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

Judgment

i 1 COMMISSIONER OF EXCESS PROFIT TAX BOMBAY CITY SRI LAKSHMI SILK MILLS LTD. [ SAIYID FAZL ALI, MEHR CHAND MAHAJAN AND MuKHERJEA JJ.] Excess Profits Tax Act (XV of 1940), s. 2 (5)-"lncome from business"-Manufacturing company-Rent o:f plant and machin· ery let out to others-Whether income from business. The respondent, a company formed for the purpose of manufacturing silk cloth, installed a plant for dyeing silk yarn as part of its business. During the chargeable accounting period (1st January, 1943, to 31st Decembell, 1943) owing to difficulty in obtaining silk yarn on account of the war, it could make no use of this plant and it remained idle for some time. In August, 1943, the pl_ant was let out to' another company on a monthly rent.

The question being whether the income received by the respondent company in the year 1943 by way of rent of this plant was income from business and assessable to excess profits tax, the High Court of Bombay held that, as the assessee was not able to use the plant as a commercial asset, it had ceased to be a commercial asset. in the assessee's hands and the rent received was not income from business. On appeal: Held, that an asset which was acquired and used for the pur- . pose of the business by a company formed for carrying on business and earning profits, does not cease to be . a commercial asset of that business as soon as it is temporarily put out of use or let out to another person for use in his business or trade ; the income from the asset would be profit of the business irrespective of the manner in which that asset is exploited by the owner, and the rent in question was therefore income from business and assessable to excess profits tax.

No general principle, however, can be laid down which is applicable to all cases. Each case has to be decided on its own circumstances. Sutherland v. Commissioners of Inland Revenue [1918] 12 Tax Cas. 63 relied on. Inland Revenue Commissioners v. Iles (1_?47] 1 A.E.R. 798, Croft v. Sywell Aerodrome Co., Ltd. [1942] 1 A.E.R. 110, Inland Revenue Commissioners v. Broadway Car Co., Ltd. [1946] 2 A.E.R. 609 distinguished. Judgment of the Bombay High Court reversed. Sept. 18. Commissioner of Excess Profits Tax, Bombay City Sri Lakshmi Silk Mills Ltd. [1952] CML APPELLATI! J U!USDICTION : Civil Appeal No. 46 of 1950. Appeal by special leave from a judgment of the High Court of Judicature at Bombay dated 23rd March, 1948, (Chagla C.J. and Tendolkar J.) in Income Tax Reference No. 16 of 1947. M. C. Setalvad, Attorney-General for India ( Gopal Singh, with him) for the appellant. N. C. Chatterjee (B. Sen, with him) for the respondent. 1951. September 18.

The Judgment of the Court was delivered by MAHAJAN J.-The sole controversy in this appeal centres round the point as to whether or not excess profits tax is payable on the sum of Rs. 20,005 received by the respondent from Messrs Parakh & Co. by way of rent for the dyeing plant let out to them during the chargeble accounting period. The respondent (Sri Lakshmi Silk Mills Ltd.) is a manufacturer of silk cloth, and as a part of its business t it installed a plant for dyeing silk yarn. During the chargea\jle accounting Jl<lr~od (1st January, 1943, to 31st December, 1943) owing to difficulty in obtaining silk yarn on account of the war it could make no use of this plant and it remained idle for some time. On the 20th August, 1943, it was let out to Messrs E. Parakh & Co. on a rent of Rs. 4,001 per month. The Excess Profits Tax Officer by his assessment order dated 11th June, 1945, included the sum of Rs. 20,005 t realized as rent for five months, in the profit~ of the business of the respondent and held that excess profits tax was payable on this amount.

This order was confirmed on appeal by the Appellate Assistant Commissioner and on further appeal by the Income-tax Tribunal. The Tribunal, however, on being asked referred the following question of law to the High Court for its opinion : "Whether in the circumstances of the case, the assessee's income of Rs. 20,005 is profits from business i .S.C.R.- .within the meaning of section Profits Tax Act and therefore 2 (5) of the Excess pay excess profits tax?" or otherwise liable to_ .,. . "ommzsszoner o 1~ 1 • Excess Profits --The High Court negative.

This is an this decision. aiiswered the question 'in the Tax, ~ombay appeal by special leave from City It · was contended on behal£ of the Commissioner before the High Court that the dyeing plant was a commercial asset of the assessee' s business for the purpose of earning profit and if this commercial asset yielded income to him in .any particular manner, it was income from the assessee's business for the purpose of the Exces15 Profits Tax Act. It was said that it _was immaterial whether commercial asset yields income by use of the assessee himself or its being us~d by someone else. This contention was disposed of by the learned Chief Justice in these words:- "Mr. Joshi seems to be right but with this qualification that the commercial asset must be at the time it was let out in a condition to be used as a commercial asset by the assessee.

If it has ceased to be a commercial asset, if its use as a commercial asset has been discontinued, then if the assessee lets it out, he is not putting to use something which is a commercial asset at the time .. "Now, on the facts found by the Tribunal, it is clear that when the assessee let out this dyeing plant, it had remained idle for some time. He could. not obtain silk yarn on account of the war and therefore it was not possible to make use of it as a commercial asset as far as the assessee himself was concerned and it was only for that reason that he let i:t out to Messrs E. Parakh & Co. I can understand the principle for which Mr. Joshi is contending that it -makes no difference what an assessee does with commercial asset belonging to him. He may use it as he likes. So long as it yields income it is ~he income of his business.

Various cases have been cited at the Bar and I think that those cases though apparently conflicting are reconcilable if we accept this principle to be the correct prin<;iplc . v. Sri Lakshmi Silk. Mills Ltd. Mahajan /. Commissioner of Excess Profits Tax, Bombay City Sri Lakshmi Silk Mills Ltd. Mahajan /. 4 [1952] and apply this ratio as 'the ratio emerging from these cases and I will state the principle and the ratio again that if an assessee derives income from a commercial asset which is capable at the time of being used as a commercial asset, then it is income from his business, whether he uses that commercial asset himself or lets it out to somebody else to be used. But if the commercial asset is not capable of being used as such, then its being let ou~ does not res.ult in an income which is the income of the business." Mr. Justice Tendolkar concurred in this view and observed as follows:- "The ratio of all these cases to my mind is that if there is a commercial asset which is capable of being worked by the assessee himself for the purpose of earning profits and the assessee instead of doing so, either voluntarily allows someone else to use it on payment of a certain sum or is compelled by law to allow it to be used in such manner, then what he receives is income from business.

But if the commercial asset has ceased to be a commercial asset in ,the hands of the assessee and thereafter he gets what he can out of it by letting it out to be used by others, then the rent he receives is not income from any business that he carried on." The learned Attorney-General pointed out that the nature of a commercial asset is not changed because a particular person is unable to use it. The inability of the assessee to make use of it in certain circumstances does not in any way affect the nature of tlhe asset and cause an infirmity in the asset itself.

It was contended that when the dyeing plant became idle for a short time during the chargeable accounting period it did not cease to be a commercial asset of the respondent for it had no other business; that all the assets of the respondent including the dyeing plant were the assets of the business, that whatever income was derived by the use of these assets including the income that an asset fetched by itS being !en out was the business income of the assessee, and that there was no warrant S.C.R. 5 in law for the proposition that a commercial asset which yields income must be used as an asset by the respondent himself before its income becomes charge- . able to tax.

The learned counsel for the respondent urged that as soon as the assessee found difficulty in obtaining yarn the dyeing plant bec:me redundant for its business and ceased to be an asset of its business and any income derived from the rent by letting out this asset was income received by the assessee from other sources and therefore was not chargeable to excess profits tax. In our opinion, the contention raised by the learned Attorney-General is sound. The High · Court was in error in engrafting a proviso on the rule deduced by it from the authorities considered by it, to the effect that a commercial asset of a business concern which yields income must at the time it was let out be in a condition to be used as a commercial asset by the assessee himself.

We respectfu1ly concur in the op11110n of the learned Chief Justice that if the commercial asset is not capable of being used as such, then its being let out to others does not result in an income which is the income of the business, but we cannot accept the view that an asset which was acquired and used for the purpose of the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business.

He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else. · Suppose, for instance, in a manufacturing concern the use of its plant and machinery can advantageously be made owing to paucity_ of raw materials only for six hours in a working day, and in order to get the best yield out of it, another person who has got the requisite raw materials is allowed to use it as a licensee on payment of certain Commissioner of Excess Profits Tax, Bombay City Sri Lakshmi Silk Mills Ltd. Mahajan f. 'Commissioner of Ercess Profits T•r, Bombay City Sri l..llk_shmi Silk_ Mills Lttl. M•h•i•n f. 6 [1952) consideration for three hours; can it be said in such a situation with any justification that the amount realized from the licensee is not a part of the business income of the licensor. In this case the company was incorporated purely as a manufacturing concern with the object of making profit.

It installed plant and machinery for the purpose of its business, and it was open to it if at any time it found that any part of its plant "for the time being" could not be advantageously employed for earning profit by the company itself, to earn profit by leasi1Ilg it to somebody else. It is difficult to hold that the income thus earned by the commercial asset is not income from the business of the company that has been solely incorporated for the purpose of doing business and earning profits. There is no material whatever for taking the view that the assessee company was incorporated with any other object than of carrying on business or trade. Owning properties and letting them was not a purpose for which it was formed and that being so, the disputed income cannot be saidto fall under any section of the Indian Income-tax Act other than section 10.

Cases of undertakings of this nature stand on an entirely different footing and are distinguishable froni cases of individuals or companies acquiring lands or buildings and making income by letting them on hire. These latter cases may legitimately fall under the specific provisions of section 9 or section 12, though the High Courts in this country are by no means unanimous on this subject; but for the purpose of rthis case it is unnecessary to resolve that conflict. It may be observed that no general principle can be laid down which is applicable to all cases, and each case has to be decided on its own circumstances. Decisions of the English courts given under the Finance Acts, the scheme of which_ is different from the Indian Income-tax statutes, are not always very helpful in dealing with matters arising under the Indian -law and analogies and inferences drawn from those decisions are at times misleading.

We, however, are in respectful agreement with the observations of Lord i :S.C.R. 7 President Strathclyde in Sutherland v. The Commissioners of Inland Revenue(1) that if a commercial asset is susceptible of being put to a variety of different uses in which gain might be acquired, whichever of -these uses it was put to by the appelfant, the profit -earned was a user of the asset of the same business. A mere substituted use of the commercial asset does ·not change or altered the nature of that asset. Whatever ·the commercial asset produces is income of the business ,of which 'it is an asset, the process; by which the asset makes the income. being immaterial. Mr. Chatterjee for the respondent stressed the point. ;that as the dyeing plant in the present case could not be made use of by the assessee in its manufacturing -business owning to the non-availability of yarn, it ·ceased to be a commercial asset of the business of the :.assessee and became . redundant to that business and :that being so, any income earned by this asset which had ceased to be a commercial asset was not an ·income of the business but must be held to have been <derived from a source other than business and fell within the ambit of section 12 of the Indian Income- :ta{{ Act, and on this income excess profits tax was not payable.

He contended that .the facts of this case were analogous to the case of Inland Revenue Commissioners v. lles<2) and it should be similarly decided. In that case the taxpayer carried on the business of ·sand and gravel merchant on certain land and at the same time he granted licences to three firms to enter his land and win gravel for themselv~ in ret:urn for which he received from them a royalty for each cubic yard of gravel taken away. It was held that the royalties were not part of the profits of the business ibecause, in granting the licences, the taxpayer was <exploiting his rights of ownersh~p in the ·land and was :not carrying on his business of a sand and gravel -merchant. The income was held taxable as an income from an investment and did not fall under Schedule D which concerns profits earned from a trade. Mr. Chatterjee also laid emphasis on the observations of Lord (1) (1918) 12 Tax Cas. 63. (2) [1947] 1 A.E.R. 798.

CommissiQner of E%cess Profits Ta%, Bombay City Sri Lrikshrni Silk Mills Ltd.. Mahajqn_ J. Commissioner of Excess Profits Tax, Bombay City Sri Lakshmi Silk Mills Ltd. Mahajan /. 8 [1952J Green M. R. in Croft v. Sywell Aerodrome Ltd. ('), whercin the learned Master of the Rolls observed asfollows: "I cannot myself see that a person who leases the· land to others, or grants licences to others to come upon it, is doing anything more than exploiting his own rights of property, even if the ~enant or licensee is, by the terms of the lease or licence, entitled himself to carry on a trade on the land." It was urged that what the assessee was doing in this case was exploiting his righus of property by letting the dyeing plant to other persons precisely in the same manner as the owner of land in the case cited above was exploiting his own rights to property by granting a licence to another ~o come on his land. The argument, in our opinion, though attractive, is fallacious.

The analogy between the case of land and of a dyeing plant for the purpose of taxing statutes is inappropriate. The distinction becomes apparent from the following passage which occurs in Atkinson. J.'s judgement in Iles's case(2) :- "Then it was suggested by counsel for the Crown that the case was like the Desoutter case('), where it was held that, if you make use of a patent in your business and also receive royaities from the use of the patent by others licensed to use it, those royalties. cannot be regarded as receipts from an investment .. In other words, the door has to he eiilher open or shut. A patent is either an investment or it is not. The suggestion was that freehold land is in the same position, and if you carry on business on part of it, whatever you do with the rest by way of licensing or letting cannot be· regarded as producing income from investment. That, however, is dead in the teeth of the judgement in the Broadway Car Co. case(").

Tbe same argument was tried there, but Tucker L. J. said he thought the Desoutter case(") had very little to do with it, as there was a great difference between land (1) [1942] 1 A.E.R. 110. (2) [1947] 1 A.E.R. 798. (3) [1946] 1 A.E.R. 58. ( 4) [1946] 2 A.E.R. 609. S.C.R. I and a patent, and he did not think the Desoutter case(') threw any light on the matter ...... A patent is quite different from freehold land." These observations appositely apply to the case of a company incorporated for ·the purpose of doing business and . earning profit by the process of manufacture. Letting out a part of its machinery in a certain situation in order to make the business advantageous as a whole does not alter the nature of the income. The case Commissioner of Excess Profits Tax, Bombay City Sri Lakshmi Silk.

Mills Ltd. of an owner of land letting out his land and carrying on exploitation of part of that land by selling gravel out \. of it, as at present advised, in our opinion, would fall under section 9 of · the Indian Income-tax Act, as income earned, no matter by whatever method, from land, ai1d specifically dealt with by that section. The observations therefore made in Iles's case(2) can have no apposite application to the case of a manufacturing concern letting out a part of its machinery temporarily which it cannot advantageously use itself. Mr. Chatterjee also Bid stress on the decision of the Court of Appeal in Inland Revenue Commissioners v. Broadway Car Co. Ltd.(3). In this case the company carried on the business of motor car agents and repairers on land held on lease from 1935 to 1956 at an annual rent of £750. By 1940 the company's business had wdindled under war conditions to such an extent that no more than one third of the land was required.

In those circumstances the remainder was sublet for fourteen years at an annual rent of £1,150. The general commissioners of income-tax decided that the difference of £400 between the outgoing of £750 for the land retained and the incoming of £1,150 for the land disposed of was "income received from an investment," and, the business not being one within the special categories mentioned in the Finance Act, 1939, that £400 was n{)lt taxable. It was held that the word "investment" must be construed in the ordinary, popular sense of the word as used by businessmen and not as a ( 1) ! 1946] 1 A.E.R. 58. (2) 11947] 1 A.E.R. 798 . (3) [1946] 2 A.E.R. 609. Mahajan /. Commissioner of Excess Profits Tax, Bombay City Sri Lakshmi Silk Mills Ltd. Mahajan/. 10 [1952] term of art having a defined or technical meaning and that it was impossible to say that the commissioners had erred in law in coming to the conclusion that the transaction resulted in an investment. Scott. L. J. in delivering his judgment laid emphasis on the point that after the business of the company had dwindled, it partitioned part of the land from the rest and sublet it by installing a heating apparatus for the suh-lessee.

It was found that war conditions had reduced the company's business to very small proportions and they cut their loss by gomg out of business in respect of the major part of their land and put it out of their power for 14 years to resume business there. In this situation it was observed that m that case they were dealing with part of the property of the company which had become redundant and was sublet purely to produce income-a transaction quite apait from the ordinary business activities of the company. It was pointed out that the question whether a particular source of income was income or not must be decided, as it could be, according to ordinary commensense principles.

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

(!) [1946] 2 A.E.R. 609. ., ti S.C.R. 11 We are therefore of the opinion that it was a pan of the normal activtties of the assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it. The High Court therefore was in error in holding that the dyeing plant had ceased to be a commercial asset of the assessee and the income earned by it and received from the lessee, Messrs Parakh & Co., was not Commissioner of Excess Profits Tax, Bombay · chargeable to excess profits tax. The result therefore is that we hold that the answer returned by the High Court to the question referred to it by the Tribunal was wrong ;:ind that the correct answer to the question would be in the affirmative and not in the nagative. The appeal is allowed, but in the circumstances of the case we make no order as to costs.

We have not thought it necessary to refer to all the cases cited as the Bar as none of them really is in point on the short question that we were called upon to decide and analogies drawn from them would not be helpful in arriving at our decision. Appeal, a/,lowed. Agent for the appelant : P. A. Mehta. Agent for the respondent : P. K. Chatterjee. COMMISSIONER OF INCOME TAX, BOMBAY FINLAY MILLS LTD. [HARILAL KANIA c. J., MEHR CHAND MAHAJAN AND CHANDRASEKHARA AIYAR JJ.] Indian Income-tax Act (XI of 1922), s. 10(2) (xv)-Expenditure incurred for registration of trade mark-Whether business expenditure-Effect of registration. The expenditure incurred by a company carrying on the manufacture and sale of textile goods in registering for the first time its trade. marks which were not in use prior to the 25th January,, . City Sri Lakshmi Silk Mills Ltd. Mahajan /. Oct. I. .Commissioner of Income Tax, Bombay . Finlay Mills Ltd. 12 [ 1952]

1937, is revenue expenditure and an allowable deduction under Sec. 10 (2) (xv) of the Indian Income-tax Act. The fact that a trade mark after registration could be separately assigned and not as a part of the goodwill of the business only, does not n1ake the expenditure for registration capital expenditure. It is only an additional and incidental facility given to the owner of the trade mark; it adds nothing to the trade mark itself. Judgment of the Bombay High Court affirmed. Commissioner of lncome~tax, Bonibay v. The Century Spinning and Weaving and Manufacturing Co. Ltd. ([1947] 15 l.T.R. 105) approved. British Insulated and Helsby Cables Ltd. v. Atherton ([1926] A. C. 205), Southern v. Borax Consolidated Ltd. ([1942] 10 l.T.R. Supp. 1), Henriksen v. Grafton Hotel Ltd. ([1942] 2 K. B. 184) referred to. Civ1L APPELLATE JuR1smcTioN : Civil Appeal No. 103 of 1950. Appeal from a Judgment of the Bombay High Court (Chagla C. J. and Tendolkar J.) dated 25th March, 1949, in Income Tax Reference No. 31 of 1948.

Setalvad, Attorney-General for India ( G. N. Joshi, with him) for the appellant. R. /. Kolah, for the respondent. 1951. Oct. 1. The Judgment of the Court was delivered by KANIA C. J .-This is an appeal from a judgment of the High Court at Bombay and it arises out of the opinion expressed by the High Court in respect of a question submitted to it by the Income-tax Tribunal. The material facts are these. The respondent is a textile mills company carrying on the business of manufacturing and selling textile goods. . For the assessment years 1943-44 and 1944-45, covering the accounting periods ending with the calendar years 1941, 1942 and 1943, the respondent claimed the expenditure incurred by it in registering for the first time its trade marks which were not in use prior tp the 25th February, 1937, as revenue expenditure and an allowable deduction out of its income for the said periods, under section 10(2) (xv) of the Indian Income-tax Act.

Following the decision of the Bombay H'igh Court in Commis- $ioner of Income-tax, Bombay v. The Century Spinning t $.C.R. 13 ,and Weaving and Manufacturing Co. Ltd.(1), the Tribunal allowed the claim of the assessee. At the desire :of the appellant, the Tribunal submitted the following ;.question for the opinion of the High Court :- "Whether, on the facts of the case, the expenditure incurred by the assessee company in Jegistering for the first time its trade marks which were not in use prior to the 25th February, 1937, is revenue expen- ;diture and an allowable deduction under section 10(2) ,{xv) of the Indian Income-tax Act?" The High Court, following its previous decision and finding that the fact of the trade marks having come into use after the 25th of February, 1937, made no ... d'ifference in the result, answered the question in the affirmative.

The Commissioner of Income-tax, Bom- -·bay, has come on appeal to us. · It was argued on behalf of the appellant that the _question whether certain disbursement was of a • capital or revenue nature, has to be decided according -to the principle laid down in British Insulated and J Helsby Cables Ltd. v. Atherton(2). In that case the com- : pany which carried on the business of manufacturers of · 1nsulated cables established a pension fund for its clerical and technical salaries staff. The fund was constituted · by a trust deed which provided that members should _,contribute a percentage of their salaries to the fond and that the company should contribute an amount ~equal to half the contributions of the members; and further that the company should contribute a sum of · ,£31,784 to form the nucleus of the fund and to prov~de the amount necessary in order that past years of service -+ _.of the then existing staff should rank for pension.

That . sum was arrived at by an actuarial calculation on the ···basis that the sum would ultimately be exhausted . when the object for which it was paid was attained. · The House of Lords held that this payment was in the nature of capital expenditure and was therefore not an , .admissible deduction. Although in the opinions ex- 1;Pressed by the different members of the House of Lords .;1- (1) [1?47] 15 I.T.R. 105. (2) [1926] A.C. 205. Commissioner of I ncorne Tax, Bombay Finluy Mills Ltd. Kania.C. f. Commissioner of Income· Tax, Bombay Finlay Mills Ltd. Kania C. /. 14 [1952t the line of approach is not completely the same, the principle stated by Lord Cave in his speech has been accepted as a safe test to distinguish capital expenditure from revenue expenditure.

It was recognised that a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and \n order indirectly to facilitate the carrying on of business, may yet be expended wholly and exclusively for the purposes of the trade. The Lord Chancellor observed that the question appeared to be a question of fact which was proper to be decided by the Commissioners upon the evidence brought before them in each case. The test that capital expenditure is a thing that is going to be spent once and for all and income expendiure 1s a thing that is going to recur every year was considered an useful element in arriving at the decision but was not certainly the decisive fact.

The Lord Chancellor observed as follows :-"But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of the trade, I think that there is very good reason for treating such an expenditure as properly attributable not to revenue but to capital." In order to appreciate the true position here correctly it is next necessary to notice the relevant provisions of the Indian Trade Marks Act, 1940. It may be noted that before this Act there was no Trade Marks Act in India b'ut it was recognised that .an action lay for infringement of a trade mark independently of an action for passing off goods. The Act opens with the preamble "whereas it is expedient to provide for the registration and more effective protection of trade marks ...... "

Section 2(1) of the Act defines a trade mark as meaning "a mark used or proposed to be. used in relation to goods for the purpose of indicating or so as to .indicate a connection in the course of trade between the goods and some person having the right to use the mark, whether with or without any indication of the identity of that · person." Section 14 permits the S.C.R. 15 proprietor of a trade mark to ·have the trade mark registered. The Attorney-General, on behalf of the appellant, relied on sections 20, 21, 28 and 29 in support of his contention.

He argued that before the Trade Marks Act, although the proprietor of a trade mark could maintain an action for infringement of his trade mark and the cause of action in such a case was quite differ - ent from the cause of action in an action for passing off goods, by the Trade Marks Act the right oif the owner of the trade mark is increased by section 21, and it is made assignable independently of the goodwill under sections 28 and 29 of the Trade Marks Act. The question thus resolves itself into whether by reason of these two incidents· the case falls within the principle laid down by Lord Chancellor Cave, as mentioned above. In our opinion, the contention urged on behalf of the appellant must fail. It is not contended that by the Trade Marks Act a new assets has come into existence. It was contended that an advantage of an enduring nature had come into existence.

It was argued that just as machinery may attain a higher value by an implementation causing greater productive · capacity, in the present case the trade mark which existed before the Trade Marks Act acquired an advantage of an enduring nature by reason of the Trade Marks Act and ·the fees paid for registration thereunder were in the nature of capital expenditure. In our opinion, this analogy is fallacious. The machinery which aquires a greater productive capacity by reason of its improvement by the inclusion of some new invention naturally becomes a new and altered asset by that process. So long as the machinery lasts, the improvement continue~ to the advantage of the owner of the machinery. The replacement of a dilapidated roof by a more substantial roof stands on the same footing. The result however of the Trade Marks Act is only two-fold. By registration, the owner is absolved from the obligation to prove his ownership of the trade mark.

It is treated as prim a f acie proved on production of the registration certificate. It thus merely saves him the trouble of leading evidence, in the · e\rent of a· suit~ · in a court 2-2 S. C. india/71 Commissioner of Income Tax, Bombay Finlay Mills Ltd. Kania C. f. C-ommissioner of Income Tax, Bombay Finlay Mills Ltd. Kania C. J. 16 [1952] of law, to prove his title to the trade mark. It has been said that registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against inf ringers. Cancel the registration and he has still his right enforceable at common law to restrain the p'iracy of his trade mark. In our opinion, this is neither such an asset nor an advantage as to make payment for its registration a capital expenditure. In this connection it may be useful to notice that expenditure incurred by a company in defending title to property is not considered expense of a capital nature. In Southern (H. M. Inspector of Taxes) v. Borax Consolidated Limited('), it is there stated that where a sum of money is laid out for the ~cquisition or the improvemer.t of a fixed capital asset 1t 1s attributable to capital, but 'if no alteration is made in the fixed capital asset by the payment, then it is properly attributable to revenue, being in substance a matter of maintenance, the maintenance of the capital structure or the capital asset of the company.

In our opinion, the advantage derived by the owner of the trade mark by registration falls within this class of expenditure. The fact that a trade mark after registration could be separately assigned, and not as a pan of the goodwill of the business only, does not also make the expenditure for registration a capital expenditure. That is only an additional and incidental facility given to the owner of the trade mark. It adds nothing to the trade mark itself. In the judgment of the High Court some emphasis is laid on the fact that by reason of registration the i duration of the tra<le mark is only for seven years, and it does not thus possess that permanency which is ordinarily required of an expenditure to make it a capital expenditure and in order to prove the existence of a benefit of an enduring character.

The learned Attorney-General contended that the view that as the benefit of registration lasted for seven year., i.e., for a limited period, it prevented the expenses of registration being treated as capital expenditure, is unsound (1) [1942] 10 I.T.R. Suppl. 1. S.C.R. :SUP:RE,ME cou1rr REPORTS 17 .and for that contention he relied on He?Jriksei:z (Inspector of Taxes) v. Grafton Hotel Ltd.(1). In that case ten.ants .of licensing premises by agreement with the landlord paid by instalment the monopoly value fo:;ed by the licensing j'ustices when gran11ling ':the licence under section 14 of of the Licensing (Consolidation) Act, 1910. These were sought to be deducted as revenue expenditure but were disall0wed by the Court. Lord Greene M. R. first considered that the payment foll into the same class as the payment of a premium on the grant of a lease or the expenditure on improvements to the property which justices may require to be made as a conditiqn of granting a licence.

Having reached that conclusion he rejected the argument that the payment not being made in one lump sum but -by instalments made a difference in the character of the payment. H~ observed as fofilows:-"Whenever licence is granted for a term, the payment is made as on a purchase of a monopoly for that term. When a licence is granted for a subsequent term, the monopoly value must be paid in respect of that term and so on. The payments are recurrent if the licence is renewed, they are not periodical so as to give them the quality of payments which ought to be debited to revenue account. The thing that is paid for is of a permanent quality although its permanence, being conditioned by the length of the term, is shortlived. A payment of this character appears to me to fall into the same class as the payment of a premium on the grant of a lease, which is admittedly not deductible."

The Attorney-General relied on these observations to point out tha~ the permanence of the advantage was thus not dependent · on the number of years for which it was to enure for the benefi~ of the proprietor of the trade mark. In our opinion, these observations have to be read in the context in which they have been made. The learned Master of the Rolls was discussing only the quest.Ion of payment .being made by instalments as not making any d,i,ffere1~ce in ,the nature of the (I) [1942] 2 K. B. 184. Comtp/~sion.er .qf l11cpme T.ax, /)o,11J.b.ay Finlay Mills Lt,d. ~m;i_a C. /. Commi'ssWner of Income Tax, Bombay Finlay Mills Ltd. Kania.C. /. Oct. 4 18 [1952] expenditure. It was first held by him that the payment in question was of a capital nature and of the same character as premium paid on the grant of a, lease and was therefore necessarily of a capital nature.

Having come to that conclusion, he only rejected the contention that because the premium was paid in more instalments than one it lost its character of a capital expenditure. In our opinion, this is an entirely different thing from stating that the 'fact of the advantage being for a limited time altered the character of the payment in any way. As observed by Viscount Cave L. C. the question is always one of fact depending on the circumstances of e~h case 'individually . In our opinion, the decision of the High Court reported in Commissioner of Income-tax, Bombay v. The Century Spinning and Weaving and Manufacturing Co. Ltd.(') is correct and in the present case also the contention of the appellant must fail. The appeal therefore fails and is dismissed with costs. Appeal dismissed. Agent for the appellant : P. A. Mehta. Agent for the respondent : R. A. Govind. (1) [1947] 15 I.T.R. 105. BHIM SEN for R. S. MALIK MATHRA DAS UNION OF INDIA-Intervener. PREM NATH for CH. HARBANS LAL fl.

BHIM SEN for RA TT AN CHAND fl.

S.C.R. CH. HANS RAJ for KANWAR KISHORE ti. ATMA SINGH for SHANTI SAROOP ti. [HARILAL KANIA c. J., MEHR CHAND MAHAJAN AND CHANDRASEKHAAA AIYAR JJ.J 19 Preventive Detention Act (IV of 1950), s. 3(1)-Preveniive detention for black-marketing-Order based on past activities-Validity -Power of Court to consider sufficiency of grounds-Effect of establishment of Advisory Boards under Preventive Detention (Amending) /let, 1951. An order of detention to prevent black-marketing cannot be held to be illegal merely because in the grounds for such deten· tion the detaining authority has referred only to the past activities of the person detained, inasmuch as instances of past activities may give rise to a subjective mental conviction that it is necessary to detain such person to prevent him from indulging in black-marketing in the future. Under the .

Preventive Detention Act, 1950, the test as to whether an order of detention should be made is the subjective •atisfaction of the detaining authority; the Court has no power to consider whether the grounds supplied by the authority are rufficient to give rise to such satisfaction. The establishment of the Advisory Board by the Amending Act of 1951 has not made the matter a justiciable one, and even after the Amending Act the Court has no power to c<lnsider whether the grounds supplied are sufficient for making an order of detention. CRIMINAL APPELLATE JURISDICTION : Criminal Appeals Nos. 45 to 49 of 1951. Appeals from the judgments and orders dated 20th August, 1951, of the High Court of Judicature at Simla (Bhandari and Soni JJ.) in Criminal Writ Cases Nos. 46 to 50 of 1951. Jai Gopal Sethi (R. L. Kohli and Sri Ramkumar, with him) for the appellants in Cr. Appeals Nos.- 45 and 49. Bhim Sen ! he State of Punjab. Rhim Sen The State of Punjab. Kania C. /. 20 [1952] N. C. Chatterjee (Hardayal Hardy and R. L. Kohli, with him) for the appellant in Cr.

Appeal No. 46. Hardyal Hardy for the appellant in Cr. Appeal No. 48. S. M. Sikri, Advocate-General of the Punjab (N. S. Doabia, with him) for the respondent in all the appeals. M. C. Setalvad, Attorney-General for India ( G. N. Joshi, with him) for the Intervener in Cr. Appeal No. 45. 1951. October 4. The Judgment of the Court was delivered by KANIA C. }.-These are five companion appeals from the judgments of the High Court of East Punjab and the principal point argued before us is as to the legality of the detention of the appellants under the Preventive Detention Act on the ground that they are 4 engaged in black-marketing in cotton piecegoods. The Jullundur Wholesale Cloth Syndicate was formed to work out the distribution of cloth under the Government of Punjab Control (Cloth) Order passed under the Essential Supplies Act.

Certain persons who held licences as wholesale dealers in cloth formed themselves into a corporation and all cloth controlled by the Government was distributed in the district to the retail quota holders through them. The Government allotted quotas to the retailers and orders were issued by the Government for giving each retailer certain bales under the distribution control. If some of the retail licence holders did not take delivery of the quotas allotted to them under the Notification of the 4th of October, 1950, issued by the Government of India, Department of Industries and Supplies, it was, inter alia, provided that the wholesale syndicate may give the bales not so lifted to another retail dealer. It may be noted that all along the price for the cloth to be sold wholesale and retail had been fixed under Government orders. The Synilicate was suspected to be dealing in black market and had been warned against its activities by the District Magistrate of Jullundur several times.

On the 7th of June, 1951, S.C.R. 21 an order was issued by the District Organiser, Civil Supplies and Rationing, Jullundur, to the managing agents of the wholesale cloth corporation, Jullundur City ,intimating that they were strictly forbidden to dispose of any unlifted stock against unexpired terms without "his prior permission in writing. They were further directed that thenceforth no such stock would be allowed •to be sold to an individual retailer, but permission would be granted to sell the same to associations of retailers only. It was stated that this letter was not in accordance with clause 5 of the Notification of the Government of India dated tile 4th October, 1950, which authorized the wholesale syndicate to be at liberty to sell unlifted cloth to any other retailer or an association of retail dealers of the same district.

It · may be further noted that the Cotton Cloth Control Order was in operation even prior to 1950. · For some time control on the distribution of cloth was lifted but the price remained under the control of· the Government. During that time it has beeen alleged that the appellants and several others sold cloth at rates higher than those fixed by the Government. Even when the. distribution and price were both controlled, the manufacturing mills were allowed to sell at prices fixed by .. the Government a certain percentage of cloth which was not taken by the Government under its control. This was described as free sale cloth and it was alleged that the appellants and several others were doing black-marketing in this free sale cloth.

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