# '- lf/'51 -----------·-- -51s SUPREl\IB COURT REPORTS [l!JG2] SUPP. THE CO:.\HIISSIONER OF INCOi\IE-TAX, MADRAS v. IC T .ilI. T. l\I. ABDUL KAYOOi\I

- **Citation:** [1962] Supp. 1 S.C.R. 518
- **Court:** Supreme Court of India
- **Decided:** 1960-04-26
- **Case number:** Civil Appeal No. 64of1956
- **Bench:** S. K: DAs, J. L. Kapur, l\I. HrnAYATULLAII
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/lf-51-51s-suprel-ib-court-reports-l-jg2-supp-the-co-hiissioner-of-incoi-ie-tax-2439
- **Pages:** 28

## Headnote

, - -- · - Income
Tax~Capital Expenditure-Dealer in
conch
•hells-Lease money paicifor gatherin~ shells from sea-Nature
ojexpenditure-Income·tax Act, 1922(11 of l!J22), s.10 (2)(xy).
_The assessee firm canicd on the business in purchase and
sale of conch shells. It obtained a lease for 3 years for gathering
specified types of shells from the sea along the coastline abutting
on the South Arcot District.
It sought to deduct the amount
paid as lease money- from its profits from business on the
ground that this \vas an expenditure not of a capital nature
-but wholly and exclusively laid out for the purpose of business.
_ under s. 10(2)(xv) of_ the Income Tax Act.
-
. II.Zd, (per Kapur and Hidayatullah, JJ., Das, J. di'5ent•
ing) that the expenditure was capital expenditure and could
not be deducted from the profits. The business of the assessce
- was buying and selling shells but when it took the lease it
· went in for a new speculative business of fishing for shells.
The amount paid for reserving the vast coastline for future
fishing \Vas not price paid for obtaining the stock in trade i.e.
shells with which assessce did his business.
The" amount was
paid to obtain an enduring asset in the shape of an exclusive
_right to fish and the payment was not related to the shells.
Mohanlal
Hargovind v. Comrni8sioner - oj Income-tax,
G. P. & Berar, (194!1) 17 I. T. R. 473(P. C.), distinguished
Pringle lndustriea Ltd., Secunderabad v. Commi.s'Jionlr
of Income-tax, Hyderabad, [1960] 3 S. C.R. 681, applied.
Per Das J.-The expenditure \vas not capital expenditure and was' deductible from the profits.
It was not an ex-
- penditure for the acquisition of property or of rights of a
. pexmanent character, the possession of \ovhich was n~cessary
' for carrying on of the asse.ssee's trade. By this lease the assessee acquired it.s stocks-in-trade rather than a source or enduring_ asset_ for producing the stock-in-trade.
_
-
.llloha~lal I!argovind v.
Gommi•sioner of Income-tax,
G. P. & Berar (1949) 17 I. T. R. 473(P. C.), applied.
·
Pringle Industries Ltd., Secunrlerabad v. Commissioner
of Income-tax, Hyderabad, [1960] 3 S.C.R. 681, distinguished.
C1v:ll. APPELLATE JURISDIOTION: Review Peti·
tion No. 16 of 19130.
-
'
(1) S.C.R.
SUPREME COURT REPORTS
519
Petition for Review of this court's judgment
a.nd order dated April 26, 1960, in Civil Appeal
No. 64of1956.
A. V. Viswanatha Sastri, R. Ganapathy Iyer
and G. Gopalakrishnan, for the petitioners.
K. N. Rajagopala Sastri, and P. D. Menon, for
respondent.
1961. November 23.
Das, J., delivered his
own Judgment.
The Judgment of Kapur and
Hidayatullah, JJ. was delivered by Hidayatullah, J.
S. K. DAS, J.-I had taken a view different
from that of my learned brethren when this appeal
was heard along with Pringle Industries Ltd.,
Sec.underabad v. 1.'he Comrnissioner of lncome~t!lx,
Hyderabad (1), and that view was expressed in a very
short judgment dated April 26, 1960.
Now, we have had the advantage of hearing a very full argument with regard to the facts
of this appeal, and I for myself have
had the
further advantage and privilege of reading the
judgment which my learned brother Hidayatullah,
J., is proposing to deliver in this appeal.
I have
very carefully considered the question again with
reference to the facts relating thereto and, much to
my regret, have come to the conclusion that I must
adhere to the opinion which I expressed earlier.
My view is that the facts of this case a.re indistinguishable from the facts on which the decision
of the Privy Council in
Mohanlal Horgovind v.
Commissioner of Income-tax, C. P. and Berar (')
was rendered, and on the principles laid down by
this Court in Assam Bengal Cement Go., Ltd. v.
The Commissioner of Income-tax, West Bengal ('),
it must be held that the expenditure of Rs. 6111/-
in this case was on reYenue account and the respondent firm was entitled to the allowance which
it claimed.
(1) (1960] 3 S.C.R, 681.
() (1949) 17 I.T.R. 473 (P.C.),
(3)
(1956) 1 S.C,R. 972,

## Text

_Characters 0–39,892 of 55,691. This is a partial read: ask again with offset=39892 for what follows._

'-
lf/'51
-----------·--
-51s
SUPREl\IB COURT REPORTS [l!JG2] SUPP.
THE CO:.\HIISSIONER OF INCOi\IE-TAX, MADRAS
v.
IC T .. .ilI. T. l\I. ABDUL KAYOOi\I
(S. K: DAs, J. L. KAPUR and l\I. HrnAYATULLAII, JJ.)
, - -- · - Income
Tax~Capital Expenditure-Dealer in
conch
•hells-Lease money paicifor gatherin~ shells from sea-Nature
ojexpenditure-Income·tax Act, 1922(11 of l!J22), s.10 (2)(xy).
_The assessee firm canicd on the business in purchase and
sale of conch shells. It obtained a lease for 3 years for gathering
specified types of shells from the sea along the coastline abutting
on the South Arcot District.
It sought to deduct the amount
paid as lease money- from its profits from business on the
ground that this \vas an expenditure not of a capital nature
-but wholly and exclusively laid out for the purpose of business.
_ under s. 10(2)(xv) of_ the Income Tax Act.
-
. II.Zd, (per Kapur and Hidayatullah, JJ., Das, J. di'5ent•
ing) that the expenditure was capital expenditure and could
not be deducted from the profits. The business of the assessce
- was buying and selling shells but when it took the lease it
· went in for a new speculative business of fishing for shells.
The amount paid for reserving the vast coastline for future
fishing \Vas not price paid for obtaining the stock in trade i.e.
shells with which assessce did his business.
The" amount was
paid to obtain an enduring asset in the shape of an exclusive
_right to fish and the payment was not related to the shells.
Mohanlal
Hargovind v. Comrni8sioner - oj Income-tax,
G. P. & Berar, (194!1) 17 I. T. R. 473(P. C.), distinguished
Pringle lndustriea Ltd., Secunderabad v. Commi.s'Jionlr
of Income-tax, Hyderabad, [1960] 3 S. C.R. 681, applied.
Per Das J.-The expenditure \vas not capital expenditure and was' deductible from the profits.
It was not an ex-
- penditure for the acquisition of property or of rights of a
. pexmanent character, the possession of \ovhich was n~cessary
' for carrying on of the asse.ssee's trade. By this lease the assessee acquired it.s stocks-in-trade rather than a source or enduring_ asset_ for producing the stock-in-trade.
_
-
.llloha~lal I!argovind v.
Gommi•sioner of Income-tax,
G. P. & Berar (1949) 17 I. T. R. 473(P. C.), applied.
·
Pringle Industries Ltd., Secunrlerabad v. Commissioner
of Income-tax, Hyderabad, [1960] 3 S.C.R. 681, distinguished.
C1v:ll. APPELLATE JURISDIOTION: Review Peti·
tion No. 16 of 19130.
-
'
(1) S.C.R.
SUPREME COURT REPORTS
519
Petition for Review of this court's judgment
a.nd order dated April 26, 1960, in Civil Appeal
No. 64of1956.
A. V. Viswanatha Sastri, R. Ganapathy Iyer
and G. Gopalakrishnan, for the petitioners.
K. N. Rajagopala Sastri, and P. D. Menon, for
respondent.
1961. November 23.
Das, J., delivered his
own Judgment.
The Judgment of Kapur and
Hidayatullah, JJ. was delivered by Hidayatullah, J.
S. K. DAS, J.-I had taken a view different
from that of my learned brethren when this appeal
was heard along with Pringle Industries Ltd.,
Sec.underabad v. 1.'he Comrnissioner of lncome~t!lx,
Hyderabad (1), and that view was expressed in a very
short judgment dated April 26, 1960.
Now, we have had the advantage of hearing a very full argument with regard to the facts
of this appeal, and I for myself have
had the
further advantage and privilege of reading the
judgment which my learned brother Hidayatullah,
J., is proposing to deliver in this appeal.
I have
very carefully considered the question again with
reference to the facts relating thereto and, much to
my regret, have come to the conclusion that I must
adhere to the opinion which I expressed earlier.
My view is that the facts of this case a.re indistinguishable from the facts on which the decision
of the Privy Council in
Mohanlal Horgovind v.
Commissioner of Income-tax, C. P. and Berar (')
was rendered, and on the principles laid down by
this Court in Assam Bengal Cement Go., Ltd. v.
The Commissioner of Income-tax, West Bengal ('),
it must be held that the expenditure of Rs. 6111/-
in this case was on reYenue account and the respondent firm was entitled to the allowance which
it claimed.
(1) (1960] 3 S.C.R, 681.
() (1949) 17 I.T.R. 473 (P.C.),
(3)
(1956) 1 S.C,R. 972,
1961
Tht Commis.u'oner of
lncomtatox, M odras
••
K. T.M.T.1'1.
Abdul Kayoom
8.K. Das J,
1901
Tlie Commissioner of
lne~ltVC, Madras
v.
K.T.M.T.JI.
A•iul Kayaom
S. X. D11sJ,
520 SUPREME COURT REPORTS (19G2] SUPP.
,
1
The short facts are these.
The respondent
firm carried on a hnssinoss in the purchase and
sale of couch shells (called chanks). It used to
acquire the stock of lJonch shells {I) by .,purchase
from diver•, (2) by purchase from tlie Fisheries
Department of the Government of Madras, ·and (3)
by fishing fur antl g»thering such shells from tho
sea. It dispo3cd of tho stock so acquired at. Calcutta, the difference bet.ween the cost price and selling price less expenses being its profit made in.
business. On November 9, 1945 it took on lease
from
tho Director of Industries·. and · Commere,
Madras, tho exclusive right, liberty and authority
to fish for, take and carry away "chank" shells in
the sea off the coa9t line of tho South Arcot District
including the French Kuppania of .Pondicherry.
Tho boundary of the area within which the ·'right
could ho exercised waf! ,given in a schedule to the
lease. The lease wtis -for a period of three years
from July' I, 1944 to June 30, lfl47 on a consideration of an yearly i:ent of Rs. 6111/· to be paid in
advance.
Clause 3 of ._the lease contained the
material terms thereof anil may be set out in full.
"3. The lessor hereby convenants-' with
the lesson as follows :-
'
~
• {i) To pay the rent on the day a."Ua- -
in manner aforesaid .
. '
'\il.l To 'deliv;er to the Assistant
Director of Pearl arid Chank Fisheries,
,T~tico~n all· Velampuri" shells that may
be obtaincq. 'by the lessee upon payment
of their value' as determined by the
Assistant Director.
{iii) To collect chanks c;aught in
nets and by means of-diving as well. In
the process of sucli collectio~ of shells
not to. fish
c):J.ank
shells less than
2t inches in
diameter and if any
I
chank
shells
leRB than 21 inches ill
l
rl
"
-
(1) S.C.R.
SUPREME COURT REPORTS
fi21
diameter be hrouht inadvertently to shore,
to return at once alive to t.he ~ea all such
undt>rsized shells.
(iv) Not at any time hereafter to
transfer or underlet or part with posse·
ssion
of this grant or the rights and
pr i vile~es hereby granted or any part
thereof without the written consent of
the lessor.
(v) At the encl or sooner determination of the term hereby created peaceably aml quietly to yield to the lesson
the rights ftn<:l privileges hereby granted,
and
(vi) To report to the Assistant
Director of Pearl and Chank Fisheries
(South), Tuticorn the actual number of
shells kept unsold in different stations
after the expiry of the lease period.
For the assessment year 1946-47, the respondent
firm submitted a return of its income to the Incometax Officer, Karaikudi Circle, showing its income
from sale of ch inks purch'lscd from divers at
Rs. 7191/-
by
sale of chanks purchased from
Government Department at Rs.
23, 588/· and
Rs. 2819/- by aalo of chanks gathered by themselves
(through divers) after deducting Rs. 6111/- being
the rent paid to Government under the contract
referred to abov,J. It sought to deduct Rs. 6111/-
from its profits from business on the ground that
this was an expenditure not of a capital nature but
wholy and exclusively laid out for the purpose of
business under s. I0{2)(xv) of the Income-'tax Act.
This claim was disallowed by the Income-tax
Officer and on appeal by the :Appellate Assistant
Commissioner. On further appeal to the Appella,te
Trib~nal the respondent firm conteqded that the
1961
The CommiSJiontr of
lncome•IAX Madras
••
K.T.M.T.M.
Aldul Kayoom
S. K. Das J,
1961
Tit. Comminioner of
l"'om1-tox, MoJrOJ
v.
K. T. M. T.M.
Abdul Kayoom
S. K. D.,J,
5!12
SUPREME COURT REPORTS [1!162] SUPP.
decison of the Privy Council in Mohanlal Hargovind
v. Commissioner of Jncome.taz(')applied to this case
inasmuch as the payment was to secure tho stockin-trade for its busim-ss. Tho Appellate Tribunal
was
of the opinion
that the Privy Council
decision covered the case, but felt itself bound by
the decision of tho Full Bench of the Madras High
Court in K. '!'. M. 'l'. M. Abdul Kayum Hussain
Su.hib v. Commissioner of Income-tax, Madras (1 ).
The Tribunal acceded to tho demand for a reference to the High Court, and accordingly referred
the following question to the High Court for it.s
decision.
"Whether on the facts and circ::mMtances
of the case the payment of the sum of Rs.
GI 11 /- made by the assessee under tho terms
of the agreement entered into with the
Director of Industries and Commerce, Madras
on 9th November, 1945 was not an item of
revenue cxp<>nditure incurred in the course of
carrying on the business of the assessee and,
therefore, allowable under the provisions of
section I 0 of the Indian Income· tax Act?"
The reference first came before a Division
Bench and was then referred to a J<'ull Bench.
By
its judgment dated April 2, 1953 .the Full Bench
answered the question in favour of the respondent
firm.
On a certificate of fitness granted by the
High Court tho Commissioner of
Income-tax,
Madras, brought the present appeal to this Court.
In A,.~am Bengal Cement Co., Ltd. v. The Commis~ioner of lncome-m ('I, this Court referred to
the decision in Benarlli.das Jagannath. In re.(') and
accepwd the following broad principles for the
purpose of discriminating between a capital and a
revenue expenditure.
(II (19'9) 17 I. T. R. 473 (P.C.I
(31 [1955] I S. C. R, 972.
(li (19Hl I. T. R. 652.
(4)
(19461 15 I. T. R. 185.
-
(I} S.C.R,
SUPREME COURT REPORTS 52:i
(I) The outlay is deemed to be capital when it is
made for the initiation of a business, for extension
of a business, or for a substantial replacement of
equipment (See Commissioners of Inland Revenue v.
Granite City Steamship
Company Ltd.(')]. Such
expenditure is regarded as on capital account, for
it is incurred not in earning profits but in setting
the profit-earning machinery in motion. In my
opinion this test does not apply in the present case
where no profit-earning machinery was set in
motion.
(2) Expenditure may be treated as propel'!y attributable to capital when it is made not only once
and for all, but with a view to bringing in•o existence an asset or an advant<>ge for the enduring
benefit of a trade. (See Atherton v. British lnsu/,ated and H elsby Cables Ltd. ( ')). In elucidation of this
principle it has been laid down in several decisions
that by "enduring" is meant "enduring in the way
that fued cal'ital endures" and it does not connote
a benefit t'hat 1 ndures in the sense that for a good
number of years it relieves the assessee of a revenue
payment. In Robert Addie & Sons Collieries Ltd.
v. Comminioners of Jnl,a,nd Revenue ('}
Lord
Clyde formulated the same test in these words:
"What is 'money wholly and exclusively
laid out for the purposes of the trade' in a
question which must be determined upon the
principles of ordinary commercial trading. 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 of a permanent character,
(l) (1927) 13 T. C. l, 14.
(2)
(1925) 10 T. C. 155,
(3) (l92f) 6 T. C. 671, 676.
1961
The Commissioner of
lncome-iax, Madtas
••
K. T. M. T. M,
Abdul Kay(;om
S. K. DasJ,
524" SUPltEME COURT REPORTS [1962) SUPP.
1961
Tiu CommUsion1r of
Income-tax, Madras
v.
the possession of which is a condition of
carrying on its trade at all?''
This test was advo,.rted to by the Privy Council in
Tata Hydro-Ekctric A!(ilncies Ltd. v. Commissioner
of Income tax('). In my opinion the application of this
te'Bt makes it at one; clear that the sum ofRs.6111/-
which "tho respondent firm' spent was expenditure
laid out· as part.of. the process of profit-earning;_ it
was not a capital outlay, tliat is, expenditure nec;:essary for the acquisition of property or of rights of
a permanent character, the possession of whiol:i was
a condition of carrying on its, trade. Under the
contract in question the ,respondc•rit firm did not
acquire any right" to, immpvablc P.roperty. It
acquired no right in t.he bed .of' the sea or in the sea.
The. only right conferred on the respondent firm
was the right to fi'sh for,. gat-her and carry away
conch ·shel1" (in motion under tho surfacQ of the sea)
01' a specified type and size.
The respondent firm
wa.s under an ·'"obligation to return to the sea
conch shells less than 21 in.ch es · in diameter. The
busines~ of the respondent firm consisted in buying
and selling conch shells. No m,l}nufacturing process
was involved in it. Therefore, tho stock-in-trade
of the respondent firm ~:as conch shells. It scour:
ed this stock-in-trade in many different ways, by
purchase from divers, by purchase from Government and private parties; and also by gathering
conch shells under the contract in question. In my
K.T.M.T.M.
.Abdul Kayoom
S. K. DasJ.
_ opinion1 the contract into w~ich the respondent
firm ente!'ed was merely for securing its stock-intra.de. It is indeed true that.im considering whether
a.n item of expenditure is of a capital or a revenue
nature,_9ne must .consider- the ·nature of the concern, the ordinary course of business· usually
adopted in that· concern, and the object with which
the -expJnse is ipcurred.
The. true nature of the
tra.nsactfon must be
cpllectcd from the entire
( 1)
(1937) 5 I. T. R. 202,
(l) S.C.R. SUPREME COURT REPORTS
525
document with reference to all the relevant facts
and circumstances. Having regard to the nature of
the respondent firm's business and the course adopted by it for carrying it on, it appears to me to be
rather far-fetched to hold that by the contract
in
question
the
respondent
firm acquired
property or right of a rermanent character, the
possession of which was a condition of carrying on
its trade. To me it seems that the better view, in a
busini·ss sense, is that the respondent firm merely
acquired by means of the contract its stock-in-trade,
rather than a source or enduring asset for producing
the stock-in-trade.
It was argued before us, as it was argued in
the High Court, that what was acquired in the
present case was the means of obtaining the stockin-trade for the business rather than the stock-intra.de itself. I am unable to accept this argument
as correct. The contract entered into by the
respondent firm was wholly and exclusively for the
purpose of obtaining conch shells, which were its
stock-in-trade. As I havo stated earlier, the contract
granted no interest in the sea, sea bed, or sea water
etc. It was simply a contract giving the grantee
the right to pick and carry away conch shells of a
specified type and size which of course implied the
right to appropriate them as its own property. In
my opinion, in a case of this nature no distinction
can bf. drawn in a. business sense between the right
of picking and ca,rrying away conch shells and the
actual buying of them. It is not unusual for businessmen to secure, by means of a contract, a supply of
raw materials or of goods which form their stock-intrade, extending over several years for the payment
of a lump sum down. Even if the conch shells were
stored in a godown and the respondent firm was
given a riirht to go and fetch them and so reduce
them into its ownership, it could scarcely have been
IHI
Thi Commi'asiorur of
/neomc•te:x Madra1
v.
X.TM.T.M.
AtdvlXo.-
S.". DosJ.
I
526 SUPREME COURT REPORTS [1962] SUPP.
w11
suggested that the price paid was capital expendiT;,, l'Jommi.<'i°'" of ture. I may ex11lain what I have in mind by giving
Inw•e-t« .lfadra;
a simple illustration. · Take the case of a fisher may
K. T.ii-r.M.
who sells fish.
Fish is his stock-in-trade. He man
Abdul Kayoom . __ buy the fish he requires from other persons; or he
sx. DasJ.\ ·
: may obt3in the supply of fish he requires by catch-
. ing. the fish of a specified size and type in particular
water over a short period under a contract entered
into by him and take them away. I do not think
that in a business sense any distinction can be made
between the two means of ·obtaining the stook-intrade. Both really amount to securing the stock-
.
in·trad~ rather than acquiring an.enduring asset or
. a permanent right for producing the stock·in-trade.
And a business man, like . the fisher man in the
illustration given above, would indeed be surprieed
to learn that. buying of fish for his business is
revenue expenditure whereas catching fiish
in
particular water under a contract entered into by
him for the purpose of obtaining his stock-in-trade
on payment of a lump sum down, is capital
expenditure.
(3) The test whether for the purpose of the expenditure any capital was withdrawn,· or, in other
words; whether the object of incurring the expenditure was to employ what was taken in as capital of
the business does not arise in the present case and
need not be considered.
,
No different principles w~re laid down by my
learned brethren in their decision in Pringle Industries Ltd. v. Commissioner of Income-tax(') and so
far a> that c~se is concerned, their decision must
· hold the field.
The difficulty and difference of
opinion that arise now relate to the application of
those principles to the facts of the '}Jresent case:
One is reminded in this case of what Lord
Macmillan said in Tata Hydro-Electric Agencies
Ltd. v. Commissioner of Income-tax(') at page 209:
(ll [1960] 3 S.C.R. 681.
(2) [1937] 5 I.T.R. 202.
-
(1) S.C.R.
SUPREME COURT REPORTS
527
;961
"Their Lordships
recognise and the
decided cases show how difficult it is to discriminate between expenditure which is and
expenditure which is not, incurred solely for
the purpose of earning profits or gains."
Tiu Cammisllioner of
/1uome-tax, .ltadras
v.
Lord Greene (Master of the Rolls) expressed himself
more strongly and adverting to the distinction
between capital and income, said:
"There have been many c1tses where this
matter of capital or income has been debated.
There have been many cases which fall upon
the borderline: indeed, in many cases it is
aimost true to say that the spin of a coin
would decide the matter almost as satisfactorily as an attempt to find reasons."
[Vi(ie Commissioners of Inland Revenue v. British
Salmson Aero Engines Ltd.I•)].
Perhaps, the case before us is not as bad as the
cases whroh the Master of the Rolls had in mind
when he made the above observations. It is, however, a truism that each case must_ turn upon its
own facts. Nevertheless the decisions are useful as
illustrations of some relevant general principles.
The nearest illustration that we can get is the
decision of the Privy Council in JllolUJnlal Hargovind
v. Commissioner of Income-tax(').
That decision
was binding on the Indian Courts at the time when
it was given and as I think that it is still good law
and is indistinguishable from the present case, I
offer no apology for referring to it in great detail.
The facts of that case were these. The assessees
there carried on a business at S\)Veral places as
manufacturers
and
vendors · of country-made
cigarettes known as bidis. These cigarettes were
composed of tobacco rolled in leaves
of a
tree known as tendu leaves, which were obtained
by the assessees by entering ihto a number of
(I) (1938) 221'. C. 29, 43.
(2)
1194~!.)7 I. T. R. 473 (P .. C,).
/(. T. ii-t. T. Al.
Abdul Kayoom
S. K. Das J.
1061
Th• C<lmrnissionv oj
f1te01QC-iax, MQtltas
•.
K. T.M. T.M.
A !du/ K ayoom
S. K. Da1J.
528 SUPREME OOURT REPORTs [l!J62) SUPP.
short term contracts with the Goveruml'nt an<l
other owners of forests.
Under the cnl! tracts, in
consideration of a certain sum payable by i11staJ.
ments,
the. a8sessees
were granted the exclusive right to pick and carry
away
the
tendu leaves from the fo1 est area described. Tho
asseseee
were
allowed
to
coppice
small
tendu plant11 a few months in advance to obtain
good leaves and to polls.rd tendu trees a few months
in advance to obtain better and bigger leaves. The
picking of tho leaves however had to start at once
or practically at once and to proceed continuously.
On these essential facts, the Privy Council held that
the contracts were entered into by the assessees
wholly and exclusively for the purpose of supplying
themselves with one of the raw mat.-rials of their
busineee, that they granted no interest in land, or
in the trees or plants, that under them it was tho
tendu ll'aves and nothing hut tho tendu loaves that
were acquired, that the right to piCk the leaves or
to go on to the land for the purpose was merely
ancillary to the real purpose of the contracts
and if. not exprt>sscd would bo implied by law in
the sail' of a growing crop, and that therefore the
expenditure incurred in acquiring the raw material
was in a business sense an expenditure on revenue
account and not on capital, just as much ae if the
tendu le:wes had been b•Jught in a shop. I can find
no distinction which would make any difference
between the facts of that case and the facts of the
1iresent case.
Let me
compare the essential
facts of these two cases and see whether there is
any difference.
11) Two of the contracts were taken as typical
of the rest by the Privy Coundl. One contract was
for the period from September 5, 1939 to June
30, 1941 and tho other was for the period from
Ocober 1, 1938toJune30, 19·11. Thus one of the contracts was for a period of about two years and the
other oontra.ot for a period of about three yea.re.
-
(1) S.C.R.
SUPREME COURT REPORTS
5211
In the case under our consideration the period of
the contract is three years. Indeed, there is no
vital difference between the periods in the two
cases.
( 2) In the case before us the contract area is
described in a schedule. In the two contracts which
were under consideration by the Privy Council the
f.Ontra.ct area was also indicated in a schedule. The
; boundaries of the forests in which tendu leaves
· could be plucked were delimited by the schedule.
Same is the case with the contra.ct before us.
The
contract area in which conch shells of a specified
type and size can be picked and gathered is
described in a schedule. Such description does not
mean that the assessee gets any right other than the
right to gather conch shells. In the Privy Council
case the assessees were granted no interest in land
or in the· trees or plants; it was the tendu leaves
and nothing but the tendu leaves that were acquired. In the case before us no interest was given in
the sea bed or in the sea water or in any of the
products thereof. Con ch shells of a specified type
and size and nothing hut such conch shells were
acquired by the contra.ct. I do not think that the
reference to the coast line off the· South Arcot
District makes any difference between the present
case and the case on which the decision in M oha:nlal,
Hargovind v. Commissioner of Income-tax (')was
rendered. If in the matter of plucking of te:ndu
leaves the expenditure under the contract was,
in a business sense,
expenditure on
revenue
account, I fa.ii to see why a similar expenditure for
gathering conch shells in motion under the surface
of the sea near the coast line should not, in a
business sense, be considered as expenditure on
revenue account. This aspect of the case was
emphasised by their Lordships in the following
para.graph:
(I) (1949) 17LT.R.473(P. C.).
\
1911
Tlte CommissfMJW •I
lncom1·tax, M4rlrt1. s
v.
K.T.M. T.M.
.A.;1u1 Ka_,..,,,
· S. K. n.;J.
T ltt C0111mission" of
Income-ta, Maritas
••
Ir. T, 11. T, M,
Ab~l llayoom
.•, K. D., J,
530 SUPREME COURT REPORTS [1962] SUPP.
"It appears to their Lordships that there
has been some misapprehension as to the true
nature of these agreements and they wish to
state at L'ncc what in their opinion is and
what i8 not the effect of them. They are
merely examples of many similar contracts
entered into by the appellants w},Jolly and
exclusively for the purpose of their business,
that purpose being to supply themselves with
one of the raw materials of that business.
The contracts grant no interest in land and
no interest in the
tree~; or plants themselves.
They are simply an<l solely contracts giving
to the grantees the right to pick and carry
away leaves, which of course, implies the right
to a appropriate them M their own property."
In the 04oe under our consideration the only right
granted to the respondent firm was to take and
carry away conch shells of a specified type and Hize,
which of course, implies the right to appropriate
them as the respondent firm's own property. The
right to go into the sea and cast nets etc. was
merely ancillary to the real purpose of the contract.
Nor do I think that the circumstance that
the contracts conferred an exclusive privilege or
right is a matter of any significance.
In M ohanlal
llargovind v. Commissioner of Income-tax (') the
contracts were exclusive and their Lordships s~tcd:
"It is true that the rights under the
contracts are exclusive but in such a case as
this that is a matter whieh appears to their
Lordships to be of no significan<',e.
These observations are as apt in their application
to the present case as they were in the case before
their Lordships of the Privy Council.
(3) The Privy Council draw a distinction
between cases relating to the purchase or leasing of
(I) (1949) 17 I. T. R. 473 (P. C.).
•
-
(1) S.C.R.
SUPREME COURT REPORTS
531
mines, quarries, deposits of brick earth, land with
standing timber etc. On one side and the case under
its consideration on the other. It referred to the
decision in Alianza Go. v. Bell(') and said:
""·the present case resembles much more
closely the case described and distinguished
by Channell, J. at page 673 of the re-port
in Alianza Co.
v.
Bell
of the cost of
material worked up in a manufactory. That
side the learned Judge, is a current expenditure
and does not become 'a capital expenditure
merely because the material is provided by
something like a forward contract, under which
a person for the payment of a lump sum
down secures a supply of the raw material for
a period extending over sever'll years'.''
In.Kaur£ Timber Co. Ltd. v. Commissioner of Taxes(')
the company's business consisted in cutting and
disposing of timber. It acquired in som.e cases
timber bearing lands, in other cases it purchased the
standing timber. The leases we1e for 99 years. So
far as the cases where the land was acquired were
concerned there could have been no doubt that the
expenditure made in acquiring it was capital expenditure.
In the case of the purchase of the
standing timber what was acquired was an interest
in land. The purcha.sers bought the trees which
they could allow to remain standing as long as they
liked. It was pointed out that so long as the timber
at the option of the company remained upon the
soil, it derived its s:istenance and nutriment from
it. The additional growths became ipso jure the
property of the company. In these circumstances
it was held that the expenditure was capital expenditure. In the case before us some reliance was placed
by the appellant on the term that shells less than
2t inches in diameter brought inadvertently to
shore had to be returned at once alive to the sea.
(1) [1904) 2 K. B. 666 (affirmed on appeal in [1905] 1 K. B. 184and
[906] A. C. 18.)
(2)
[1913] A. C. 771.
1961
Tht Commiuian11 of
Income-fox, Madras
v.
K.T.M.T.M.
Abdul Kayoom
S. K. DasJ.
1961
'1 h1 Commissioner of
Incom1•tax, Mad1os
v.
K.T.M.T.M.
Aitlrd Kayoom
S. K. DosJ.
532
SUPI~EME COURT REPORTS [1962] SUPP.
The argument was that such, shells might ·later grow
in size by recei "ing sustenance and nutriment from
sea water and could be later gathered by the res·
pondent firm when they reached the size of 2t
inches in diameter or more.
This, it was argued,
brought the present case nea.rer' the decision in
Kauri Timber case (1 ). I am unable to agree. It
is to be remembered that live shells move under I.he
surface 7f the sea. and they do not ramain at the
same pl~ce; as trees do.
A shell less
than
2~
inches ih dig.meter returned a.live to the sea may
move away from the contra.at area and may never
be gathered by the 'respondent firm.
In these
circumstances tho· a.p-pellant is not entitlecl ,to ca.II to
his aid the test of "further vegetation" or "sustenance and nutriment" referred to in the Kauri
Timber case (1).
,
'
From. whatever point of view we may !oak at
the case, it seems to me that the facts of the pnsent
case a.re indistiriguis~ble from those o~ the case in
1l:fohanlal llargovind ,., Gommiisioner of Inc.orne-tax{')
In Mohanlal Harg1n1ind's case(') the right was to
pluck tendw
leave~; in our case the right is/ to
gather conch shells of·specified type and size.
This
distinction, it is obvious, makes no difference. Irr
the High Court it was contended on behalf of the
appellant that Mohanlal Hm·govind's case(') related
to the. acquisition of ·raw materials whereas the
present case relates to the acquisition of "chanks"
by a dealer who sells thenr without subjecting them
to· any manufacturing process, aria this-distinction,
it was contended, made the decision in Mohanlal
Hurgovind's case (') inapplicable to the present case .
. The High Court rejected this contention and in my
opinion rightly. I agree with the High Court -that
on principle and in a business sense, there is no
distinction between acquiring raw materials for a
manufacturing busim·ss~nd [Lcquiring or purchasing
goods by it dealer for the ·purpose of sale, particularly when there ii; no question of any excavation
(1) [1913) A. C. 771.
(2)
(1949) 17 I.T.R. 473 (P.C.).
•
( 1) S.C .. R.
SUPREME COURT REPORTS
533
etc .. in order to win the g.Jod8 and make su.,h goo.Is
parts of the stock-in-trade, a point which weighed
with the Court of Appeal in .'!iow B1irdulph Gravel
( 10. Lf.l. v. Poole(') and with my leame<I brethren
1 1 Pingle lndmtries Ltd. v. Oon1missi"nr1r of lnr.mne-
'.ax ('}.
No such point is priwnl in this case.
I
have been unable to find any other distinction
between the two cases which w(l\t!d make a difference
in the application of the principles for discriminating between capital expe11rliture and revenue
t>xpenditure.
To adopt again the language of Lord Green,
I see no ground in principle or reason for differf'ntiating the present case from the case in Mohanlal
H11rgovind v. Commissioner of Income-tax ('}.
On behalf of the respondent firm a further
question was agita.ted. namely, whether an allowance for the cost of gathering the conch shdls by
nets etc., should not be given, even though the rent
paid under the contract was not allowable, under
s. 10 (2) (xv) of the Income-tax Act and a reference
was made in th is connection to the decision in Hood
Barrs v. Commissioners of Inland Re·i•enue ('). I do
not think that we are concemed with that matter
in the present appeal. The only question which
arisAs for decision is the one referred to the High
Court.
I have
held
that the
High
Court
correctly answered the question which related
to the payment of the sum of Rs. 61 ll/- only. The
question having been correctly answered by the
High Court, the appeal fails and must be dismissed
with cost.
1961
The CommissiQRIT Pf
Income-tax, 14 adras
••
K T.M. TM.
Abiul Kayoom
HIDAYATULLAH, J.-TJ?is appeal was heard
Hidayatu/lah .J,
with Pingle Industries, Ltd., Sccunderabad v. The
Commissioner of Income-tax ('), in which judgment
wa.s delivered by us on April W l 960. In accordance with the decision in Pingh Industries case (1 ),
(I\ [1954) 35 T. a. 459.
(2\ [i960J s s. a. R. 681.
(3) (1949) 17 1.T.R. 473 (P.C)
(4) 195137 T.C. 188.
'.5\ [19601 3 S. C.R. 681.
'
/Ml
Tit, Co·11r'fliJJio 1;tf of
!11conu-1~x • • \ladrtu
v.
A·. TM. T. M.
Ah1i11I 1i·,1_room
!i34 SUPREME COURT REPORTS [1962) SUPP.
this appeal was allowed.
Ll\ter, a review potition
(No. 16 of l!l60) was filt>d on the ground that this
appeal was not governed hy the rlecision in Pingle
h1,-/u.,fri1~' mse ( 1), an<l that as it was not fully
argued, it 5ho11ld he rnh<·•ir<l.
It is um;ec<·B!'ary to
go into the rcason8 why the rehearing was granted,
except to say that there was perhaps a mis11ndcrRtanding about t.he concessions made by counsel.
We were, thereforP, satisfied that we should grant
tho r"hcaring. and have since heard full arguments
in this appeal.
K. T. M. T. !If. Abdul Kayoom and Hussain
Sahib {respon<ll'nt) is 1i regi><trrPd firm, and r.arrks
on
business in conch shells lncallv known as
''c·hanks", which are found on the bed 'of the sea all
along the coast-line abutting on the South Arcot
DiBtrict. The rcspon<lcnt took on lease from the
Director of Ill'lustries an<! CommP.rce, Madras "the
rxduaivl' right, liberty and authority to take and
carry away all chanks found in tho sea"' for a
period of three years ending on Junu 30, 1947 .. The
consideration was Hs. 6, 111/- per y(·ar payable in
advance. Fur the year of assessment, l!l464 7 (the
ye!\!" of account ending .Tune 30, 1945) the respondent in showing its profits from business sought to
deduct Rs. fi, 111 /- on the ground that this was a.n
expenditure not of a capita 1 nature but wholly and
exclusiv<>ly laid out for the purpose of business
. under a. 10 (2) (XV) of the Income-tax Act. This
claim was disallowed by tho Income-tax Officer,
and on appeal, by the Appellate Assistant CommisRioner. On further appeal tu the Appellate Tribunal,
the r<.'spondent contended that tho mling of tho
Privy Counril in
.MolVJ11/al llaraovind'.s case (')
applie<l to the <'ase, inasmuch as the payment was
to s"curo the btock-in·trade for its businl'BS.
The
Appellate Tribunal, though it was of opinion that
the Privy Council rase applied, felt itself bound by
the •.>arlicr Full Bench d"cision of the Madras High
111fl960i3 S. C.R. 681.
t71(1949)171. T. R. 473 IP. C.i.
1
(1) S.C.R. SUPREME COURT REPORTS
535
Court in K.T.M.T.M. Abdul Kayoom Hu8sain Sahib
v. Oommis8ioner of Income-tax, 11fadras (') relating
to thi3 respondent, and dismissed the appeal. The
Tribunal, however, acceded to a demand for a case,
and referred the following question to the High
Court for its decision :
"Whether on the facts and circumstances
of the case the payment of the sum of
Rs. 6,111/- made by the assessee under the
terms of the agreement entered into with the
Director of Industries and Commerce, Madras;
on 9th November 1945 was not an item of
revenue expenditure incurred in the course of
carrying on the business of the assessee and,
"therefore, allowable under the provisions of
section 10 of the Indian Income-tax Act".
The reference went before a Divisional Bench,
which referred the case for decision of a Full Bench.
The Full Bench held that the case was covered by
the Privy Council case above referred to, observing:
"In our opinion, the facts in the case
before the Judicial Committee are indistinguishable from the facts of the present case.
In one case, the leaves had to be picked from
trees by going upon the land, while in the
other case the chanks had to be collected and
gathered by diving into the sea. It is impossible to construe the documents in the present
case as conferring any interest in t.hat portion
of the sea from which the exclusive right of
winning the chanks was conferred upon the
asses see."
The High Court also did not see any difference
between raw materials acquired for a manufacturing
business and the
acquisition of chanks in the
present case, and held that the chanks were acquired
as the stock-in-trade of the respondent and the
transaction was tantamount to purchase of goode.
(ll (1939) 1.T.R. 652.
lllfll
The Commissioner 'J
lncotnrtox, M•tirt1s
v.
K. T.M. T. M.
Abdul /(ayoom
Hidqyatu//ah J.
If/el
T., CttmlCissiotUT of
/11(ttrM·Wt, JI Uras
'·
K. T. II. T.M.
JUlll K•YI""
liii•1.iull•• J.
•
536 SUPREME COUltT REPORTS [1962] SUPP.
The High Court, however, certifierl the case as fit
for appeal, and the Commiasioner of Income-tax
hM filed thia appeal.
The material terms of the agreement in the
case are as follows :
"!. The lessor hereby grants unto the
lessees the full free and exclusive right, liberty
and authority to fish or take and carry away
1
all chank shells in the sea off the coast line
"
of the South Arcot District including the
French Kuppams of Pondicherry more particularlv described in tl1'i schedule hereto to
hold "the premises to the lessees from the
first day of July 1944 for a period of three
years ending 30th June 1947 paying therefor
the yearly rent of Rs. 6, 111 (rupees six
thousand one hundred and eleven only) to be
paid yearly in advance, the first payment to
be made within fifteen days from the date of
intimation of acceptance and the second and
third payment~ to be made on or before the
15th June 1:?45 and 19·16, respectively at the
Government Treasury at Tuticor-in or Madras.
x
x
x
3. The lessee hereby covenants with the
lessor as follows :-
x
x
x
(ii) To deliver to the Assistant Director
of Pearl and Chank l<'ishcries, Tuticorin all
Velampuri shells that may be obtained by
the le&1ces upon payment of their value as
determined by the Aseistant Director.
(iii) To collect Chan ks in nets and by
means of diving as well. In the process of
such collection of shell not to fish chank shells
less than 2!
inches
in diamel<'r if any
r.hank shells leis than 2t inches in diameter
(I) S.C.R.
SUPREME COURT REPORTS
537
be brought inadvertently to shore, to return
at once alive to the sea all such undersized
shells.
(iv) Not at any time hereafter to transfer or underlet or part with possession of
tbis grant or the rights and privileges hereby
granted or any part thereof without the
written consent of the lessor.
x
x
x
(vi) To report to the A1sistant Director
of Pearl and Chank Fisheries (South), Tuticorin the actual number of shells kept unsold
in · different stations after the expiry of the
lease period."
An analysis of the agreement shows that the
respondent obtained an exclusive right to fish for
"chanks" by the method of diving and nets and
to
appropriate
them
except those below 2
inches in diameter, which had to be
returned
alive to the sea and Velampuri shells which had
to be sold compulsorily to Government. The
respondent had also to report to its lessors at the
end of the term, the numher of shells not sold.
The right was exclusive, but was -not capable of
being transferred or underlet, and it was for a fairly long period. The coast line involved was also
fairly long.
There is no doubt
that the payment of
Rs. 6,l ll/· was an expenditure wholly and exclusively for the purpose of the business of selling shells,
just as the payment to the divers and other sundry
expenses were. But an expenditure for the purpose of the business may be of a capital nature,
and if it is so, it cannot be claimed as a deduction.
The question is whether this payment was of a
capital nature.
What is attributable to capital and what, to
revenue has led to a long strin~ of eases Ii.ere aqq
1961
TIM Commissioner of
lncome·tax MJ•as
v.
K T.M.T.M.
Abdul Kayoom
Hidayatullah J,
1961
Th. C.-missiontr of
Irtctm1-tax, Madras
v.
K.T.M. T. M.
Abdul Koyoom
Hidayalul/ah J.
53~ SUPREME COURT REPORTS [1962) SUPP.
,
in the English Courts. The decisions of this Court
reported in Assam Bengal Cement Go., Ltd, v. Commissioner of
Income-tax( 1) and Pingle Industries
case (i) have consillered all the leading cases, and
havo also indicated the tests, which are usually
applied in such casrs. It is not necessary for us
to cover the same ground again. Further, none
of the tests is either exhaustive or universal. Each
case depends on its own facts, and a close similarity between one case and ,another is not enough,
bAcause even a single significant deta.il may alter
the entire aspect.