Shelat, C.J:— The short question arising in this reference is whether the amount of Rs. 21,741/- incurred in the purchase of types for the printing machine in the first year of its business by the assessee firm is revenue expenditure allowable as a deduction under Section 10(2)(xv) of the Income-tax Act, 1922. Under Cl. (xv) of S. 10(2), what is allowed as a deduction is,

“any expenditure not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.”

2. The assessee firm is a registered firm carrying on business of publishing a daily newspaper in Gujarati called “Jansatta”.

3. The business was commenced from 4th November, 1953, but in the very first year of its business, there was a change in the personnel on 26th August, 1954, and therefore, the accounts for that year, i. e. Samvat Year 2010 (4th November, 1953 to 26th October, 1954) were split up into two parts, one from 4th November, 1953 to 25th August, 1954 and the other from 26th August, 1954 to 26th October, 1954. The assessee firm laid out Rs. 22,799/- in Samvat Year 2010 and certain other amounts during the following years, i. e. Samvat Year 2011 and calendar years 1956 and 1957, on the purchase of types for the purpose of its business, and during the assessment for the assessment years 1955–1956 to 1958–1959 claimed these amounts as allowable expenditure. We are concerned in this reference only with the amount of Rs. 22,799/- spent on the purchase of types during the first year, i. e. Samvat Year 2010. The authorities allowed, however, Rs. 1058/- out of the said amount, so that the controversy in this reference is for the balance of Rs. 21,741/- only.

4. The Income-Tax Officer negatived the contention urged by the assessee firm on the ground that these types formed part and parcel of the printing machinery and that as the expenditure was concerned in the first year of the business, the purchase of these types would be initial or capital expenditure. On appeal, the Assistant Appellate Commissioner disagreed with the view taken by the Income-Tax Officer that these types formed part and parcel of the printing machinery, and observed:

“The point as to whether this was a capital expenditure or not would depend on the consideration whether the ‘type’ was an integral part of printing machinery or was a material which would enable the printing machinery to be used. I do not consider that type can be treated as integral part of the printing machinery. According to me it is like fuel to an engine which can make the engine move, but which is not a part of the engine. In the same way, without the type it may not be possible to use the printing machinery, but it cannot be said that it was a part of the printing machinery. I, therefore, do not agree with the Income-Tax Officer that the purchase of the types was a capital expenditure as a part and parcel of the printing machinery. Normally, types are to be treated as an expenditure which is of a revenue nature and replacements therefrom should be allowed. This position has been accepted by the Income-tax Officer for the later years. In so far as this year is concerned, as no replacements have been met from the types, I consider that the appellant has no claim to get any deduction therefrom.”

5. On a further appeal to the Tribunal, the Tribunal also negatived the assessee's claim for deduction on the ground that the amount of Rs. 21,741 being the amount laid out in the purchase of types in the first year of the business should be classified as wholly capital and the amount of Rs. 1,058, which was allowed and which was spent during the latter part of the accounting year, i. e. from August 26, 1954 to October 26, 1954, would be allowed as expenditure for renewal of part of the outlay of the earlier period. It is this disallowance of the sum of Rs. 21,741 which has been challenged in this reference.

6. It was contended by Mr. Nanavati that types in a printing machine are not an integral part of the printing machine, that a printing machine is complete without types and that types are needed for making the machine print and are, therefore, in the nature of consumable goods necessary for carrying out the business of printing the newspaper and therefore their costs would be expenditure of revenue nature laid out for the purpose of such business. The contention, in other words, was that the expenditure incurred in the purchase of these types was in the nature of trading or operational expenses and that, therefore, they were allowable under clause (xv) of S. 10(2).

7. As has been often remarked in various decisions, the line of demarcation between capital expenditure and revenue expenditure is a very thin one and therefore, Courts of law have refrained from attempting to define or lay down any precise definition and have been content to set out only broad tests. These broad tests are, however, only workable guides and ultimately, the question always depends upon the facts and circumstances of each case. Bowen L.J in City of London Contract Corporation v. Styles, (1887) 2 Tax Cas 239, explained the difference between the two types of expenditure by observing that the expenditure in the acquisition of the concern would be capital expenditure and the expenditure in carrying on the concern would be revenue expenditure. Commenting on this dictum, Lord Dunedin in Vallambrosa Rubber Co., Ltd. v. Farmer, (1910) 5 Tax Cas 529, thought that the dictum laid down by Bowen L.J was not absolutely final or determinative. He believed that it was not a bad criterion of what was capital expenditure as against what was income expenditure to say that capital expenditure was a thing that was going to be spent once and for all, and income expenditure was a thing that was going to ???ecur every year. Rowlatt J. in Ounsworth v. Vickers, Ltd., (1915) 6 Tax Cas 671 observed that the real test was between the expenditure which was made to meet a continuous demand for expenditure as opposed ??? an expenditure which was made once and for all. He suggested, however, another viewpoint and that was whether the particular expenditure could be put against any particular work or whether it was to be regarded as an enduring expenditure to serve the business as a whole. The famous dictum of Viscount Cave, L.C in Atherton v. British Insulated and Helsby Cables, Ltd., (1925) 10 Tax Cas 155, was that when an expenditure is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there was very good reason, in the absence of special circumstances leading to an opposite conclusion, for treating such an expenditure as properly attributable not to revenue but to capital. In John Smith & Son v. Moore, (1920) 12 Tax Cas 268, Lord Haldane suggested yet another test, and that was the test of fixed and circulating capital. That test was also accepted by Lord Hanworth in Anglo Persian Oil Co. Ltd. v. Dale, (1932) 1 KB 124. The test however, of fixed or circulating capital was not accepted by Lord MacMillan in Van Den Berghs, Ltd. v. Clark, 1935 AC 431. In Tata Hydro-Electric Agencies Ltd, Bombay v. Commr. of Income-tax, Bombay, 64 Ind App 215, : (AIR 1937 PC 139), the Privy Council observed that what was money wholly and exclusively laid out for the purposes of the trade was a question which must be determined upon the principles of ordinary commercial trading. It was necessary, accordingly, to attend to the true nature of the expenditure, and to ask oneself the question, was it a part of the company's working expenses; was it expenditure laid out as part of the process of profit earning? The distinction there made was between the acquisition of an income earning asset and the process of the earning of the income. The expenditure in the acquisition of that asset was capital expenditure and the expenditure in the process of the earning of the profits was revenue expenditure. A similar view was also expressed by Dixon J. In Sun Newspapers Ltd. and the Associated Newspapers Ltd. v. Federal Commissioner of Taxation, 61 CLR 337 at p. 360, where the learned fudge observed as follows:

“But in spite of the entirely different forms, material and immaterial, in which it may be expressed, such sources of income contain or consist in what has been called a ‘profit yielding subject,’ the phrase of Lord Blackburn in United Collieries Ltd. v. Inland Revenue Commrs., 1930 SC 215 at p. 220. As general conceptions it may not be difficult to distinguish between the profit-yielding subject and the process of operating it. In the same way expenditure and outlay upon establishing, replacing and enlarging the profit-yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which are or ought to be supplied continually out of the returns of revenue. The latter can be considered, estimated and determined only in relation to a period or interval of time, the former as at a point of time. For the one concerns the instrument for earning profits and the other the continuous process of its use or employment for that purpose.”

8. A case which comes near enough to the present case is Commrs. of Inland Revenue v. Granite City Steamship Co. Ltd., (1927) 13 Tax-Cas 1, where it was held that if the necessity for the expenditure in question has not arisen out of the use of the capital-asset in earning the profits, the expenditure would be capital expenditure. The respondent company there owned one ship only which was seized in 1914 by the German Government and handed back to the respondents in 1918 in a condition which necessitated extensive repairs. These repairs were completed before the ship sailed in March, 1919 on her first voyage after her recovery by the respondents. The cost of the repairs, £ 10,152 was debited in the respondents profit and loss account for the year ended August 31, 1920 and was included in the sum of £ 1,03,167 claimed by the respondents as damages from the German Government Eventually, the respondents accepted in full settlement of their claim a sum of £ 46,750 which was treated as payment of capital not assessable to income-tax. The respondents claimed to deduct the sum of £ 10,152 in computation for income tax purposes their profits for the year ended August, 1920 Negativing the claim of the respondents, Lord Sands stated that broadly speaking, the outlay would be deemed to be capital when it was made for the initiation of a business, for the extension of a business or for a substantial replacement of equipment Lord Ashmore at page 19 of the report, speaking of Lord Dunedin's dictum, namely, that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing that is going to recur every year, qualified that dictum by observing that he would adopt as reasonable the remark of Rowlatt J. that stress ought not to be laid on the phrase “every year” and that the real test was between expenditure which was to meet a continuous demand as opposed to expenditure which was made once and for all A Full Bench of the Lahore High Court in In Re, Benarasidas Jagannath, (1947) 15 ITR 185 : (AIR 1947 Lah 162) after examining the various decisions on the subject, formulated three broad principles which emerged from those decisions These three principles were, (1) 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, (2) expenditure may be treated as properly attributable to capital when it is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduing benefit of a trade. The expressions “enduing benefit” or “of a permanent character” were introduced to make it clear that the asset or the light to acquire must have enough durability to justify its being treated as a capital asset, and (3) 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 Again it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. The Supreme Court in Assam Bengal Cement Co. Ltd. v. Commr. of IT West Bengal, (1955) 27 ITR 34 ((S) AIR 1955 SC 89), approved of the synthesis attempted by the Lahore High Court from the various decisions and also approved the three principles enunciated by it as emerging from the authorities, and Bhagwati J speaking for the Bench, observed that in cases where the expenditure was made for the initial outlay or for the extension of a business or a substantial replacement of the equipment, there could be no doubt that it would be capital expenditure. The capital asset of the business was either acquired or extended or substantially replaced and that outlay whatever be its source whether it was drawn from the capital or the income of the concern was certainly in the nature of capital expenditure. He then observed that the question would arise for consideration when the expenditure was incurred while the business was going on and was not incurred either for extension of the business or for the substantial replacement of its equipment Such expenditure could be looked at either from the point of view of what was acquired or from the point of view of what was the source from which the expenditure was incurred. If the expenditure was made for acquiring or bringing into existence an asset or advantage for the enduing benefit of the business it was properly attributable to capital and was of the nature of capital expenditure. On the other hand, if it was made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it was revenue expenditure Lastly, he observed that in all cases, it would be the aim and object of the expenditure, which would determine the character of the expenditure, whether it was capital expenditure or revenue expenditure. It is thus clear that whereas a question might arise where the expenditure is incurred while the business is going on and is not incurred either for the extension of the business or for substantial replacement of its equipment, whether such expenditure is capital or revenue expenditure, no such question can arise in the case of expenditure incurred as and by way of initial outlay.

9. Considering these tests laid down in the various authorities, we have to examine whether the expenditure in question can be said to be revenue expenditure Now, it may be true, as was urged by Mr. Nanavati, that these types are not part of the printing machinery and that a printing machinery would be complete even without them. It is also true that no one can say that the printing machine is not complete merely because the types are not there But it cannot be doubted that they are ancillary to such a machine and without them such a machine cannot be put to the use for which it is acquired. The types, no doubt, would require replacement from time to time by reason of the usual wear and tear, but the fact that they would require replacement would not necessarily mean that the expenditure incurred in purchasing them would be revenue expenditure, for, replacement would also be there even in the case of the machinery itself which, as a whole or in parts, would necessitate replacement from time to time. The fact that types would require replacement earlier than parts of the machinery would not, in our view, make any difference in their character and cannot, therefore, be called either raw materials in the business of publishing a newspaper or consumable stores, such as for instance, paper or ink or any such other materials necessary for working the printing machinery. It is true that the sum of Rs 1,058/- was allowed in the accounting year Samvat Year 2010 and various amounts were likewise also allowed in the subsequent years, but these were allowed as expenditure incurred for replacing the types Whatever was the basis for allowing these expenses, the fact remains that they were expenses incurred after the business had commenced and were not treated by the authorities as outlay for the initiation of the business which the-amount in question in this reference represented As the Supreme Court observed, the aim and object of the expenditure in question was not, and could not be said to be, running the business or working it with a view to produce profits. In a sense, of course, it can be said that without the types the business could not run, but that can also be said equally of the machine itself. That would not make the purchase price of types trading or recurring expenses involved in running the business. In our view, the aim and the object of the expenditure in question was the purchase or acquisition of the apparatus or the instrument for earning profits as distinguished from the expenditure incurred in the continual process of its use or employment for that purpose, as remarked by Dixon J in 61 CLR 337 Mr Nanavati, however, urged that the test laid down by Lord Sands in (1927) 13 Tax Cas 1, would not be a proper test in this case and the test that should be applied in this case would be the second test as summarised in the Lahore decision, and urged that the expenditure incurred by the assessee firm in purchasing types was not for something of an enduring benefit to the business because the types-have not sufficient durability to give them the character of a capital asset. The test of durability, however, would be applicable in the case of acquisition of a capital asset and would be a relative and not an inflexible one, depending upon the nature and character of the asset as the instrument of making profits of the business. One such instrument may endure for a longer period than the other depending upon its inherent durability. But the question would be, is it a recurrent expenditure in running the business and in making profits of such a business. On the facts and circumstances of the present case, the real test would be the one laid down by the Supreme Court, namely, what was the aim and object of the expenditure. Was it for running the business or was it one concerning the instrument for earning profits? Obviously, the expenditure incurred was not for the continual process of the use of such instrument for earning profits, but was an expenditure concerning the instrument for earning profits. If that distinction is borne in mind, there would be no difficulty in arriving at a proper conclusion as to the nature of the expenditure in question and its aim and object. For the reasons aforesaid, it is not possible to sustain the contention urged on behalf of the assessee firm that the expenditure in question cannot be said to be one for initial outlay or that the expenditure was in the nature of operational or trade expenses. The Tribunal, therefore, was right in disallowing these expenses.

10. Our answer to the question, therefore, will be in the negative. The assessee firm will pay to the Commissioner the costs at this reference.

L.H/A.G.J/V.B.B

11. Reference answered.