to M/s.  H. V. Low & Co.  Ltd.               or their nominees were of a capital nature and               as such not allowable under section 10(2) (xv)               of the Income-tax Act, 1922 ?"               109 3               .lm0               It was not disputed before the High Court that               there was an. agreement between the respondent               and M/s.  H. V. Low & Co. Ltd. on terms stated               by  the  respondent and that the  payments  in               question were made under that agreement.   The               High  Court held that the arrangement  entered               into by the respondent with M/s.  H. V. Low  &               Co. Ltd. was not such as was likely to have an               enduring beneficial effect.  In the opinion of                             the  High  Court,  there was  no  cert ainty  of               duration   and   the  arrangement   could   be               terminated  or  revoked  at  any  time.    The               consideration  of  the  arrangement,  it   was               observed,  was not paid once for all  but  was               related  to  uncertain shipments to  be  made.               The arrangement, it was further held, did  not               create any monopoly or bring about any capital               advantage to the assessee.  The respondent was               held  entitled to claim the deduction  of  the               expenditures under section 10 (2) (xv) of  the               Act.  In the result, the question referred  to

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             the Court was answered in the negative and  in               favour of the assessee.               We  have  heard  Mr. Desai on  behalf  of  the               appellant and Mr. Palkhiwala on behalf of  the               respondent  and are of the opinion that  there               is  no merit in these appeals.   The  Tribunal               has  found that the amounts in  question  were               paid  by the respondent to M/s.  H. V.  Low  &               Co.   Ltd.  in  pursuance  of  the   agreement               according 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 riot 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  as the payment was made for warding  off               competition  by  rival  coal  exporter,   that               payment  should  be  held  to  be  a   capital               expenditure.   The  fact  that  there  was  no               certainty  of the duration of the  arrangement               between  the respondent and M/s.  H. V. Low  &               Co.  and the same could be terminated  at  any               time, according to the learned counsel,               1094               is  wholly immaterial.  As against  that,  Mr.               Palkhiwala argues that in order to  constitute               capital   expenditure,  the  object   of   the               expenditure  should be to secure an  advantage               of   enduring  nature.   When  there   is   no               certainty  of the duration of the  arrangement               and  the same can be revoked at any time,  the               advantage cannot be said to be of an  enduring               character  and the expenditure cannot be  held               to  be of a capital nature.  Further.  as  the               payment  was  related to the quantum  of  coal               shipped  to  Burma in the  course  of  trading               activity  and  was  not  connected  with   the               capital value of the assets, the payment,  Mr.               Palkhiwala submits, should be considered to be               revenue expenditure.  In our opinion, there is               considerable   force   in   Mr.   Palkhiwala’s               submission.               Judicial  decisions have, from time  to  time,

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             laid  down some broad principles in  order  to               determine  whether  an  expenditure  is  of  a               capital  nature or revenue  nature.   Despite               the enunciation of those principles, it is not               always  easy  to decide the  question  in  the               context of the circumstances of an  individual               case.  Considerable difficulty is experienced               in   border  line  cases.   It  was  in   this               connection  that Hidayatullah, J. (as he  then               was) observed in Abdul Kayoom v. Ccommissioner               of Income-tax(1) that "none of the tests (laid               down   in  various  authorities)   is   either               exhaustive  or  universal.   Each  case   must               depend   on  its  own  facts,  and   a   close               similarity between one case and another is not               enough  because  even  a  single   significant               detail  may  alter  the  entire  aspect.    In               deciding  such  cases, one  should  avoid  the               temptation  to decide cases ....  by  matching               the colour of the one case against the  colour               of another".               It  may be apposite at this stage to refer  to               some  of the broad tests which have  been.laid               down  to distinguish the  capital  expenditure               from  revenue  expenditure.  In  the  case  of               Atherton  v.  British  Insulated  and   Helsby               Cables Ltd.(2)-, Lord Cave, L.C. laid down the               following criterion which has been referred to               in most of the subsequent cases :-               "But  when  an expenditure 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, I think  that               there  is very good reason (in the absence  of               the special circumstances leading to an  oppo-               site   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 (1) 44 I.T.R. 68 .             (2) 10 T.C. 155. 1095 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 Limited  v. The  Commissioners  of  Inland  Revenue(1),  Lord  President Clyde gave     the following test:--               "It is necessary accordingly to attend to  the               true  nature  of the expenditure, and  to  ask               one’s  self the question, is it a part of  the               Company’s working expenses ?-is it expenditure               laid  out  as part of the  process  of  profit               earning  ?--or,  on the other hand,  is  it  a               capital  outlay ?-is it expenditure  necessary               for  the acquisition of property or of  rights

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             of a permanent character, the process of which               is a condition of carrying on its trade at all               ? The  expression ’once and for all’ used in the  dictum  laid down in Atherton’s case (supra) was referred to by Bhagwati, J.  speaking  for  this Court in the case  of  Assam  Bengal Cement   Co.  Ltd.  v.  Commissioner  of  Income-tax,   West Bengal(2)  and it was observed that the expression was  used to denote an expenditure which is made once and for all  for procuring   an   enduring  benefit  to   the   business   as distinguished from a recurring expenditure in the nature  of operational  expenses.  The character of the payment can  be determined,  it  was added, by looking at what is  the  true nature  of the asset which has been acquired and not by  the fact  whether  it  is  a  payment  in  a  lump  sum  or   by instalments.   It is also an accepted proposition  that  the words  ’permanent’ and ’ enduring’ are only  relative  terms and not synonymous with perpetual or ever-lasting. There  are some other tests like those of fixed capital  and circulating  capital  for  determining  the  nature  of  the expenditure.   An  item of disbursement can be  regarded  as capital  expenditure when it is referable to fixed  capital. It  is  revenue  when it can be  attributed  to  circulating capital.  It is not the case of any party that this test  of fixed  and circulating capital can be invoked in  this  case nor has reference been made to some of the other tests.  The case which has been set up on behalf of the revenue is  that as  the  object of making the payments in  question  was  to eliminate competition of a rival exporter, the benefit which enured to the respon- (1) 8 T.C. 671.             (2) 27 I.T.R. 34. 109 6 dent  was  of an enduring nature and as  such,  the  payment should be treated as capital expenditure.  We find ourselves unable  to accede to this contention because we  find  that the arrangement between the respondent and M/s.  H. V. Low & Co. Ltd. was not for any fixed term but could be  terminated at any time at the volition of any of the parties.  Although an   enduring  benefit  need  not  be  of  an   ever-lasting character,  it  should  not,  at  the  same  time,,  be   so transitory  and ephemeral that it. can 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.(1).  The  respondent company  in  that case together with  two  other  companies- Rhokana  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  Rhokana  Corporation  Ltd.  should   undertake between them the whole group programme for the year  reduced by the overall cut of 10 per cent.  It was further agreed to pay  a sum of Bancroft Mines Ltd. to compensate it  for  the abandonment of the production for the year. ,Question  arose whether  the compensation which the respondent  company  had

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paid  to  Bancroft  Mines Ltd. was  expenditure  of  capital nature  ? The Judicial Committee held that the  compensation paid  was an allowable deduction in determining the  respon- dent  company’s taxable., income.  The expenditure,  in  the view  ,of  the  Judicial  Committee,  had  no  analogy  with expenditure  for  the purpose of acquiring a business  or  a benefit  of  long  term  or  enduring  contract.    Viscount Radcliffe who delivered the judgment while dealing with  the question of expenditure observed:               "It  bought one right only, the right to  have               Bancroft  out  of production  for  12  months.                             While,  no  doubt,  money  paid  to  a cquire  a               business  or to shut a business down for  good               or  to acquire some contractual right to  last               for years may well be capital expenditure,  it               seems  a  contradiction in terms to  speak  of               what  Nchanga thus acquired,  which  exhausted               itself and was created               (1)   58 I.T.R. 241.                                    1097               to exhaust itself within the 12 months’ period               within  which  profits  are  ascertained,   as               constituting  an  enduring benefit  or  as  an               accretion  to  the  capital  or  incomeearning               structure of the business.  If the expenditure               is  to  be treated as capital  expenditure  at               all,  it  cannot  be for any  reason  such  as               that". Although we agree that payment made to ward off  competition in  business  to  a rival dealer  would  constitute  capital expenditure  if  the  object of making that  payment  is  to derive an advantage by eliminating the competition over some length  of time, the .same result would not follow if  there is  no certainty ’of the duration of the advantage  and  the same can be put to an end at any time.  How long the  period of  contemplated advantage should be in order to  constitute enduring benefit would depend upon the circumstances and the facts of each individual case. In the case of Assam Bengal Cement Co. Ltd.(1) the appellant company  acquired  from the Government of Assam a  lease  of certain lime-stone quarries for a period of twenty years for the  purpose  of carrying on the manufacture of  cement:  In addition to the rent and royalties, the appellant agreed  to pay  the  lessor annually a sum of Rs.  5,000/-  during  the whole  period  of  the  lease as a  protection  fee  and  in consideration  of that payment the lessor undertook  not  to grant to any person any lease, permit or prospecting licence for  lime-stone in a group of quarries without  a  condition that  no  limestone 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 between the parties.  The dictum laid  down by this Court in Travancore Sugars and  Chemicals

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Ltd.  v.  Commissioner  of  Income-tax,  Kerala(2)  in   the circumstances  is attracted.  The appellant company in  that case  was  to take over the assets  of  sugar  manufacturing concern,  a  distillery  and  a  tincture  factory  of   the Government  of Travancore.  The promoters of  the  appellant company in that connection entered into an agreement with (1) 27 I.T.R. 34. (2) 62 I.T.R. 566. 18-- LI 19 Sup Cl/72      1098      the Government. The cash consideration for the sale  of the  assets of the’ sugar manufacturing concern was Rs. 3.25lakhs, that for the sale of the distillery was agreed to be arrivedat as a result of joint valuation and that for the sale of  the assets  of  the tincture factory was the  book  value.   The Government  agreed to recognise the transfer of the  licence for  the distillery to the appellant company and  to  secure the continuance of the licence for a period of 5-years after the  termination  of the existing licence.   The  Government also   agreed  to  purchase  the   pharmaceutical   products manufactured by the appellant company.  Apart from the  cash consideration,  clause 7 of the agreement provided that  the Government  would be entitled to 20 per cent of  the  annual net  profits  subject  to a maximum of  Rs.  40,000/-  after providing   for   depreciation  and  remuneration   of   the secretaries  and  treasurers.   Clause  7  was  amended   in January,  1947  to the effect that the Government  would  be entitled to 10 per cent of the annual net profits.  Question arose  whether an amount of Rs. 42,480/- which was,  payable under   clause  7  of  the  agreement  was   a   permissible expenditure  under section 10 of the Incometax Act.  It  was held  that  the above payment was in the nature  of  revenue expenditure  and  not capital  expenditure.   Ramaswami,  J. speaking  for  the  Court  dealt  with  the  matter  in  the following Words :-               "Examining the transaction from this point  of               view, it is clear in the present case that the               consideration  for  the  sale  of  the   three               undertakings in favour of the appellant was  :               (1)  the cash consideration mentioned  in  the               principal agreement, viz. clauses 3, 4(a)  and               5(a) and (2) the consideration that Government               shall  be entitled to twenty per cent  of  the               net  profits earned by the appellant in  every               year subject to a maximum of Rs. 40,000/-  per               annum.  With regard to the second part of  the                             consideration there are there importan t  points               to  be  noticed.   In  the  first  place,  the               payment  of commission of twenty per  cent  on               the net profits by the appellant in favour  of               the Government is for an indefinite period and               has  no limitation of time attached to it.  In               the  second place, the payment of the  commis-               sion  is related to the annual  profits  which               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  between  the parties as  part  of  the               purchase  price  of  the  three  undertakings.               There is no reference to any capital sum in                                    1099

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             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 Greens  in Henriksen (Inspector of Taxes) v. Grafton,  Hotel Ltd.(1) :-               "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 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  the length of  the  term,  is                             short-lived.   A  payment  of  this character               appears  to me to fall into the same class  as               the  payment of a premium on the grant  of  ’a               lease which is admittedly not deductible". Particular  reliance has been placed by Mr. Desai  upon  the concluding  part  of the above  observations.   The  portion relied  upon, in our opinion, has to be read in the  context of  the  preceding lines and the facts of  that  case.   The lessees  of  the licenced premises in that  case,  under.  a covenant in their lease, paid annually certain sums  imposed by the licensing justices as instalments of the monopoly  on the grant and renewal of the licence for three years period. It  was contended that those sums were not capital  payments but  should  be regarded as revenue payments.  It  was  held that  monopoly value payments were imposed for the  term  of the  licence  on  grant  or renewal  though  the  fact  that permission  was  given to pay by yearly instalments  gave  a false  appearance  of periodicity.  Such  payments.  in  the opinion of the Court, fell into the same class as a  premium paid (1) 11 I.T.R. 10. 1100 on the grant of a lease and as such should be regarded as of capital nature.  It is obvious that the question involved in that  case  was different and the appellant  can  derive  no assistance from it. The appeals consequently fail and are dismissed with costs. One set of costs. V.P.S.                       Appeals dismissed. 1101