Bhagwati, J. - (1.) This appeal by special leave raises the vexed question whether a particular expenditure incurred by the assessee is of capital or revenue nature. This question has always presented a difficult problem and continually baffled the courts, because it has not been possible, despite occasional judicial valie, to formulate a test for distinguishing between capital and revenue expenditure which will provide an infallible answer in all situations. There have been numerous decisions where this question has been debated but it is not possible to reconcile the reasons given in all of them, since each decision has turned upon some particular aspect which has been regarded as crucial and no general principle can be deduced from any decision and applied blindly to a different kind of case where the constellation of facts may be dissimilar and other factors may be present which may give a different hue to the case. Often cases fall on the border line and in such cases, as observed by Lord Greene M. R. in Inland Revenue v. Birtish Salmson Aero Engines Ltd. (1938) 22 Tax Cas 29 "the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons." But this is not one of those border line cases. The answer to the question here is fairly clear. But first let us state the necessary facts.
(2.) The assessee is a limited company carrying on business of manufacture of jute. It has a factory with a certain number of looms situate in West Bengal. It is a member of the Indian Jute Mills Association (hereinafter referred to as the Association). The Association consists of various jute manufacturing mills as its members and it has been formed with a view to protecting the interests of the members. The objects of the Association, inter alia, are (i) to protect, forward and defend the trade of members; (ii) to impose restrictive conditions on the conduct of the trade; and (iii) to adjust the production of the Mills in the membership of the Association to the demand on the world market. It appears that right from 1939, the demand of jute in the world market was rather lean and with a view to adjusting the production of the mills to the demand in the world market, a working time agreement was entered into between the members of the Association restricting the number of working hours per week, for which the mills shall be entitled to work their looms. The first working time agreement was entered into on 9th Jan. 1939 and it was for a duration of five years and on its expiration, the second and thereafter the third working time agreements, each for a period of five years and in more or less similar terms, were entered into on 12th June, 1944 and 25th Nov. 1949 respectively. The third working time agreement was about to expire on 11th Dec. 1954 and since it was felt that the necessity to restrict the number of working hours per week still continued, a fourth working time agreement was entered into between the members of the Association on 9th Dec. 1954 and it was to remain in force for a period of five years from 12th Dec. 1954. We are concerned in this appeal with the fourth working time agreement and since the decision of the controversy before us turns upon the interpretation of its true nature and effect. We shall refer to some of its relevant provisions.
(3.) The first clause of the fourth working time agreement (hereinafter referred to as the "working time agreement") to which we must refer is Cl. (4) which provided that, subject to the provisions of Cls. (11) and (12), "...... no signatory shall work more than forty five hours of work per week and such restriction of hours of work per week shall continue in force until the number of working hours allowed shall be altered in accordance with the provisions of Cl. 7 (1), (2) and (3)." Clause (5) then proceeded to explain that the number of working hours per week mentioned in the working time agreement represented the extent of hours to which signatories were in all entitled in each week to work their registered complement of looms as determined under Cl. (13) on the basis that they used the full complement of their loomage as registered with and certified by the committee. This clause also contained a provision for increase of the number of working hours per week allowed to a signatory in the event of any reduction in his loomage. It was also stipulated in this clause that the hours of work allowed to be utilised in each week shall cease at the end of that week and shall not be allowed to be carried forward. The number of working hours per week prescribed by Cl. (4) was, as indicated in the opening part of that clause, subject inter alia to the provision of Cl. (10) and under that clause, a joint and several agreement could be made providing that throughout the duration of the working time agreement, members with registered complements of looms not exceeding 220 shall be entitled to work up to 72 hours per week. Cl. 6 (a) enabled members to be registered as a "Group of Mills if they happened to be under the control of the same managing agents or were combined by any arrangement or agreement and it was open to any member of the Group of Mills so registered to utilise the allotment of hours of work per week of other members in the same group who were not fully utilising the hours of work allowable to them under the working time agreement, provided that such transfer of hours of work was for a period of not less than six months. Then followed Cl. 6 (b) which is very material and it provided, inter alia, as follows: "Subject to the provisions of sub-cls. (i) to (iv)...... signatories to this agreement shall be entitled to transfer in part or wholly their allotment of hours of work per week to any one or more of the other signatories; and upon such transfer being duly effected and registered and a certificate issued by the committee, the signatory or signatories to whom the allotment of working hours has been transferred shall be entitled to utilise the allotment of hours of work per week so transferred." There were four conditions precedent subject to which the allotment of hours of work transferred by one members to another could be utilised by the latter and three of them were as under: "(i) No hours of work shall be transferred unless the transfer covers hours of work per week for a period of not less than six months; (ii) All agreements to transfer shall, as a condition precedent to any rights being obtained by transferees, be submitted with an explanation to the Committee and the Committee's decision... . . . . where the transfer shall be allowed shall be final and conclusive. (iii) If the Committee sanctions the transfer, it shall be a condition precedent to its utilisation that a certificate be issued and the transfer registered." This transaction of transfer of allotment of hours of work per week was commonly referred to as sale of looms hours by one member to another. The consequence of such transfer was that the hours of work per week transferred by a member were liable to be deducted from the working hours per week allowed to such member under the working time agreement and the member in whose favour such transfer was made was entitled to utilise the number of working hours per week transferred to him in addition to the working hours per week allowed to him under the working time agreement. It was under this clause that the assessee purchases loom hours from four different jute manufacturing concerns which were signatories to the working time agreement, for the aggregate sum of Rs. 2,03,255/- during the year 1st Aug. 1958 to 31st July 1959. In he course of assessment for the assessment year 1960-61 for which the relevant accounting year was the previous year 1st Aug. 1958 to 31st July 1959, the assessee claimed to deduct this amount of Rs. 2,03,255/- as revenue expenditure on the ground that it was part of the cost of operating the looms which constituted the profit making apparatus of the assessee. The claim was disallowed by the Income-tax Officer but on appeal, the Appellate Assistant Commissioner accepted the claim and allowed the deduction on the view that the assessee did not acquire any capital asset when it purchased the loom hours and the amount spent by it was incurred for running the business or working it with a view to producing day-to-day profits and it was part of operating cost or revenue cost of production. The Revenue preferred an appeal to the Tribunal but the appeal was unsuccessful and the Tribunal taking the same view as the Appellate Assistant Commissioner, held that the expenditure incurred by the assessee was in the nature of revenue expenditure and hence deductible in computing the profits and gains of business of the assessee. This view taken by the Tribunal was challenged in a reference made to the High Court at the instance of the Revenue. The High Court too was inclined to take the same view as the Tribunal, but it felt compelled by the decision of this Court in Commr. of Income-tax v. Maheshwari Devi Jute Mills Ltd. 57 ITR 36 to decide in favour of the Revenue and on that view it overturned the decision of the Tribunal and held that the amount paid by the assessee for purchase of the loom hours was in the nature of capital expenditure and was, therefore, not deductible under Section 10 (2) (xv) of the Act. The assessee thereupon preferred the present appeal by special leave obtained from this Court.;