The Judgment of the Court was delivered by
Sinha, J.:— This is a reference under section 66(1) of the Income-tax Act. The facts are as follows: The assessee in this case is a limited company, Messrs. H. Dear and Co. Ltd., Calcutta, and the assessment year is 1953-54, relevant to the accounting year ending 31st July, 1952. The assessee is a company which collects timber from Nowrangpur and Ramgiri forests in Jeypore, Orissa. For the period from 1st July, 1944, to the 30th June, 1950, the assessee was permitted to collect timber for extraction and sale of sleepers under two separate leases both dated 14th September, 1944, granted by the Maharaja of Jeypore, copies of which are annexed to the statement of case dated 30th July, 1959, marked as annexures “A” and “B”. The following terms appearing in the agreement with regard to the Ramgiri forest are important. The terms with regard to the Nowrangpur forest are practically the same:
“1. That for and in consideration of the sums of money to be paid by the company in the manner and at the times and rates hereinafter specified and subject to the terms and conditions hereinafter appearing the Maharajah agrees to sell and the company agrees to buy all the sal trees, for the manufacture of sleepers and scantlings, which may be marked by the forest department for felling in the reserved, protected and unreserved lands of the Ramgiri Range (hereinafter known as the ‘leased area’), the boundaries of which are delineated and shown on the map hereunto annexed and more particularly described in the schedule hereunto appended.
2. That the company shall have the right and liberty within the said area to fell all sal trees so marked as aforesaid and to convert the same into sleepers in the leased area and to export the timber so converted therefrom during a period of six years from July 1, 1944, to June 30, 1950:
Provided that the Maharajah, at the request of the company, renews this lease for a further period of five years from July 1, 1950, on terms to be mutually agreed upon failing which both the parties agree to abide by the decision of the Conservator of Forests, Orissa, or the Collector and Agent to the Governor, Koraput, on the terms in dispute as final….
Only the sleepers and scantlings referred to in clause 5 extracted from the sal trees and passed by the company shall become the property of the company. All slabs, butts, top-ends, rejected sleepers, and other pieces of timber shall remain and be the sole property of the Maharajah who may dispose them of in such manner as he may deem fit.”
2. Clause 7 provides that the royalty payable shall be a percentage of the selling price of sleepers, meaning thereby the price paid by the Sleeper Control Officer, Eastern Group, to the company for sleepers extracted from Jeypore forests. Clause 9 provides that the Maharajah shall provide each year in the leased area, standing sal trees of the exploitable girth defined in clause 3, to the extent of not less than 10,000 in number, provided that the number so provided should be such as to cover the minimum royalty of Rs. 20,000 which is to be paid annually under clause 10.
3. These leases were to expire on the 30th June, 1950. But even before the said leases expired, it was agreed between the parties that the rates of royalty stipulated in the leases were too low and provided that the leases were renewed for a period of five years, the company would pay additional back-royalty for the period from June 1, 1948, to June 30, 1950. Under the two leases, the rate of royalty varied between 20% and 27% in respect of sleepers sold to the railways. What was agreed upon is an acceptance of the fact that the royalty paid at those rates was too low. But the company did not agree to pay an enhanced amount without a consideration. It agreed to pay the back-royalty, or to be accurate, the balance thereof, calculating the royalty to be 30% in all cases, retrospectively from 1st June, 1948, provided the leases were renewed for a further period of five years. It was, however, realised that in order to make this effective it was necessary to obtain the permission of the Government. According to the Madras Forest Act and the Jeypore Forest Rules, such permission is necessary for entering into a valid lease. The parties provided for the same in the following manner: A formal deed of lease was executed some time prior to 16th January, 1950, but this was to become effective only upon the Government sanction being granted. It was however realised that the Government grant could be for a period of less than five years. In that case, it was agreed that the back-royalty payable would be calculated proportionately. For example, if the total back-royalty for five years was Rs. 2,00,000 and the Government sanction for the said lease was only for two years, the actual back-royalty payable would be 2/5th of Rs. 2,00,000, namely, Rs. 80,000, which would be payable in two annual instalments of Rs. 40,000 each, per year. All this appears clearly from a letter written on behalf of the assessee-company to the Dewan of Jeypore dated 16th January, 1950, a copy of which is annexed as annexure “C” to the said statement of case. The next thing that happened was that the District Magistrate and Collector of Koraput, acting under the Orissa Preservation of Private Forests Act, 1947, accorded sanction to the extension of lease only for one year from July 1, 1950, to June 30, 1951. It appears that on the 21st March, 1951, an agreement was arrived at between the company and the Jeypore Estate by which it was agreed that the existing rates of royalty were as follows:
“B. Gs. (Broad gauge)
…
29% of the latest price accepted by the Sleeper Control Officer, Eastern Group
M. Gs. (Metre gauge)
…
25% „
N. Gs. (Narrow gauge)
…
25% „;
Special sizes (i.e all sleepers other than B.G, M.G & N.G)
…
25% '„;
4. It was agreed that in future the royalty payable would be as follows:
“B. Gs.
…
30%
M. Gs.
…
26%
N. Gs.
…
26%
Specials
…
30%”
(See annexure “F” to the statement of case).
5. The following other terms of the agreement are important and are set out as follows:
“Further Mr. Willis has agreed to pay Rs. 9,000 (Nine thousand) in addition to Rs. 69,000 already agreed to be paid towards back-royalties each year.
The other terms in the existing agreement will apply mutatis mutandis.
These terms will come into force only if the lease period is extended by at least a period of 3 years if not 4 years. Attempts should, however, be made to have the lease extended for a period of 4 years from 1st July, 1951.”
6. As I have stated above, the Collector of Koraput had only accorded sanction to the extension of lease up to June 30, 1951. After that date, the assessee held over and continued to collect timber without any formal deed. On the 10th June, 1952, a letter was written by the assessee-company to the General Manager, Court of Wards, Jeypore, the relevant part whereof is as follows:
“This is to confirm that subject to a lease being signed and registered in terms of the draft enclosed with our letter, dated 9th June, 1951, the following additional payments will be made on 30th June each year during the currency of the lease.
Rs.
As.
Ps.
69,000
0
0
9,000
0
0
5,000
0
0
83,000
0
0”
(See annexure “G” to the statement of case).
7. On the 13th June, 1952, an indenture of lease was executed between the assessee-company and the Jeypore Estate for both the forest areas, in terms similar to the previous leases, for the period of three years from July I, 1951, to June 30, 1954; A copy of this lease is annexure “E” to the said statement of case. In this lease the new percentage of royalty agreed on the 21st March, 1951, is mentioned, but there is no mention of any additional back-royalty being payable. In its return for the assessment year 1953-54, the assessee claimed a sum of Rs. 69,157 on account of the additional royalty paid during the year. This amount was not debited to the account but was claimed by the assessee in the computation of the income filed with the return. A sum of Rs. 14,000, described as a lump sum grant but paid as additional royalty was debited in the account and claimed in the return. These figures will be explained if we look at the letter dated 10th June, 1952, from which the figures have been quoted above. The lump sum payment of Rs. 14,000 obviously refers to Rs. 9,000 and Rs. 5,000 mentioned therein and Rs. 69,157 relates to the amount of Rs. 69,000 appearing therein. It is not clear what the extra Rs. 157 denotes. The company claimed that the additional royalty of Rs. 69,157 and Rs. 14,000 should be allowed as revenue receipt and deducted in the computation of income, because these were paid as price of trees out of which the sleepers were made. This contention was, however, rejected by the Income-tax Officer. He held that the additional royalty was paid because, without the payment of additional royalty, the Jeypore Estate would not have agreed to sign a new lease. Therefore, the additional royalty was paid to secure a source of supply and not as price of the raw materials, etc. It was, therefore, a capital payment and not revenue expenditure and could not be allowed to be deducted in the computation of income. On appeal, the Appellate Assistant Commissioner reversed the order of the Income-tax Officer and allowed the claim of the assessee, holding that the expenditure had been incurred solely for the purpose of acquiring logs and converting them into sleepers for sale to different railways and had represented the prime cost of the assessee's stock-in-trade and it could not be regarded as a capital expenditure. From this order the department appealed to the Appellate Tribunal. The Tribunal held that the payment in question was in the nature of additional royalty and not in the nature of premium and, therefore, the expenditure was incurred for the production of the income and not for acquiring a right of lease. The Tribunal confirmed the order of the Appellate Assistant Commissioner and dismissed the appeal. Thereupon, the following question of law has been referred to us:
“Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the three enclosures to the letter of the assessee dated the 8th day of July, 1954, to the Income-tax Officer concerned, the sum of Rs. 83,157 was allowable as an expenditure of a revenue nature?”
8. I might mention here that the three enclosures to the letter of the assessee to the Income-tax Officer dated 8th July, 1954, are: (1) the notes on the agreement dated 21st March, 1951, being annexure “F” mentioned above; (2) letter dated 10th June, 1952, being annexure “G” mentioned above; and (3) letter dated 16th January, 1950, being annexure “C” mentioned above.
9. Those being the facts of the case, the next thing to be considered is the position in law. The question that has to be solved is the old question of whether the amount involved is in the nature of capital or revenue expenditure. Upon this question, there is a large number of authorities, but the ultimate position has always been accepted to be that each case depends upon its own facts. The Supreme Court has discussed all the cases and has laid down the tests in three cases which are invariably cited, namely, Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax [1955] 27 I.T.R 34, Pingle Industries Ltd. v. Commissioner of Income-tax [1960] 40 I.T.R 67 and Abdul Kayoom v. Commissioner of Income-tax [1962] 44 I.T.R 689, 703 S.C.. A passage appearing in the judgment of Hidayatullah J. in the last mentioned case sums up the legal position and may be stated thus:
“What is attributable to capital and what to revenue has led to a long string of cases here and in the English courts. The decisions of this court reported in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax and Pingle Industries case have considered all the leading cases, and have also indicated the tests, which are usually applied in such cases. 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, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo*) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles which are followed in such cases.
A trader may spend money to acquire his raw materials, or his stock-in-trade, and the payment may often be on revenue account but not necessarily. A person selling goods by retail may be said to be acquiring his stock-in-trade when he buys such goods from a wholesaler. But the same cannot be said of another retailer who buys a monopoly right over a long period from a producer of those goods. The amount, he pays to secure the monopoly, though a part of the expenditure to secure his stock-in-trade is not of the same character as the price he pays in the first illustration. By that payment, he secures an enduring advantage and an asset which is a capital asset of his business. In the same way, if a manufacturer buys his raw materials he makes a revenue expenditure, but when he acquires a source from which he would derive his raw materials for the enduring benefit of his business, he spends on the capital side. Thus, a manufacturer of woollen goods who buys his wool buys his raw materials, but when he buys a sheep farm, he buys a capital asset. There is then no difference between a purchase of a factory and the purchase of the sheep farm, because both are capital assets of an enduring nature.”
10. Before us, several decisions were cited but two decisions were in the main relied on and serve to illustrate the two classes of cases on either side of the border line. The first case cited is a decision of the House of Lords— Hood Barrs v. Inland Revenue Commissioners. The facts in that case were as follows: The assessee was a timber merchant. On September 30, 1947, he entered into an agreement in writing with a company which owned a large estate, to purchase all the timber specified in the agreement, then standing and growing upon the forests referred to in the schedule to the agreement, together with the boughs, branches and other parts of the trees down to the soil. Full and free power and authority for the purchaser, his servants, agents and workmen, to go to and return from the lands upon which the said trees were situate was granted for the purpose of felling, cutting and sawing up and carrying away the same. The purchase price was paid in two large sums and was not a periodical payment. The number of trees and their nature were specified. The purchaser could mark such trees as were presumed to be ripe for cutting and it was only upon the purchaser felling the trees that the property in the timber passed. The agreement contained no time-limit for the felling and carrying away of the timber. The question was whether these two sums paid were in the nature of capital or revenue expenditure. The relevant terms of the agreement have been set out in the judgment of Lord Keith appearing at page 841 onwards. To a certain extent the terms are analogous to the terms in the present case. The first clause in the agreement was that the vendors will sell and the purchaser will buy all the timber specified in the first part of the schedule, then standing and growing in or upon the forests mentioned in the said agreement. The other terms have been indicated above. Lord Morton delivered a short judgment but laid down the principle upon which the matter was to be decided. He said as follows:
“The question arising in the present case is the same as the question posed by Jenkins L.J in Stow Bardolph Gravel Co. Ltd. v. Poole:
‘Is this a case of a purchase of the raw material of the trade, or of the stock-in-trade, in which a particular trader deals, or is it a case of a purchase of a capital asset from which the taxpayers will be able to derive raw material or stock-in-trade as and when the requirements of the taxpayers' business makes it expedient to do so?’
11. In my opinion, having regard not only to the nature of the right acquired but to the other circumstances of the present case, the purchase now under consideration is accurately described as a purchase of the latter kind.”
12. Viscount Simonds referred to the agreement and pointed out that the purchaser by the agreement did not purchase the trees, for they remained the property of the company until severance. Lord Keith said as follows:
“It is unnecessary in this case to consider whether standing trees can ever be so treated. Lord Sorn considered that there may be cases where a timber merchant buying standing trees for his current requirements is entitled to debit the cost in his annual accounts. This may be so if regard is had to current requirements and the timber merchant proceeds to cut down the trees and reduce them into his possession within a short time of their acquisition. It may be that the cut timber then becomes his stock-in-trade, and that the price paid for the trees should enter into the cost price of this stock-in-trade. I say no more because much may depend on the circumstances of the particular case, and such a case is not, in my opinion, this case.”
13. The learned judge then proceeds to deal with the facts of the particular case before him, noting that the time during which the timber could be felled was almost indefinite and also that the purchaser had not the means to fell the entire amount of timber within a short time. The learned judge proceeded to say as follows:
“The fact, however, remains that, when the agreements were completed, he had no right of property in a single tree. He had merely a right to select and thereafter to cut. Even by selection he acquired no property in the trees. He could obtain no property in any part of a tree till he had felled it to the ground.
14. I find it impossible to hold that this very peculiar right is capable of being treated as stock-in-trade of the appellant. The nature of the right, the indefiniteness of the period for its exercise, and the lack of identification of the trees on which the right was to be exercised, to which may be added the size of the transaction and the absence of any evidence of intention or means to complete it within any foreseeable time, all, in my opinion, negative the idea that the appellant had anything that could be called stock-in-trade.
15. In my opinion, what the appellant acquired here was merely a right to go on to the company's land to mark, cut and carry away such trees, up to a specified number, as fell within the size and description mentioned in the agreements. The money paid for this right was, in my opinion, a capital and not a revenue expenditure.”
16. The other case that has been cited, and which is on the other side of the border line, is a decision of the Privy Council in Mohanlal Hargovind v. Commissioner of Income-tax. The facts in that case were as follows: The assessees carried on business as manufacturers and vendors of bidis. These bidis were composed of tobacco rolled in leaves of a tree, known as tendu leaves, which were obtained by the assessees by entering into a number of short-term contracts with the Government and other owners of forests. Under the contracts, in consideration of a certain sum payable by instalments, the assessees were granted the exclusive right to pick and carry away the tendu leaves from the forest area described therein. The picking of the leaves had to start at once and to proceed continuously. It was held that the contracts were entered into by the assessees wholly and exclusively for the purpose of supplying themselves with one of the raw materials of their business and the right to pick the leaves and to go on the land for the purpose were merely ancillary to the real purpose of the contracts and if not expressed would be implied by law in the sale 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 account, just as much as if the tendu leaves had been bought in a shop over the counter. It will be noted that the subject-matter of the contract was described as “the forest produce sold and purchased under the agreement”.
17. We have, therefore, to make up our minds as to upon which side of the border line the present case lies. Mr. Chaudhuri has strenuously contended that the facts of this case can be clearly distinguished from the decision of the House of Lords mentioned above. He mentioned several features of distinction, some of which are as follows: He mentions the fact that in the present case the payments were periodical whereas in the English case there were two lump sum payments made at the commencement of the agreement. Next he remarked that in the English case the selection and the marking of the trees were to be done by the purchaser at his own convenience, whereas in this case the trees were to be identified and marked by the Forest Department. He next points out that in the English case there was no time-limit for felling or extracting the timber, whereas the agreement in this case was for 3 years and the sleepers were to be removed within one year of the completion of operation in each strip. Mr. Chaudhuri, therefore, argues that the case comes nearer to the facts of the Privy Council case than that of the House of Lords. As has been stated above, it is very difficult to equate the facts of one case with another, and even a single fact might turn the scale. However, what we have got to find out is the principles upon which our decision should rest. If I have understood the principle laid down in the cases above mentioned, it is this: If a trader or businessman buys a quantity of goods which forms his stock-in-trade, and this he may do in an infinite number of ways, then it is a part of his revenue expenditure. In other words, he is buying stock-in-trade in order to carry on his business, and looking at it from a commercial point of view, the expenditure incurred is one solely for the purposes of his business and cannot be for any other purpose. A distinction is, however, to be made if instead of buying his stock-in-trade, he acquires a right whereby he will be in a position to acquire his stock-in-trade. The most obvious case is one which is exemplified by the Pingle Industries case. In that case, the assessee-company carried on business of selling flag-stones. He entered into an agreement with a jagirdar, acquiring the right to extract stones from quarries situated in a number of villages belonging to the jagirdar, for a period of 12 years, upon an annual payment. Of course what the assessee was hoping to get ultimately was flag-stones which was his stock-in-trade, but the agreement that he entered into did not directly enable him to acquire any flag-stone. By the agreement, he acquired the right to go into the quarry and to break the stones and convert the same into his stock-in-trade, namely, flag-stones. It was held that the payment, though periodic, was neither rent nor royalty but a consideration for acquiring a capital asset of enduring benefit to his trade and, therefore, an expenditure of a capital nature. A less obvious case is in the case of the acquisition of timber or its products. In the Privy Council case, the purchaser agreed to purchase directly, what constituted his stock-in-trade, namely, tendu leaves. As the Judicial Committee pointed out, the sale and purchase was almost like going into a shop and buying the stock-in-trade over the counter. In such a case, the right of entering into the forest, etc., was only an incidental right and implied in the agreement. But what has to be considered is the real purpose of the contract and the tenor thereof. Was it the acquisition of a stock-in-trade or merely the right to procure it? It is true that there are several points of distinction between this case and the House of Lords case mentioned above. In that case, there was no time-limit within which the timber could be removed. Also it was found that the purchaser had not the immediate means of cutting and removing the entire amount of timber within a short time. Although these distinctions are there, still we have to be careful not to be moved by unimportant facts, but to see whether there is a common principle which can be applied. In my opinion, the principle that has been laid down in the House of Lords case is applicable to the facts of this case. I shall now enumerate why this is so.
18. Coming to the agreements in question in this case, we find that in the first instance, like the English case, there is reference to the sale and purchase of the trees themselves. But it has been made clear in the agreement that it is not an agreement for the purchase of the trees. For example, the agreement is entitled “Agreement for extraction and sale of sal sleepers, specials and scantlings from the Kotpad, Omerkote and Nowrangpur range forests”. In the agreement itself, it has been clearly stated that only such trees could be felled which were of the specified girth and marked for felling by the Forest Department. The vendor was to specify the particular area which was to be worked from time to time. The most important term of the agreement is that property would only pass when the timber had been felled and converted into sleepers and when such sleepers had been passed for delivery. The next most important thing to be considered is that the agreements make it perfectly clear that the main object of the purchase was the making of “sleepers” for supply to the railways. As is well known, the railway companies are the principal purchasers of sleepers which are utilised for the laying of railway tracks, and this is done periodically by calling for tenders and then entering into contracts with contractors. It is not stated anywhere in the agreements that the purchaser had already received a certain contract from the railways which it was seeking to implement by entering into these agreements. It is quite clear that the assessee entered into these contracts for the purpose of implementing any contract that it may enter into with the railways for the supply of sleepers from time to time. In order to effect this, it entered into periodical leases of forests. In my opinion, in this background, it is impossible to say that what was being acquired was any stock-in-trade. What was being acquired was the means of implementing the contracts which the purchaser was likely to enter into with the railways and others, for the supply of sleepers, during a particular period. These contracts were entered into from time to time, and in the instant case it was for a period of three years. What was acquired was a right to enter into the forest and to convert the marked trees into sleepers, for implementation of the contracts which the purchaser might have got or hoped to enter into, primarily, with the railways and, secondarily, with others, during a term of years. It is true that the period is three years and not an indefinite period. But, as has been pointed out in the case of Pingle Industries, it is not necessary in such cases that the period should be indefinite. In that case, Hidayatullah J. said as follows:
“Further, the duration of the right which seems to have weighed with the Full Bench in the Punjab High Court has little to do with the character of the expenditure even if it be a relevant factor to consider. In Henriksen's case, the right was only for three years, but monopoly value having been paid for it, the result was a capital asset of an enduring character.”
19. Although the word “monopoly” is not mentioned in the present case, the purchaser acquired the right of felling all timber marked by the Forest Department within a particular area for the purpose of converting the same into sleepers. It is, therefore, almost in the nature of a monopoly right for the period concerned.
20. Analysing the facts, therefore, we arrive at the following conclusions. Firstly, it is not a sale of the standing timber. The agreement confers a right upon the purchaser to enter into the forest and extract “sleepers”. That connotes that it would have to enter the forest, to wait for certain trees to be marked, and then to cut down such trees according to its requirements for the supply of sleepers to the railways and others, as and when it liked, within the specified period of three years. It may be that within this period it would not be able to implement all its contracts, but regard being had to the history of these contracts, it certainly hoped for a continuation of the contracts for a subsequent period. In my opinion, therefore, what was being acquired was not stock-in-trade but the right to acquire it and, therefore, upon the principles laid down above, it was an acquisition of a capital asset of an enduring nature and not an expenditure on revenue account.
21. Although this conclusion would be sufficient to dispose of this case, yet fortunately there is another aspect which, in my opinion, makes the problem easier of solution. In this particular case, the history of the contracts has been set out above. It will appear therefrom that the amount that we are concerned with in this case is not royalty which is payable or stated to be payable under the agreement of June, 1952. This agreement makes no mention of the “back-royalty”. What has happened is as follows: The assessee had two contracts which expired on the 30th of June, 1950. In these contracts, there was a provision for an extension thereof, but that extension was subject to various eventualities. In any event, the parties came together, even before the agreements expired, and agreed that in consideration of a further extension, the lessee would pay a certain amount by way of “back-royalty”. This amount, by whatever name it is called, was clearly not something which the lessee was bound to pay. In fact, under the two agreements aforesaid it was not liable to pay the additional sums at all. Therefore, there can be little doubt that the agreement was that in consideration of the leases being extended for another period, a sum was being paid. In other words, the amount concerned is the payment of a sum, made in consideration of the extension of the agreements which came to an end in June, 1950. Had the agreements not been extended, the business of the assessee would have been greatly affected. There can be little doubt that by this payment the assessee acquired a benefit of an enduring nature. When we say “of an enduring nature”, it does not mean any specified period or an indefinite period. The meaning to be ascribed to that expression depends on the facts of each case. Since by the payment of this sum, the purchaser got the benefit of a contract whereby it could continue its business activities for a sufficiently large period to come, it was doubtlessly, a benefit of an enduring nature and, therefore, the acquisition was of a capital asset. This principle has been noted in a Scottish case, Mac Taggart (H.M Inspector of Taxes) v. B. & E. Strump. In that case, a sum of £1,150 was paid to secure the extension of a lease for 5 years at the old rent. It was held that the payment was a capital expenditure. Of course, the right there was the right to a tenancy, but the principle laid down was to the effect that payment for the purpose of acquiring a further benefit or the extension of existing rights, which were about to expire, was in the nature of a capital expenditure and not a revenue one. In other words, the business of the assessee depended upon acquiring sources from which it could get its stock-in-trade. The acquisition of such a right, for a future period, was not a matter of course. It acquired that right by the payment of a consideration. Such a payment made for the acquisition of a benefit of an enduring nature was in the nature of a capital expenditure and not a revenue one.
22. Adverting to the principle laid down by Lord Morton, we find that, on the facts of this case, it was not a purchase of the raw material of the trade or of the stock-in-trade, but the purchase of a capital asset from which the assessee would be able to derive its raw material or stock-in-trade as and when the requirements of its business make it expedient to do so. In whatever manner the agreement is analysed, we do not think that it could possibly be said, as it was said in the Privy Council case mentioned above, that it was analogous to a sale over the counter. Indeed, when the agreement was entered into, the stock-in-trade did not exist. For bringing into existence the stock-in-trade, a great many things would have to be done. The purchaser would have to procure a contract from the railways, the trees would have to be marked by the forest department, the trees would have to be felled and converted into sleepers, and the converted sleepers must be such as would pass the tests. Rejected sleepers would continue to remain the property of the zamindar, as also the parts of the trees other than the completed sleepers constructed according to the necessary specifications, and passed for supply. It, therefore, approximates more to the House of Lords case than the case decided by the Privy Council.
23. The result is that, in our opinion, the expenditure was in the nature of a capita] expenditure and not a revenue one, and the question asked must be answered in the negative. The department is entitled to the costs of this application. Certified for two counsel.
Datta, J.:— I agree.
24. Question answered in the negative.