{"id":170921,"date":"1961-11-23T00:00:00","date_gmt":"1961-11-22T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-k-t-m-t-m-abdul-kayoom-on-23-november-1961"},"modified":"2018-10-20T07:49:19","modified_gmt":"2018-10-20T02:19:19","slug":"the-commissioner-of-income-tax-vs-k-t-m-t-m-abdul-kayoom-on-23-november-1961","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-k-t-m-t-m-abdul-kayoom-on-23-november-1961","title":{"rendered":"The Commissioner Of Income-Tax, … vs K. T. M. T. M. Abdul Kayoom on 23 November, 1961"},"content":{"rendered":"
Supreme Court of India<\/div>\n
The Commissioner Of Income-Tax, … vs K. T. M. T. M. Abdul Kayoom on 23 November, 1961<\/div>\n
Equivalent citations: 1962 AIR 680, \t\t 1962 SCR Supl. (1) 518<\/div>\n
Author: S Das<\/div>\n
Bench: Das, S.K.<\/div>\n
           PETITIONER:\nTHE COMMISSIONER OF INCOME-TAX, MADRAS\n\n\tVs.\n\nRESPONDENT:\nK. T. M. T. M. ABDUL KAYOOM\n\nDATE OF JUDGMENT:\n23\/11\/1961\n\nBENCH:\nDAS, S.K.\nBENCH:\nDAS, S.K.\nKAPUR, J.L.\nHIDAYATULLAH, M.\n\nCITATION:\n 1962 AIR  680\t\t  1962 SCR  Supl. (1) 518\n CITATOR INFO :\n D\t    1966 SC1564\t (7,9,11)\n D\t    1968 SC 745\t (6)\n RF\t    1972 SC1634\t (10)\n RF\t    1973 SC  15\t (5)\n R\t    1991 SC 227\t (7,10,11)\n\n\nACT:\n     Income  Tax-Capital   Expenditure-Dealer\tin\nconch shells-Lease  money paid\tfor\t gathering\nshells from  sea-Nature of  expenditure-Income-tax\nAct, 1922(11 of 1922), s.10 (2)(xy).\n\n\n\nHEADNOTE:\n     The assessee  firm carried on the business in\npurchase and  sale of  conch shells. It obtained a\nlease for 3 years for gathering specified types of\nshells from  the sea  along the coastline abutting\non the\tSouth Arcot  District. It sought to deduct\nthe amount  paid as  lease money  from its profits\nfrom business  on the  ground  that  this  was\tan\nexpenditure not of a capital nature but wholly and\nexclusively laid  out for the purpose of business.\nunder s. 10(2)(xy) of the Income Tax Act.\n^\n     Held, (per\t kapur and Hidayatullah, JJ., Das,\nJ. dissenting)\tthat the  expenditure was  capital\nexpenditure and\t could not  be deducted\t from  the\nprofits. The  business of  the assessee was buying\nand selling  shells but\t when it took the lease it\nwent in\t for a new speculative business of fishing\nfor shells. The amount paid for reserving the vast\ncoastline for  future fishing  was not\tprice paid\nfor obtaining  the stock in trade i.e. shells with\nwhich assessee\tdid his\t business. The\tamount was\npaid to\t obtain an  enduring asset in the shape of\nan exclusive right to fish and the payment was not\nrelated to the shells.\n     Mohanlal Hargovind v. Commissioner of Income-\ntax, C. P. & Berar, (1949) 17 I. T. R. 473(P. C.),\ndistinguished\n     Pringle  Industries   Ltd.,  Secunderabad\tv.\nCommissioner of Income-tax, Hyderabad,<\/a> [1960] 3 S.\nC. R. 681, applied.\n     Per Das,  J.-The expenditure  was not capital\nexpenditure and\t was deductible\t from the profits.\nIt was\tnot an\texpenditure for the acquisition of\nproperty or  of rights\tof a  permanent character,\nthe possession of which was necessary for carrying\non of  the assessee's  trade  By  this\tlease  the\nassessee acquired  its stocks-in-trade rather than\na source  or  enduring\tasset  for  producing  the\nstock-in-trade.\n     Mohanlal Hargovind v. Commissioner of Income-\ntax, C.\t P. & Berar (1949) 17 I. T. R. 473(P. C.),\napplied.\n     Pringle  Industries   Ltd.,  Secunderabad\tv.\nCommissioner of\t Income-tax, Hyderabad,<\/a>\t [1960]\t 3\nS.C.R. 681, distinguished.\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE JURISDICTION: Review Petition
\nNo. 16 of 1960.\n<\/p>\n
519<\/span><\/p>\n
     Petition for  Review of this court’s Judgment
\nand order  dated April\t26, 1960,  in Civil Appeal
\nNo. 64 of 1956.\n<\/p>\n
     A. V.  Viswanatha Sastri,\tR. Ganapathy  Iyer
\nand Gopalkrishnan, for the petitioners.\n<\/p>\n
     K. N. Rajagopala Sastri, and P. D. Menon, for
\nrespondent.\n<\/p>\n
     1961. November 23. Das, J., delivered his own
\nJudgment. The  Judgment of Kapur and Hidayatullah,
\nJJ. was delivered by Hidayatullah, J.\n<\/p>\n
     S. K.  DAS, J.-I  had taken  a view different
\nfrom that  of my learned brethren when this appeal
\nwas heard  along  with\tPringle\t Industries  Ltd.,
\nSecunderabad v.\t The Commissioner  of  Income-tax,
\nHyderabad<\/a> (1),\tand that  view was  expressed in a
\nvery short judgment dated April 26, 1960.\n<\/p>\n
     Now, we  have had\tthe advantage of hearing a
\nvery full argument with regard to the facts of the
\nappeal, and  I for  myself have\t had  the  further
\nadvantage and  privilege of  reading the  judgment
\nwhich my  learned  brother  Hidayatullah,  J.,\tis
\nproposing to  deliver in  this appeal. I have very
\ncarefully  considered\tthe  question  again  with
\nreference to  the facts relating thereto and, much
\nto my  regret, have  come to the conclusion that I
\nmust adhere  to\t the  opinion  which  I\t expressed
\nearlier. My  view is  that the\tfacts of this case
\nare indistinguishable  from the facts on which the
\ndecision  of   the  Privy   Council  in\t  Mohanlal
\nHargovind v.  Commissioner of Income-tax, C.P. and
\nBerar(2) was  rendered, and on the principles laid
\ndown by\t this court  in Assam  Bengal cement  Co.,
\nLtd.  v.  The  Commissioner  of\t Income-tax,  West
\nBengal (3),  it must  be held that the expenditure
\nof Rs.\t6111\/-in this  case was on revenue account
\nand  the  respondent  firm  was\t entitled  to  the
\nallowance which it claimed.\n<\/p>\n
520<\/span><\/p>\n
     The short\tfacts are  these.  The\trespondent
\nfirm carried  on a  business in\t the purchase  and
\nsale of\t conch shells  (called chanks). It used to
\nacquire the  stock of  conch shells (1)by purchase
\nfrom the  Fisheries purchase  from  the\t Fisheries
\nDepartment of  the Government of Madras and (3) by
\nfishing for  and    gathering such shells from the
\nsea. It\t disposed of  the  stock  so  acquired\tat
\nCalcutta, the different between the cost price and
\nselling price  less expenses being its profit made
\nin business.  On November  9 1945 it took on lease
\nfrom the  Director  of\tIndustries  and\t Commerce,
\nMadras,\t the   exclusive     right.  liberty   and
\nauthority to fish for, take and carry away “chank”
\nshells\tin the sea off the coast line of the South
\nArcot District\tincluding the  French  Kuppama\tof
\nPondicherry. The boundary of the area within which
\nthe   right could  be exercised\t was  given  in\t a
\nschedule to  the lease. The lease was for a period
\nof three  years from  July 1, 1944 to June 30 1947
\non a  consideration of an yearly rent of s. 6111\/-
\nto be  paid in\tadvance. Clause\t 3  of\tthe  lease
\ncontained the  material terms  there of and may be
\nset out in full.\n<\/p>\n
\t  “3. The  lesser hereby  convenants  with
\n     the lesson as follows:-\n<\/p><\/blockquote>\n
\t       (i) To  pay the rent on the day and
\n\t  in manner aforesaid.\n<\/p><\/blockquote>\n
\t       (ii) To\tdeliver to  the\t Assistant
\n\t  Director of  Pearl and  Chank Fisheries,
\n\t  Tuticorn all\tVelampuri shells  that may
\n\t  be obtained  by the  lessee upon payment
\n\t  of their  value  as  determined  by  the
\n\t  Assistant Director.\n<\/p><\/blockquote>\n
\t       (iii) To\t collect chanks\t caught in
\n\t  nets and  by means of diving as well. In
\n\t  the process of such collection of shells
\n\t  not to fish chank shells less than 2\/1\/4
\n\t  inches in  diameter  and  if\tany  chank
\n\t  shells less than 2\/1\/4 inches in
\n521<\/span>
\n\t  diameter  be\tbrought\t inadvertently\tto
\n\t  shore, to  return at\tonce alive  to the
\n\t  sea all such undersized shells.\n<\/p><\/blockquote>\n
\t       (iv) Not at  any time  hereafter to
\n\t  transfer  or\t underlet  or\tpart  with
\n\t  possession of\t this grant  or the rights
\n\t  and privileges  hereby  granted  or  any
\n\t  part thereof without the written consent
\n\t  of the lessor.\n<\/p><\/blockquote>\n
\t       (v)  At\t the\tend   or    sooner
\n\t  determination of the term hereby created
\n\t  peaceably and\t quietly to  yield to  the
\n\t  lesson the  rights and privileges hereby
\n\t  granted, and\n<\/p><\/blockquote>\n
\t       (vi) To\treport\tto  the\t Assistant
\n\t  Director of  Pearl and  Chank\t Fisheries
\n\t  (South), Tuticorn  the actual\t number of
\n\t  shells kept unsold in different stations
\n\t  after the expiry of the lease period.<\/p><\/blockquote>\n
     For  the\tassessment   year   1946-47,   the
\nrespondent firm\t submitted a  return of its income
\nto  the\t  Income-tax  Officer,\tKaraikudi  Circle,
\nshowing its  income from  sale of chanks purchased
\nfrom divers  at\t Rs.  7194\/-  by  sale\tof  chanks
\npurchased from\tGovernment Department  at Rs.  23,
\n588\/- and Rs. 2819\/- by sale of chanks gathered by
\nthemselves (through  divers) after  deducting  Rs.
\n6111\/- being the rent paid to Government under the
\ncontract referred  to above.  It sought\t to deduct
\nRs. 6111\/-  from its  profits from business on the
\nground that  this was  an  expenditure\tnot  of\t a
\ncapital nature but wholly and exclusively laid out
\nfor the\t purpose of business under s. 10(2)(xv) of
\nthe Income-tax\tAct. This  claim was disallowed by
\nthe  Income-tax\t Officer  and  on  appeal  by  the
\nAppellate  Assistant   Commissioner.  On   further
\nappeal to  the Appellate  Tribunal the\trespondent
\nfirm contended that the
\n522<\/span>
\ndecision  of   the  Privy   Council  in\t  Mohanlal
\nHargovind v.  Commissioner of Income-tax(1)applied
\nto this case inasmuch as the payment was to secure
\nthe stockin-trade  for its business. The Appellate
\nTribunal was of the opinion that the Privy Council
\ndecision covered  the case,  but felt itself bound
\nby the\tdecision of  the Full  Bench of the Madras
\nHigh Court  in K.  T. M. T. M. Abdul Kayum Hussain
\nSahib v.  Commissioner of  Income-tax, Madras<\/a> (2).
\nThe Tribunal acceded to the demand for a reference
\nto the\tHigh Court,  and accordingly  referred the
\nfollowing question  to\tthe  High  Court  for  its
\ndecision.\n<\/p>\n
\t  “Whether on  the facts and circumstances
\n     of the  case the  payment of  the sum  of Rs.
\n     6111\/- made  by the  assessee under the terms
\n     of\t the   agreement  entered  into\t with  the
\n     Director of  Industries and  Commerce, Madras
\n     on 9th  November, 1945  was not  an  item\tof
\n     revenue expenditure incurred in the course of
\n     carrying on the business of the assessee and,
\n     therefore, allowable  under the provisions of
\n     section 10 of the Indian Income-tax Act?”<\/p><\/blockquote>\n
     The reference  first came\tbefore a  Division
\nBench and  was then  referred to  a Full Bench. By
\nits judgment  dated April  2, 1953  the Full Bench
\nanswered the  question in favour of the respondent
\nfirm. On  a certificate\t of fitness granted by the
\nHigh Court the Commissioner of Income-tax, Madras,
\nbrought the present appeal to this Court.\n<\/p>\n
     In Assam  Bengal  Cement  Co.,  Ltd.  v.  The
\nCommissioner  of   Income-tax  (3),   this   Court
\nreferred to  the decision in Benarsidas Jagannath.
\nIn  re.(4)   and  accepted   the  following  broad
\nprinciples  for\t  the  purpose\tof  discriminating
\nbetween a capital and a revenue expenditure.\n<\/p>\n
523<\/span><\/p>\n
     (1) The  outlay is\t deemed to be capital when
\nit is  made for\t the initiation of a business, for
\nextension of  a business,  or  for  a  substantial
\nreplacement of\tequipment  [See\t Commissioners\tof
\nInland Revenue\tv. Granite  City Steamship Company
\nLtd.(1)].  Such\t expenditure  is  regarded  as\ton
\ncapital account, for it is incurred not in earning
\nprofits\t but   in   setting   the   profit-earning
\nmachinery in  motion. In my opinion this test does
\nnot apply  in the  present case\t where no  profit-
\nearning machinery was set in motion.\n<\/p>\n
     (2) Expenditure  may be  treated as  properly
\nattributable to\t capital when  it is made not only
\nonce and for all, but with a view to bringing into
\nexistence  an\tasset  or  an  advantage  for  the
\nenduring benefit  of a\ttrade.\t[See  Atherton\tv.
\nBritish Insulated  and Helsby Cables Ltd. (2)]. In
\nelucidation of\tthis principle\tit has\tbeen  laid
\ndown in\t several decisions  that by  “enduring” is
\nmeant “enduring\t in the\t way  that  fixed  capital
\nendures” and  it does  not connote  a benefit that
\nendures in  the sense  that for\t a good\t number of
\nyears  it  relieves  the  assessee  of\ta  revenue
\npayment. In Robert Addie & Sons Collieries Ltd. v.
\nCommissioners of  Inland Revenue  (3)  Lord  Clyde
\nformulated the same test in these words:\n<\/p>\n
\t  “What is  ‘money wholly  and exclusively
\n     laid out  for the purposes of the trade’ in a
\n     question which  must be  determined upon  the
\n     principles of ordinary commercial trading. It
\n     is necessary  accordingly to  attend  to  the
\n     true nature  of the  expenditure, and  to ask
\n     one’s self\t the question, is it a part of the
\n     Company’s working expenses?-is it expenditure
\n     laid out  as part\tof the\tprocess of profit-
\n     earning?-or, on  the  other  hand,\t is  it\t a
\n     capital outlay?-is\t it expenditure\t necessary
\n     for the  acquisition of property or of rights
\n     of a permanent character,
\n524<\/span>
\n     the possession  of which  is a  condition\tof
\n     carryin on its trade at all?”\n<\/p><\/blockquote>\n
This test  was adverted to by the Privy Council in
\nTata Hydro-Electric  Agencies Ltd. v. Commissioner
\nof Income  tax(1).In my opinion the application of
\nthis test  makes it  at once clear that the sum of
\nRs. 6111\/-  which the  respondent firm\tspent  was
\nexpenditure laid  out as  part of  the process\tof
\nprofit-earning; it  was not a capital outlay, that
\nis, expenditure\t necessary for\tthe acquisition of
\nproperty or  of rights\tof a  permanent character,
\nthe  possession\t  of  which  was  a  condition\tof
\ncarrying on  its  trade.  Under\t the  contract\tin
\nquestion the  respondent firm  did not acquire any
\nright to  immovable property. It acquired no right
\nin the\tbed of\tthe sea\t or in\tthe sea.  The only
\nright conferred\t on the\t respondent firm  was  the
\nright to  fish for,  gather and\t carry away  conch
\nshells (in motion under the surface of the sea) of
\na specified type and size. The respondent firm was
\nunder an  obligation to\t return to  the sea  conch
\nshells less  than 2  1\/2 inches\t in diameter.  The
\nbusiness  of  the  respondent  firm  consisted\tin
\nbuying and  selling conch shells. No manufacturing
\nprocess was  involved in it. Therefore, the stock-
\nin-trade of  the respondent firm was conch shells.
\nIt secured  this stock-in-trade\t in many different
\nways, by  purchase from\t divers, by  purchase from
\nGovernment  and\t  private  parties,  and  also\tby
\ngathering  conch  shells  under\t the  contract\tin
\nquestion. In  my opinion,  the contract into which
\nthe  respondent\t  firm\tentered\t  was  merely  for
\nsecuring its  stock-in-trade. It  is  indeed  true
\nthat in considering whether an item of expenditure
\nis of  a capital  or a\trevenue nature,\t one  must
\nconsider the  nature of\t the concern, the ordinary
\ncourse\tof   business  usually\t adopted  in  that
\nconcern, and  the object with which the expense is
\nincurred. The  true nature of the transaction must
\nbe collected from the entire
\n525<\/span>
\ndocument with  reference to all the relevant facts
\nand circumstances.  Having regard to the nature of
\nthe respondent\tfirm’s\tbusiness  and  the  course
\nadopted by it for carrying it on, it appears to me
\nto be  rather far-fetched  to  hold  that  by  the
\ncontract in  question the respondent firm acquired
\nproperty or  right of  a permanent  character, the
\npossession of which was a condition of carrying on
\nits trade. To me it seems that the better view, in
\na business  sense, is  that  the  respondent  firm
\nmerely acquired\t by  means  of\tthe  contract  its
\nstock-in-trade, rather\tthan a\tsource or enduring
\nasset for producing the stock-in-trade.\n<\/p>\n
     It was  argued before us, as it was argued in
\nthe High  Court, that  what was\t acquired  in  the
\npresent case was the means of obtaining the stock-
\nin-trade for  the business  rather than the stock-
\nin-trade  itself.  I  am  unable  to  accept  this
\nargument as  correct. The contract entered into by
\nthe respondent firm was wholly and exclusively for
\nthe purpose  of obtaining conch shells, which were
\nits stock-in-trade.  As I have stated earlier, the
\ncontract granted  no interest in the sea, sea bed,
\nor sea\twater etc. It was simply a contract giving
\nthe grantee the right to pick and carry away conch
\nshells of  a specified\ttype  and  size\t which\tof
\ncourse implied\tthe right  to appropriate  them as
\nits own property. In my opinion, in a case of this
\nnature no  distinction can  be drawn in a business
\nsense between  the right  of picking  and carrying
\naway conch  shells and\tthe actual buying of them.
\nIt is  not unusual  for businessmen  to secure, by
\nmeans of  a contract, a supply of raw materials or
\nof  goods   which   form   their   stock-in-trade,
\nextending over\tseveral years for the payment of a
\nlump sum  down. Even  if  the  conch  shells  were
\nstored in  a godown  and the  respondent firm  was
\ngiven a\t right to  go and fetch them and so reduce
\nthem into  its ownership,  it could  scarcely have
\nbeen
\n526<\/span>
\nsuggested  that\t  the  price   paid  was   capital
\nexpenditure. I\tmay explain what I have in mind by
\ngiving a  simple illustration.\tTake the case of a
\nfisher may  who sells  fish. Fish is his stock-in-
\ntrade. He  man buy the fish he requires from other
\npersons; or  he may  obtain the\t supply of fish he
\nrequires by  catching the fish of a specified size
\nand type  in particular\t water over a short period
\nunder a contract entered into by him and take them
\naway. I\t do not think that in a business sense any
\ndistinction can\t be made  between the two means of
\nobtaining the  stock-in-trade. Both  really amount
\nto  securing   the  stock-in-trade   rather   than
\nacquiring an  enduring asset  or a permanent right
\nfor producing  the stock-in-trade.  And a business
\nman, like the fisher man in the illustration given
\nabove, would  indeed be\t surprised to  learn  that
\nbuying\tof   fish  for\this  business  is  revenue
\nexpenditure whereas  catching fish  in\tparticular
\nwater under a contract entered into by him for the
\npurpose of obtaining his stock-in-trade on payment
\nof a lump sum down, is capital expenditure.\n<\/p>\n
     (3) The  test whether  for the purpose of the
\nexpenditure, any  capital was  withdrawn,  or,\tin
\nother words,  whether the  object of incurring the
\nexpenditure was\t to employ  what was  taken in\tas
\ncapital of  the business  does not  arise  in  the
\npresent case and need not be considered.\n<\/p>\n
     No different  principles were laid down by my
\nlearned brethren  in  their  decision  in  Pringle
\nIndustries Ltd.\t v. Commissioner  of Income-tax(1)
\nand so\tfar  as\t that  case  is\t concerned,  their
\ndecision must  hold the\t field. The difficulty and
\ndifference of opinion that arise now relate to the
\napplication of\tthose principles  to the  facts of
\nthe present case.\n<\/p>\n
     One is  reminded in  this case  of what  Lord
\nMacmillan said\tin  Tata  Hydro-Electric  Agencies
\nLtd. v. Commissioner of Income-tax<\/a>(2) at page 209:\n<\/p>\n
527<\/span><\/p>\n
\t  “Their  Lordships   recognise\t and   the
\n     decided cases  show how  difficult it  is\tto
\n     discriminate between expenditure which is and
\n     expenditure which is not, incurred solely for
\n     the purpose of earning profits or gains.”\n<\/p><\/blockquote>\n
Lord  Greene   (Master\tof  the\t Rolls)\t expressed
\nhimself\t more\tstrongly  and\tadverting  to  the
\ndistinction between capital and income, said:\n<\/p>\n
\t  “There have  been many  cases where this
\n     matter of capital or income has been debated.
\n     There have\t been many  cases which\t fall upon
\n     the borderline:  indeed, in  many cases it is
\n     almost true  to say  that the  spin of a coin
\n     would   decide    the   matter    almost\tas
\n     satisfactorily  as\t  an   attempt\t to   find
\n     reasons.”\n<\/p><\/blockquote>\n
[Vide Commissioners  of Inland\tRevenue v. British
\nSalmson Aero Engines Ltd.(1)].\n<\/p>\n
Perhaps, the  case before  us is not as bad as the
\ncases which  the Master\t of the\t Rolls had in mind
\nwhen  he  made\tthe  above  observations.  It  is,
\nhowever, a  truism that\t each case  must turn upon
\nits own\t facts.\t Nevertheless  the  decisions  are
\nuseful as  illustrations of  some relevant general
\nprinciples. The\t nearest illustration  that we can
\nget is\tthe  decision  of  the\tPrivy  Council\tin
\nMohanlal  Hargovind  v.\t Commissioner  of  Income-
\ntax(2). That  decision was  binding on\tthe Indian
\nCourts at  the time  when it  was given\t and as\t I
\nthink  that   it  is   still  good   law  and\tis
\nindistinguishable from\tthe present  case, I offer
\nno apology  for referring  to it  in great detail.
\nThe facts  of that  case were these. The assessees
\nthere carried  on a  business at several places as
\nmanufacturers\tand    vendors\t of   country-made
\ncigarettes known  as bidis.  These cigarettes were
\ncomposed of  tobacoo rolled  in leaves\tof a  tree
\nknown as  tendu leaves, which were obtained by the
\nassessees by entering into a number of
\n528<\/span>
\nshort term contracts with the Government and other
\nowners\tof   forests.  Under   the  contracts,\tin
\nconsideration  of   a  certain\t sum  payable\tby
\ninstalments,  the   assessees  were   granted  the
\nexclusive right\t to pick  and carry away the tendu
\nleaves\tfrom   the  forest   area  described.  The
\nassesees  were\tallowed\t to  coppice  small  tendu
\nplants a  few months  in advance  to  obtain  good
\nleaves and  to pollard tendu trees a few months in
\nadvance to  obtain better  and bigger  leaves. The
\npicking of the leaves however had to start at once
\nor   practically    at\t once\tand   to   proceed
\ncontinuously. On  these essential facts, the Privy
\nCouncil held  that the contracts were entered into
\nby the\tassessees wholly  and exclusively  for the
\npurpose of  supplying themselves  with one  of the
\nraw materials of their business, that they granted
\nno interest  in land,  or in  the trees or plants,
\nthat under  them  it  was  the\ttendu  leaves  and
\nnothing but  the tendu\tleaves that were acquired,
\nthat the  right to  pick the leaves or to go on to
\nthe land  for the  purpose was merely ancillary to
\nthe real  purpose of  the  contracts  and  if  not
\nexpressed would be implied by law in the sale of a
\ngrowing crop,  and that\t therefore the expenditure
\nincurred in  acquiring the  raw material  was in a
\nbusiness sense\tan expenditure\ton revenue account
\nand not\t on capital,  just as much as if the tendu
\nleaves had  been bought\t in a  shop. I can find no
\ndistinction  which   would  make   any\tdifference
\nbetween the  facts of  that case  and the facts of
\nthe present  case. Let\tme compare  the\t essential
\nfacts of  these two cases and see whether there is
\nany difference.\n<\/p>\n
     (1)  Two  of  the\tcontracts  were\t taken\tas
\ntypical of  the rest  by the  Privy  Council.  One
\ncontract was for the period from September 5, 1939
\nto June\t 30, 1941 and the other was for the period
\nfrom October 1, 1938 to June 30, 1941. Thus one of
\nthe contracts  was for a period of about two years
\nand the other contract for a period of about three
\nyears.\n<\/p>\n
529<\/span><\/p>\n
In the\tcase under our consideration the period of
\nthe contract  is three\tyears. Indeed, there is no
\nvital difference  between the  periods in  the two
\ncases.\n<\/p>\n
     (2) In  the case  before us the contract area
\nis described  in a  schedule. In the two contracts
\nwhich  were   under  consideration  by\tthe  Privy
\nCouncil the  contract area was also indicated in a
\nschedule. The  boundaries of  the forests in which
\ntendu leaves  could be\tplucked were  delimited by
\nthe schedule.  Same is\tthe case with the contract
\nbefore us. The contract area in which conch shells
\nof a  specified type  and size\tcan be\tpicked and
\ngathered  is   described  in   a  schedule.   Such
\ndescription does  not mean  that the assessee gets
\nany right  other than  the right  to gather  conch
\nshells. In  the Privy  Council case  the assessees
\nwere granted  no interest  in land or in the trees
\nor plants; it was the tendu leaves and nothing but
\nthe tendu  leaves that\twere acquired. In the case
\nbefore us  no interest was given in the sea bed or
\nin the\tsea  water  or\tin  any\t of  the  products
\nthereof. Conch shells of a specified type and size
\nand nothing but such conch shells were acquired by
\nthe contract. I do not think that the reference to
\nthe coast  line off the South Arcot District makes
\nany difference\tbetween the  present case  and the
\ncase on\t which the  decision in Mohanlal Hargovind
\nv. Commissioner of Income-tax (1) was rendered. If
\nin the\tmatter of  plucking of\ttendu  leaves  the
\nexpenditure under  the contract was, in a business
\nsense, expenditure  on revenue\taccount, I fail to
\nsee why\t a similar expenditure for gathering conch
\nshells in motion under the surface of the sea near
\nthe coast line should not, in a business sense, be
\nconsidered as expenditure on revenue account. This
\naspect\tof   the  case\twas  emphasised\t by  their
\nLordships in the following paragraph:\n<\/p>\n
530<\/span><\/p>\n
\t  “It  appears\tto  their  Lordships  that
\n     there has been some misapprehension as to the
\n     true nature of these agreements and they wish
\n     to state at once what in their opinion is and
\n     what is  not the  effect of  them.\t They  are
\n     merely examples  of  many\tsimilar\t contracts
\n     entered into  by the  appellants  wholly  and
\n     exclusively  for\tthe   purpose\tof   their
\n     business,\tthat   purpose\tbeing\tto  supply
\n     themselves with  one of  the raw materials of
\n     that  business.   The  contracts\tgrant\tno
\n     interest in land and no interest in the trees
\n     or plants\tthemselves. They  are  simply  and
\n     solely contracts  giving to  the grantees the
\n     right to pick and carry away leaves, which of
\n     course, implies  the right\t to a  appropriate
\n     them as their own property.”\n<\/p><\/blockquote>\n
In the case under our consideration the only right
\ngranted to  the respondent  firm was  to take  and
\ncarry away  conch shells  of a\tspecified type and
\nsize,  which  of  course,  implies  the\t right\tto
\nappropriate them  as  the  respondent  firm’s  own
\nproperty. The  right to\t go into  the sea and cast
\nnets etc. was merely ancillary to the real purpose
\nof the contract.\n<\/p>\n
     Nor do I think that the circumstance that the
\ncontracts  conferred  an  exclusive  privilege\tor
\nright is a matter of any significance. In Mohanlal
\nHargovind v.  Commissioner of  Income-tax (1)  the
\ncontracts  were\t  exclusive  and  their\t Lordships
\nstated:\n<\/p>\n
\t  “It is  true that  the rights\t under the
\n     contracts are exclusive but in such a case as
\n     this that\tis a matter which appears to their
\n     Lordships to be of no significance.\n<\/p><\/blockquote>\n
These observations are as apt in their application
\nto the\tpresent case  as they  were  in\t the  case
\nbefore their Lordships of the Privy Council.\n<\/p>\n
     (3) The  Privy  Council  draw  a  distinction
\nbetween cases  relating to the purchase or leasing
\nof
\n531<\/span>
\nmines, quarries,  deposits of  brick  earth,  land
\nwith standing timber etc. On one side and the case
\nunder its  consideration on the other. It referred
\nto the\tdecision in  Alianza Co.  v.  Bell(1)  and
\nsaid:\n<\/p>\n
\t  “….the  present  case  resembles  much
\n     more   closely   the   case   described   and
\n     distinguished by  Channell, J. at page 673 of
\n     the report in Alianza Co. v. Bell of the cost
\n     of material  worked up in a manufactory. That
\n     side  the\t learned  Judge,   is  a   current
\n     expenditure and  does not\tbecome `a  capital
\n     expenditure merely\t because the  material\tis
\n     provided  by   something\tlike   a   forward
\n     contract,\tunder\twhich  a  person  for  the
\n     payment of\t a lump\t sum down secures a supply
\n     of the  raw material  for a  period extending
\n     over several years’.”\n<\/p><\/blockquote>\n
In  Kauri  Timber  Co.\tLtd.  v.  Commissioner\tof
\nTaxes(2)  the\tcompany’s  business  consisted\tin
\ncutting and  disposing of  timber. It  acquired in
\nsome cases timber bearing lands, in other cases it
\npurchased the standing timber. The leases were for
\n99 years.  So far  as the cases where the land was
\nacquired were  concerned there\tcould have been no
\ndoubt that  the expenditure  made in  acquiring it
\nwas  capital  expenditure.  In\tthe  case  of  the
\npurchase of  the standing timber what was acquired
\nwas an interest in land. The purchasers bought the
\ntrees which they could allow to remain standing as
\nlong as\t they liked.  It was  pointed out  that so
\nlong as\t the timber  at the  option of the company
\nremained upon  the soil, it derived its sustenance
\nand nutriment  from  it.  The  additional  growths
\nbecame ipso  jure the  property of the company. In
\nthese  circumstances   it  was\t held\tthat   the
\nexpenditure was\t capital expenditure.  In the case
\nbefore\tus   some  reliance   was  placed  by  the
\nappellant on  the term that shells less than 2 1\/4
\ninches in  diameter brought inadvertently to shore
\nhad to be returned at once alive to the sea.\n<\/p>\n
532<\/span><\/p>\n
The argument was that such shells might later grow
\nin size by receiving sustenance and nutriment from
\nsea water  and could  be  later\t gathered  by  the
\nrespondent firm\t when they  reached the\t size of 2
\n1\/4 inches  in diameter\t or  more.  This,  it  was
\nargued,\t brought   the\tpresent\t case  nearer  the
\ndecision in  Kauri Timber case (1). I am unable to
\nagree. It  is to  be remembered\t that live  shells
\nmove under  the surface of the sea and they do not
\nremain at  the same  place, as\ttrees do.  A shell
\nless than  2 1\/4 inches in diameter returned alive
\nto the\tsea may\t move away  from the contract area
\nand may\t never be gathered by the respondent firm.
\nIn  these   circumstances  the\tappellant  is  not
\nentitled to  call to  his aid the test of “further
\nvegetation” or “sustenance and nutriment” referred
\nto in the Kauri Timber case (1).\n<\/p>\n
     From whatever  point of  view we  may look at
\nthe case,  it seems  to me  that the  facts of the
\npresent case  are indistinguishable  from those of
\nthe case  in Mohanlal Hargovind v. Commissioner of
\nIncome-tax(2) In Mohanlal Hargovind’s case (2) the
\nright was  to pluck  tendu leaves; in our case the
\nright was to gather conch shells of specified type
\nand size.  This distinction,  it is obvious, makes
\nno difference.\tIn the High Court it was contended
\non  behalf   of\t the   appellant   that\t  Mohanlal
\nHargovind’s case (2) related to the acquisition of
\nraw materials  whereas the present case relates to
\nthe acquisition\t of “chanks” by a dealer who sells
\nthem without  subjecting them to any manufacturing
\nprocess, and  this distinction,\t it was contended,
\nmade the decision in Mohanlal Hargovind’s case (2)
\ninapplicable to\t the present  case. The High Court
\nrejected  this\t contention  and   in  my  opinion
\nrightly. I  agree with\tthe  High  Court  that\ton
\nprinciple and  in a  business sense,  there is\tno
\ndistinction between  acquiring raw materials for a
\nmanufacturing business and acquiring or purchasing
\ngoods  by  a  dealer  for  the\tpurpose\t of  sale,
\nparticularly when  there is  no\t question  of  any
\nexcavation
\n533<\/span>
\netc., in  order to  win the  goods and\tmake  such
\ngoods parts  of the  stock-in-trade, a point which
\nweighed with  the Court of Appeal in Stow Bardolph
\nCravel Co.  Ltd. v.  Poole (1) and with my learned
\nbrethren in Pingle Industries Ltd. V. Commissioner
\nof Income-tax<\/a>  (2). No\tsuch point  is present\tin
\nthis case.  I have  been unable\t to find any other
\ndistinction between the two cases which would make
\na difference  in the application of the principles
\nfor discriminating between capital expenditure and
\nrevenue expenditure.\n<\/p>\n
     To adopt  again the language of Lord Green, I
\nsee  no\t  ground  in   principle  or   reason  for
\ndifferentiating the  present case from the case in
\nMohanlal Hargovind  v. Commissioner  of Income-tax
\n(3).\n<\/p>\n
     On behalf\tof the\trespondent firm\t a further
\nquestion  was\tagitated,   namely,   whether\tan
\nallowance for  the cost\t of  gathering\tthe  conch
\nshells by  nets etc.,  should not  be given,  even
\nthough the  rent paid  under the  contract was not
\nallowable, under  s. 10 (2) (xv) of the Income-tax
\nAct and a reference was made in this connection to
\nthe decision  in Hood  Barrs v.\t Commissioners\tof
\nInland Revenue\t(4). I\tdo not\tthink that  we are
\nconcerned with\tthat matter in the present appeal.
\nThe only question which arises for decision is the
\none referred  to the  High Court. I have held that
\nthe High  Court correctly  answered  the  question
\nwhich related  to the  payment of  the sum  of Rs.
\n6111\/- only.  The question  having been\t correctly
\nanswered by  the High  Court, the appeal fails and
\nmust be dismissed with cost.\n<\/p>\n
     HIDAYATULLAH, J.-This  appeal was\theard with
\nPingle\tIndustries,   Ltd.,  Secunderabad  v.  The
\nCommissioner of\t Income-tax<\/a> (5), in which judgment
\nwas  delivered\t by  us\t  on  April  26\t 1960.\tIn
\naccordance with\t the decision in Pingle Industries
\ncase (1),
\n534<\/span>
\nthis appeal  was allowed. Later, a review petition
\nof (No.\t 16 of\t1960) was filed on the ground that
\nthis appeal  was not  governed by  the decision in
\nPingle Industries case (1), and that as it was not
\nfully  argued,\t it  should   be  reheard.  It\tis
\nunnecessary  to\t  go  into  the\t reasons  why  the
\nrehearing was  granted, except\tto say\tthat there
\nwas   perhaps\ta   misunderstanding   about   the
\nconcessions made  by counsel.  We were, therefore,
\nsatisfied that\twe should grant the rehearing, and
\nhave since heard full arguments in this appeal.\n<\/p>\n
     K. T. M. T. M. Abdul Kayoom and Hussain Sahib
\n(respondent) is\t a registered firm, and carries on
\nbusiness  in   conch  shells   locally\tknown\tas
\n“chanks”, which\t are found  on the  bed of the sea
\nall along  the coast-line  abutting on\tthe  South
\nArcot District.\t The respondent took on lease from
\nthe Director  of Industries  and Commerce,  Madras
\n“the exclusive\tright, liberty\tand  authority\tto
\ntake and  carry away all chanks founnd in the sea”
\nfor a  period of  three years  ending on  June 30,
\n1947. The  consideration was Rs. 6, 111\/- per year
\npayable in  advance. For  the year  of assessment,
\n1946-47 (the year of account ending June 30, 1945)
\nthe  respondent\t  in  showing\tits  profits  from
\nbusiness sought\t to  deduct  Rs.  6,111\/-  on  the
\nground that  this was  an  expenditure\tnot  of\t a
\ncapital nature but wholly and exclusively laid out
\nfor the\t purpose of  business under s. 10 (2) (XV)
\nof the\tIncome-tax Act.\t This claim was disallowed
\nby the\tIncome-tax Officer,  and on appeal, by the
\nAppellate  Assistant   Commissioner.  On   further
\nappeal to  the Appellate  Tribunal, the respondent
\ncontended that\tthe ruling of the Privy Council in
\nMohanlal Hargovind’s case (2) applied to the case,
\ninasmuch as  the payment  was to secure the stock-
\nin-trade for its business. The Appellate Tribunal,
\nthough it  was of  opinion that\t the Privy Council
\ncase applied,  felt itself  bound by  the  earlier
\nFull Bench decision of the Madras High
\n535<\/span>
\nCourt in  K.T.M.T.M. Abdul Kayoom Hussain Sahib v.
\nCommissioner of Income-tax, Madras<\/a> (1) relating to
\nthis respondent,  and dismissed\t the  appeal.  The
\nTribunal, however, acceded to a demand for a case,
\nand referred  the following  question to  the High
\nCourt for its decision :\n<\/p>\n
\t  “Whether on  the facts and circumstances
\n     of the  case the  payment of  the sum  of Rs.
\n     6,111- made  by the  assessee under the terms
\n     of\t the   agreement  entered  into\t with  the
\n     Director of  Industries and Commerce, Madras,
\n     on 9th  November 1945  was\t not  an  item\tof
\n     revenue expenditure incurred in the course of
\n     carrying on the business of the assessee and,
\n     “therefore, allowable under the provisions of
\n     section 10 of the Indian Income-tax Act”.<\/p><\/blockquote>\n
     The reference went before a Divisional Bench,
\nwhich referred\tthe case  for decision\tof a  Full
\nBench. The  Full Bench\theld  that  the\t case  was
\ncovered by  the Privy  Council case above referred
\nto, observing:\n<\/p>\n
\t  “In our  opinion, the\t facts in the case
\n     before    the    Judicial\t  Committee    are
\n     indistinguishable\tfrom   the  facts  of  the
\n     present case.  In one case, the leaves had to
\n     be picked\tfrom trees by going upon the land,
\n     while in  the other case the chanks had to be
\n     collected and  gathered by\t dividing into the
\n     sea.  It\tis  impossible\t to  construe  the
\n     documents in  the present\tcase as conferring
\n     any interest  in that portion of the sea from
\n     which the\texclusive  right  of  winning  the
\n     chanks was conferred upon the assessee.”\n<\/p><\/blockquote>\n
The High  Court also  did not  see any\tdifference
\nbetween raw materials acquired for a manufacturing
\nbusiness and  the acquisition  of  chanks  in  the
\npresent\t case,\tand  held  that\t the  chanks  were
\nacquired as  the stock-in-trade\t of the respondent
\nand the\t transaction was tantamount to purchase of
\ngoods,
\n536<\/span>
\nThe High Court, however, certified the case as fit
\nfor appeal, and the Commissioner of Income-tax has
\nfiled this appeal.\n<\/p>\n
     The material  terms of  the agreement  in the
\ncase are as follows :\n<\/p>\n
\t  “1. The  lessor hereby  grants unto  the
\n     lessees the  full free  and exclusive  right,
\n     liberty and  authority to\tfish or\t take  and
\n     carry away\t all chank  shells in  the sea off
\n     the coast\tline of\t the South  Arcot District
\n     including the  French Kuppams  of Pondicherry
\n     more particularly\tdescribed in  the schedule
\n     hereto to\thold the  premises to  the lessees
\n     from the  first day of July 1944 for a period
\n     of three  years ending  30th June 1947 paying
\n     therefor  the  yearly  rent  of  Rs.  6,  111
\n     (rupees six  thousand one\thundred and eleven
\n     only) to be paid yearly in advance, the first
\n     payment to\t be made  within fifteen days from
\n     the date  of intimation of acceptance and the
\n     second and\t third payments\t to be\tmade on or
\n     before  the   15th\t June\t1945   and   1946,
\n     respectively at  the Government  Treasury\tat
\n     Tuticorin or Madras.\n<\/p><\/blockquote>\n
\t  x\t    x\t\t x\n<\/p><\/blockquote>\n
\t  3. The  lossee hereby covenants with the
\n     lessor as follows :-\n<\/p><\/blockquote>\n
\t  x\t    x\t\t x\n<\/p><\/blockquote>\n
\t  (ii)\tTo   deliver  to   the\t Assistant
\n     Director  of   Pearl  and\t Chank\tFisheries,
\n     Tuticorin all  Velampuri shells  that may\tbe
\n     obtained by the lessees upon payment of their
\n     value  as\t determined   by   the\t Assistant
\n     Director.\n<\/p><\/blockquote>\n
\t  (iii) To  collect Chanks  in nets and by
\n     means of  diving as  well. In  the process of
\n     such collection  of shell\tnot to\tfish chank
\n     shells less  than 2 1\/4 inches in diameter if
\n     any chank\tshells less  than 2  1\/4 inches in
\n     diameter
\n537<\/span>
\n     be brought\t inadvertently to shore, to return
\n     at once  alive to the sea all such undersized
\n     shells.\n<\/p><\/blockquote>\n
\t  (iv)\tNot   at  any  time  hereafter\tto
\n     transfer or  underlet or part with possession
\n     of this  grant or\tthe rights  and privileges
\n     hereby granted  or any  part thereof  without
\n     the written consent of the lessor.\n<\/p><\/blockquote>\n
\t   x\t       x\t     x\n<\/p><\/blockquote>\n
\t  (vi) To report to the Assistant Director
\n     of\t Pearl\t and  Chank   Fisheries\t  (South),
\n     Tuticorin the  actual number  of shells  kept
\n     unsold in different stations after the expiry
\n     of the lease period.”<\/p><\/blockquote>\n
     An analysis  of the  agreement shows that the
\nrespondent obtained an exclusive right to fish for
\n“chanks” by  the method\t of diving and nets and to
\nappropriate them  except those\tbelow 2\t inches in
\ndiameter, which\t had to\t be returned  alive to the
\nsea and\t Velampuri shells  which had  to  be  sold
\ncompulsorily to\t Government.  The  respondent  had
\nalso to\t report to  its lessors\t at the end of the
\nterm, the number of shells not sold. The right was
\nexclusive,  but\t  was\tnot   capable\tof   being
\ntransferred or\tunderlet, and  it was for a fairly
\nlong period.  The coast\t line  involved\t was  also
\nfairly long.\n<\/p>\n
     There is  no doubt\t that the  payment of  Rs.
\n6,111\/- was  an expenditure wholly and exclusively
\nfor the purpose of the business of selling shells,
\njust as the payment to the divers and other sundry
\nexpenses were.\tBut an expenditure for the purpose
\nof the business may be of a capital nature, and if
\nit is so, it cannot be claimed as a deduction. The
\nquestion is  whether this payment was of a capital
\nnature.\n<\/p>\n
     What is  attributable to capital and what, to
\nrevenue has led to a long string of cases here and
\n538<\/span>
\nin the English Courts. The decisions of this Court
\nreported in  Assam  Bengal  Cement  Co.,  Ltd.\tv.
\nCommissioner of\t Income-tax and\t Pingle Industries<\/a>
\ncase (1)  have considered  all the  leading cases,
\nand have  also\tindicated  the\ttests,\twhich  are
\nusually applied in such cases. It is not necessary
\nfor us\tto cover  the same  ground again. Further,
\nnone  of   the\ttests\tis  either  exhaustive\tor
\nuniversal. Each case depends on its own facts, and
\na close similarity between one case and another is
\nnot enough,  because  even  a  single  significant
\ndetail may  alter the  entire aspect.  In deciding
\nsuch cases,  one should\t avoid the  temptation\tto
\ndecide cases (as said by Cordozo * by matching the
\ncolour of  one case against the colour of another.
\nTo decide,  therefore, on which side of the line a
\ncase falls,  its broad resemblance to another case
\nis not\tat all\tdecisive. What\tis decisive is the
\nnature\tof   the  business,   the  nature  of  the
\nexpenditure, the nature of the light acquired, and
\ntheir relation\tinter se, and this is the only key
\nto resolve  the issue  in the light of the general
\nprinciples, which are followed in such cases.\n<\/p>\n
     A trader  may spend  money to acquire his raw
\nmaterials, or  his stock-in-trade, and the payment
\nmay  often   be\t on   revenue  account\t but   not
\nnecessarily. A\tperson selling goods by retail may
\nbe said to be acquiring his stock-in-trade when he
\nbuys such  goods from  a wholesaler.  But the same
\ncannot be  said of  another retailer  who  buys\t a
\nmonopoly right\tover a long period from a producer
\nof those  goods. The amount, he pays to secure the
\nmonopoly, through  a part  of the  expenditure\tto
\nsecure his  stock-in-trade  is\tnot  of\t the  same
\ncharacter as  the  price  he  pays  in\tthe  first
\nillustration.  By  that\t payment,  he  secures\tan
\nenduring advantage and an asset which is a capital
\nasset of  his business.\t In the\t same  way,  if\t a
\nmanufacturer buys  his raw  materials he  makes\t a
\nrevenue expenditure, but when he acquires a source
\nfrom which he would derive his
\n539<\/span>
\nraw materials  for the\tenduring  benefit  of  his
\nbusiness, he  spends on\t the capital side. Thus, a
\nmanufacturer of\t wollen goods  buys his\t wool buys
\nhis raw\t materials, but when he buys a sheep farm,
\nhe  buys   a  capital  asset.  There  is  then\tno
\ndifference between  purchase of\t a factory and the
\npurchase of  the  sheep\t farm,\tbecause\t both  are
\ncapital asset of enduring nature.\n<\/p>\n
     The respondent  in this  case  has\t tried\tto
\ndistinguish Pingle  Industries\tcase  (1)  and\tto
\nbring its  case within\tthe ruling  of\tthe  Privy
\nCouncil in Mohanlal Hargovind’s case (2). When the
\nformer case  was argued,  the attempt was to bring
\nit also\t within the rule of the Privy Council, but
\nnow, the  differences between  the two\tcases  are
\nrecognised and\tPingle Industries case (1) is said
\nto be  entirely different. In deciding the present
\nappeal, it  is hardly  necessary to  do more  than
\nanalyses once again the facts and circumstances of
\nthese two  cases to  show why those two cases were
\ndifferently decided,  and the  present\tcase  will
\nthen be\t easily disposed of, not on its similarity
\nto another  but on  its own  facts. We shall begin
\nwith the Privy Council.\n<\/p>\n
     Mohanlal Hargovind\t and Co.,  was a  firm\tof
\nbidi manufacturers,  which needs  tendu leaves\tin
\nwhich tobacco  is wrapped  to  make  bidis.  Tendu
\nleaves were thus the raw material of the business.
\nTendu leaves  can be  bought from dealers who sell
\ntendu leaves  in a  large way.\tNow, what  did the
\nfirm do\t ? It  took leaves of forests with a right
\nto pick the leaves. This right carried with it the
\nright to coppice small tendu plants and to pollard
\nthe tendu  trees. There\t was, however, no right in
\nthe trees or the land and the right to go over the
\nland was  merely ancillary.  Looked  at\t from  the
\npoint of  view of business, there was no more than
\na purchase  of the  leaves, and\t the  leaves  were
\nneeded\tas  raw\t materials  of\tthe  business.\tIn
\ndeciding  the\tcase,\tthe   Judicial\t Committee
\ndiscounted the right to
\n540<\/span>
\ncoppice small  tendu plants  and  to  pollard  the
\ntendu trees  as\t a  very  insignificant\t right\tof
\ncultivation necessary  to improve  the quality\tof
\nthe leaves,  but which right ranked no higher than
\nthe right  to spray  a fruit  tree. The\t right\tof
\nentry upon  the land was also considered ancillary
\nto the\tmain purpose  of the  contract, which  was
\nacquisition  of\t tendu\tleaves\tand  tendu  leaves
\nalone, and it was observed that even if this right
\nof going  on the  land and plucking the leaves was
\nnot expressed  in the contract, it would have been
\nimplied by law. Their Lordships then observed that
\nthe  High  Court  diverted  its\t view  from  these
\npoints, and  attached too much importance to cases
\ndecided upon  quite  different\tfacts.\tThey  then
\nobserved that  “cases relating\tto the purchase or
\nleasing of  mines,  quarries,  deposits\t of  brick
\nearth, land  with standing  timber….” were of no
\nassistance, and concluded:\n<\/p>\n
\t  “If the  tendu leaves had been stored in
\n     a merchant’s  godown and  the appellants  had
\n     bought the\t right to go and fetch them and so
\n     reduce  them   into  their\t  possession   and
\n     ownership\tit   could  scarcely   have   been
\n     suggested that the purchase price was capital
\n     expenditure. Their Lordships see no ground in
\n     principle or  reason for  differentiating the
\n     present case from that supposed.” (p. 478)
\n     That case\tthus involved  no right in land or
\ntrees; the licence to be on the land was merely an
\naccessory right;  the  right  of  cultivation  was
\ninsignificant.\tThe   term  was\t  short,  and  the
\ncollection of  leaves was  seasonal.  Leaves  once
\ncollected, the operation pro tempore was over till
\nthe fresh crop came. There was thus no acquisition
\nof an  enduring asset  in the way capital endures;\n<\/p><\/blockquote>\n
it was\tmore a\tpurchase of  crops of two or three
\nsuccessive  years  shewered  on\t an  agreement\tto
\nensure the supply of raw materials,
\n541<\/span>
\n     Contrast  this   with  the\t facts\tof  Pingle
\nIndustries case\t (1). The business of the assessee
\nthere, was selling stone slabe called flag stones.
\nThese stones  were first won from the quarries and
\nthen dressed  and shaped  and then sold. Now, what
\ndid the\t assessee do  ? It  took leases\t of  stone
\nquarries in  a large number of villages for twelve
\nyears. Primarily,  this was  done to obtain stones
\nfor its business. It could have been a contract by
\nwhich it would have been entitled to so many cubic
\nfeet of\t stones to  be extracted  in a\tparticular
\nperiod. It  took long-term leases of vast areas in
\nseveral\t villages   to\tensure\t supplies  for\t a
\nconsiderable time.  The leases were not limited by
\nquantity, nor  did they\t refer to  any\tstones\tin
\nparticular. It\tcould take  all or  it could  take
\nnone; but  it could  not have carried away all the
\nstones, if  the supply\toutran\tits  efforts.  The
\nstones were  embedded in  earth, layer upon layer,
\nand had\t to be\tsystematically extracted. Till the
\nstones at  the top  were  removed,  it\tcould  not
\nremove those  at the  bottom, and there were still
\nmore layers further below. In there circumstances,
\nno specific  quantity having  been bought  or sold
\neither expressly  or impliedly,\t the stones  being
\nimmovable property  or\ta  part\t thereof  and  the
\ncontract  being\t  long-teem  contracts,\t  Mohahlal
\nRargovind’s case (2) was held inapplicable, and it
\nwas held  that the  assessee in\t Pingle Industries
\ncase (1)  had acquired\tan enduring  asset and the
\nexpenditure was on capital account.\n<\/p>\n
     These cases  between them show adequately the
\ndividing  line,\t  which\t exists\t  between  capital
\nexpenditure and\t revenue expenditure. To determine
\non  which   side  of   the  line   the\tparticular
\nexpenditure falls,  one may  often put himself the
\nquestion posed\tby Lord\t Clyde in Robert Addie and
\nSons  Collieries   Ltd.\t v.  Commissioners  Inland
\nRevenue (3)
\n542<\/span>
\n     “It  it   part  of\t  the  Company’s   working
\nexpenses, is  it expenditure  laid out\tas part of
\nthe process  of profit earning ? -or, on the other
\nhand, is  it capital  outlay,  is  it  expenditure
\nnecessary for  the acquisition\tof property  or of
\nrights of a permanent character, the possession of
\nwhich is  a condition  of carrying on its trade at
\nall?”\n<\/p>\n
The same  question was again posed by the Judicial
\nCommittee in Tata Hydro-Electric Agencies, Ltd. v.
\nCommissioner of Income-tax<\/a> (1). The answer to this
\nquestion in  each of  the  two\tcase  of  Mohanlal
\nHargovind  (2)\t and  Pingle   Industries  (3)\tis
\nentirely different.  The difference can be noticed
\neasily, if  we were to read here what Channell, J.
\nsaid in Alianza Co. Ltd. v. Bell (4):\n<\/p>\n
\t  “In the  ordinary case,  the cost of the
\n     material worked  up in a manufactory is not a
\n     capital  expenditure,   it\t  is   a   current
\n     expenditure and  does not\tbecome\ta  capital
\n     expenditure merely\t because the  material\tis
\n     provided  by   something\tlike   a   forward
\n     contract,\tunder\twhich  a  person  for  the
\n     payment of a lump sum secures a supply of the
\n     raw material  for\ta  period  extending  over
\n     several   years…..If   it   is\tmerely\t a
\n     manufacturing business, then the procuring of
\n     the raw  material\twould  not  be\ta  capital
\n     expenditure. But if it is like the working of
\n     a particular  mine, or bed of brick earth and
\n     converting\t the   stuff  into   a\tmarketable
\n     commodity, then, the money paid for the prime
\n     cost of  the stuff\t so dealt  with is just as
\n     much capital  the money  sunk in machinery or
\n     buildings.”\n<\/p><\/blockquote>\n
The first part of the observation is applicable to
\nMohanlal Hargovind’s case (2) and the latter part,
\nto Pingle  Industries case  (3). What is said of a
\nmanufacturing concern  is equally  applicable to a
\nnon-manufacturing business.  It is  the quality of
\nthe payment  taken with\t what is obtained, that is
\ndecisive of the character of the payment.\n<\/p>\n
543<\/span><\/p>\n
     We may  now pass  on to the facts of the case
\nbefore us.  The respondent carried on the business
\nof selling  chanks. It\tobtained its supplies from
\ndivers, from  whom it  purchased the  chanks,  and
\nhaving got  them, perhaps cheap, it resold them at
\na profit.  This is one mode in which it carried on
\nits business.  In this\tbusiness, it  was directly
\nbuying its  stock-in-trade for\tresale. The  other
\nmethod was  to acquire exclusive right to fish for
\nchanks by  employing divers and nets. The business
\nthen changed  to something different. The sale was
\nnow of\tthe product  of another business, in which
\ndivers and  equipment were  first employed  to get
\nthe shells.  It\t thus  took  leases  of\t extensive
\ncoastline with\tall the\t right to  fish for chanks
\nfor some years. The shells were not the subject of
\nthe bargain  at all, as were the tendu leaves; but
\nthe bargain  was about\tthe right  to fisht. There
\ncan be\tno doubt that what it paid the divers when
\nit bought  chanks  from\t them  with  the  view\tof
\nreselling them was expenditure laid out wholly and
\nexclusively for the purpose of its business, which
\nwas not\t of a  capital nature.\tThat business  was
\nbuying goods and reselling them at a profit. But a
\ndifferent kind\tof business  was involved  when it
\nwent in for fishing for chanks. To be able to fish
\nfor chanks in reserved waters it had to obtain the
\nright first.  It, therefore  took  lease  of  that
\nright. To  Mohanlal Hargovind, the leaves were raw
\nmaterials, and that firm preferred to buy a number
\nof crops  over years  rather than  buy them  as it
\nwent along.  Hence the remark that the leaves were
\nbought, as if they were in a shop.\n<\/p>\n
     Under  the\t  lease\t  which\t  the\trespondent
\nobtained, it  had a  right to  take only chanks of
\nparticular dimensions  and shape,  but it  had\tto
\nfish for  them and  obtain them first. The rest of
\nthe chanks  were not  its  property.  The  smaller
\nchanks had  to be  returned alive  to the sea, and
\nVelampuri chanks  had to  be compulsorily  sold to
\nthe state.  Of Course, the smaller chanks put back
\ninto the sea
\n544<\/span>
\nwould grow,  and if  fished later, be its property
\nto take, but till they grow, it had not claim. The
\nchanks were  on the  bed of  the sea.  Their exact
\nexistence was  not known,  till the  divers  found
\nthem, or  they got netted. Chanks which were there
\none day\t might have been washed back into the deep
\nsea, and  might never  be washed back into a place
\nwhere they would be within reach. Similarly, other
\nchanks not  there one  day might come within reach
\non another  day. All  these matters  make the case
\nentirely different  from the  case of  a  purchase
\nfrom the  divers.  In  obtaining  the  lease,  the
\nrespondent obtained  a speculative  right to  fish
\nfor chanks  which it  hoped to\tobtain\tand  which
\nmight be  in large  quantities or small, according
\nto its\tluck. The respondent changed the nature of
\nits business  to fishing  for  chanks  instead\tof
\nbuying them. To be able to fish, it had to arrange
\nfor an\tarea to\t fish, and that arrangement had to
\nbe of some duration to be effective.\n<\/p>\n
     This is not a case of so much clay or so much
\nsalt petre  or a dump of tailings or leaves on the
\ntrees in  a forest.  The two  modes in\twhich  the
\nrespondent  did\t  the  business\t furnish  adequate
\ndistinguishing\t characteristics.   Here   is\tan
\nagreement  to\treserve\t a   source,   where   the
\nrespondent hoped to find shells which, when found,
\nbecame its  stock-in-trade but which, insitu, were
\nno more\t the firm’s  than a  shell in  the deepest
\npart of\t the ocean  beyond the reach of its divers
\nand nets.  The expenses of fishing shells were its
\ncurrent expenses  as also  the\texpenses  incurred
\nover the  purchase of  shells from the divers. But
\nto  say\t that  the  payment  of\t lease\tmoney  for
\nreserving an  exclusive right  to fish\tfor chanks
\nwas on\ta par with payments of the other character
\nis to  err. It\twas possible to say of the former,
\nas it  was possible  to say of the tendu leaves in
\nMohanlal Hargovind’s  case (1),\t that  the  chanks
\nwere bought  because the  money paid was the price
\nof the\tchanks. But it would be a straining of the
\nimagination to say that the amount paid
\n545<\/span>
\nfor reserving the coastline for future fishing was
\nthe price of chanks, with which the respondent did
\nits business.  That amount  was paid  to obtain an
\nenduring asset\tin the shape of an exclusive right
\nto fish,  and the  payment was\tnot related to the
\nchanks, which  it might\t or might not have brought
\nto the\tsurface in  this speculative business. The
\nrights were  not trasferable, but if they were and
\nthe firm  had sold  them, the  gain, if any, would
\nhave been  on the capital side and not a realising
\nof the\tchanks as stock in-trade, because none had
\nbeen bought  by the firm, and none would have been
\nsold by it.\n<\/p>\n
     In our  opinion, the  decision  of\t the  High
\nCourt,\twith  all  due\trespect,  was,\ttherefore,
\nerroneous, and\tthe earlier  decision of  the Full
\nBench of  the same  High Court\twas right  in  the
\ncircumstances of the case.\n<\/p>\n
     In the  result, the  appeal is  allowed;  but
\nthere will be no order about cost.\n<\/p>\n
     BY COURT.\tIn accordance  with  the  majority
\njudgment of  the Court, the appeal is allowed, but
\nthere will be no order about costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India The Commissioner Of Income-Tax, … vs K. T. M. T. M. Abdul Kayoom on 23 November, 1961 Equivalent citations: 1962 AIR 680, 1962 SCR Supl. (1) 518 Author: S Das Bench: Das, S.K. PETITIONER: THE COMMISSIONER OF INCOME-TAX, MADRAS Vs. RESPONDENT: K. T. M. T. M. ABDUL KAYOOM DATE OF JUDGMENT: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-170921","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nThe Commissioner Of Income-Tax, ... vs K. T. M. T. M. 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