The Judgment of the Court was delivered by

P.B Mukharji, J.:— This is an income-tax reference under section 66(1) of the Income-tax Act. The two questions asked in this reference are as follows:

“(1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,680-13-0 and Rs. 6,017 could be claimed as a revenue expenditure in the year of account?

(2) Whether, on the facts and in the circumstances of the case, the sum oft Rs. 10,430 paid by the assessee company, as its contribution to the employees' provident fund, is allowable as a deduction in the assessment year 1951-52?”

2. Mr. S. Mitra, learned counsel for the assessee, has not pressed the second question as he says that he has got relief in the subsequent year for the sum of money mentioned in the second question. Mr. Mitra also has not pressed for deduction of the sum of Rs. 6,017 mentioned in the first question. Therefore, this court is not called upon to answer the second question and the second part of the first question. The result is that the only question for answer by this court is:

“Whether on the facts and in the circumstances of the case, the sum of Rs. 4,680-13-0 could be claimed as a revenue expenditure in the year of account?”

3. The question raised is short, interesting and troublesome.

4. Before dealing with this question the relevant facts on which this question arises may be stated briefly. The assessment year is 1951-52,. corresponding to the previous calendar year 1959. The assessee-company was the lessee of a jute mill situated at Ellore, belonging to Srikrishna Jute Mills Limited of Ellore. For the first time the lease of the jute mill was procured by the assessee company in 1944 for a period of five years. On the expiry of the first five years in 1949 that lease was renewed for a further period of five years by a deed dated the 16th March, 1950. This lease of the 16th March, 1950, was an ill-fated lease. A dispute arose between the lessor and the assessee-company regarding the validity of this lease. The board of directors of the lessor company, namely, Srikrishna Jute Mills Limited, contended that this lease was signed by the secretary and the treasurer who had really no authority to sign on its behalf. The lessor therefore contended that the lease of the 16th March, 1950, was ineffective and invalid. This dispute however was settled and a fresh lease was executed by the assessee-company in favour of the lessor company but on a very much more enhanced rental. The previous annual rent was Rs. 90,000 only and the new lease which was executed on the 5th February, 1951, raised the annual rental to Rs. 1,11,000. Comparing the terms of the two leases, namely, the lease dated 16th March, 1950, and the lease dated the 5th February, 1951, it must be said that the terms also were not exactly similar but there are certain variations.

5. Now the assessee-company paid a stamp duty of Rs. 4,680-13-0 in respect of the lease dated the 16th March, 1950, which was said to be invalid and ineffective on the ground that the executants had no authority to sign. A sum of Rs. 6,017 was provided for in the accounts as a liability on the last day of the accounting year as an anticipated expenditure of the stamp charges relating to the execution of the revised lease dated the 5th February, 1951. The payment of the amount of Rs. 6,017 was not made during the year of account. The assessee claimed that both the amounts should be allowed during the year of assessment as revenue expenditure because they were incurred merely as an incidental expense for the purpose of business and there was no acquisition of a new asset. Now that Mr. Mitra, the learned counsel for the assessee, has given up the claim of Rs. 6,017, this court is left to the determination of the question whether this sum of Rs. 4,680-13-0 paid as stamp duty on an ineffective lease could be claimed as a deduction or as revenue expenditure in the year of account.

6. The Tribunal turned down the contention of the assessee. The Income-tax Tribunal came to the conclusion that this was a case of acquisition of an asset of an enduring character and that by taking this new lease the assessee got possession of property and machinery to run the mill and without that lease it could not have acquired the right to run the mill. Therefore, the Tribunal reached the conclusion that expenses incurred for the acquisition of this lease was of a capital nature. The Tribunal therefore refused to allow the assessee's claim for deduction of this amount of Rs. 4,680-13-0 in the computation of the assessee's income.

7. The assessee claims this sum of money as legal expense or rather expenses for stamp duty on a document which proved ineffective in securing any asset. It claims to deduct the sum under section 10(2)(xv) of the Income-tax Act which provides for an allowance, inter alia:

“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.”

8. In order to avail of this allowance it is essential that the expenditure on this account must not be in the nature of capital expenditure. The assessee puts his case simply on this ground by saying that this stamp duty on an ineffective lease could not be said to be an expenditure in the nature of capital expenditure for the simple reason that this lease failed to procure any capital asset and an expenditure which fails to procure any capital asset, prima facie, would appear to be one not in the nature of capital expenditure. Common-sense supports that view. If the capital asset or the capital is not secured then how can the expenditure be called a capital expenditure. If the authorities and reported decisions were not conclusive on the point, we would have had little hesitation to accept the assessee's contention.

9. The acquisition of a lease where a mill is run is certainly acquisition of a capital asset. The assessee is a lessee who carries on the mill and the factory on the leasehold premises. The leasehold premises are the capital assets of the business. This is not so much a case for a renewal of a lease. The two leases mentioned did not contain any covenant for a renewal. In fact from the technical point of view it would appear to be a fresh lease on the expiry of the previous period of lease but that is neither here nor there. The point for emphasis on this aspect is that acquisition of a leasehold premises is a capital asset in a business of this nature.

10. But then the point for determination is that this sum of Rs. 4,680-13-0 was paid as stamp duty on a lease which failed to secure that capital asset because the lease was ineffective to transfer interest on the ground that the executants had no authority to execute the lease. A stamp duty paid on such an ineffective and invalid lease which fails to procure the capital asset by the ordinary common-sense test would not be a capital expenditure. It was an abortive and unsuccessful expenditure to secure capital.

11. But then we find the law to be this, that the expenditure is to be attributed to capital even if it be made “with a view” to bring a capital asset or an advantage into existence and it is not necessary that it should in fact have that result. The cases seem to have decided that a sum spent in trying to get an agency agreement or a licence would nevertheless be capital expenditure, notwithstanding the fact that the intended agency or licence was not ultimately secured. The well-known cases on the point for this proposition are Henderson v. Meade-King Robinson & Co. Ltd. 1938 22 Tax Cas. 97. and Southwell v. Savill Brothers Ltd. 1901 4 Tax Cas. 430. and Pyrah v. Annis & Co. Ltd. 1956 37 Tax Cas. 163

12. The origin of this law can be traced to the following celebrated remarks of Viscount Cave L.C in the decision of the House of Lords in British Insulated and Helsby Cables v. Atherton [1926] A.C 205, 213-214.:

“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 a trade, I think that there is 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.”

13. This classic observation started a whole train of cases on this branch of the law and the famous expression “with a view to” in the above passage made the courts and judges think that so long as the “view” was there it was enough and it really did not matter whether the view ultimately materialised or not. Once a “view” was there to secure a capital, no matter whether the capital in fact was acquired or not, the view or idea will stamp it as capital expenditure. This court should have thought that the Income-tax Act was not an Act to tax ideas or views which were not executed into overt acts such as acquisition of a capital or income. But the remarks of Viscount Cave L.C have been canonized into law, and that great Lord Chancellor today does not perhaps rest in peace where he is, in finding what use posterity has made of his expression “with a view to”.

14. The Supreme Court has quoted with approval Viscount Cave's enunciaation of the above law in Commissioner of Income-tax v. Finlay Mills Ltd. [1951] 20 I.T.R 475 S.C There also the claim for deduction under section 10(2)(xv) of the Income-tax Act was in issue but in connection with the registration of trade marks. This decision of the Supreme Court however is not in our opinion an authority for the proposition that an unexecuted “view” or idea to acquire a capital asset or a mere view or idea which had failed and become abortive would be capital expenditure. Kania C.J, delivering the judgment of the Supreme Court in that decision, at page 478, expressly pointed out that trade mark was not really an asset or capital for the purpose of the Income-tax Act. The registration of the trade mark only gave certain procedural facilities and, prima facie, evidentiary presumption but did not create an asset. Kania C.J, at pages 478-479, observed as follows:

“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, prima facie, proved on production of the registration certificate. It thus merely saves him the trouble of leading evidence, in the event of a suit, in a court 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 infringers. Cancel the registration and he has still his right enforceable at common law to restrain the piracy of his trade mark. In our opinion, this is neither such an asset nor an advantage so as to make payment for its registration a capital expenditure.”

15. But the reason for making reference to this decision of the Supreme Court is that Kania C.J approved of the observation of Viscount Cave L.C at page 476 of the report of the case of the Supreme Court.

16. The more formidable authorities on this point against the assessee are provided by the two English decisions in Southwell v. Savill Brothers Ltd. and Pyrah v. Annis & Co. Ltd. already cited above. It will be necessary therefore to examine these authorities. In Southwell v. Savill Brothers Ltd. certain brewers claimed to deduct sums paid for “call of licences” and other expenses of unsuccessful applications for new licences in arriving at profits for assessment. It was held there that such deductions were not admissible. At page 433 of that report, Kennedy J. observed as follows :

“It has seemed to me from the very first very difficult to see how the nature (so far as taxability is concerned) of an expenditure can be different when, it turns out that they do not get a profitable investment, of that sum of money, instead of it representing capital in future years, it does not represent capital, but the nature of it as an investment of money seems to me not to be altered.”

17. Phillimore J., who agreed with Kennedy J., in a separate judgment, at page 434, observed as follows:

“Why is it not the same thing if he applies those sums in attempts to extend his business, and he fails? Or, let us take a concrete case. Part of the money is spent in buying the right to call for licences on options. That money is spent before the licensing day comes round. At that moment, after it has been paid, and before the licensing day comes round, where is it to go? It has been spent. If it succeeds it is to go into the expenditure of capital, but if it fails it is to go some other way. I want to know, in between, where it is to stand. It seems to me it can only stand, in between, as it will at the end, and if it may not at the end stand as an ordinary deduction from the annual profits, as an annual trade expense, neither can it so stand at the moment when the option is on it.”

18. No doubt, Phillimore J. makes it quite clear at page 435 of the above report that this case did not decide the question whether in the case of brewers dealing in tied houses, the expenses of the upkeep of licences, and the expense of procuring the renewal of licences, was or was not a legitimate trade expense, although he expressed that he thought that was so.

19. Before parting with this case it is necessary to make one observation that the report of this case in 4 Tax Cas. 430 is different from the report of the same case in the authorised report in Law Reports [1901] 2 K.B 349. The passage that I have quoted above from Phillimore J. agrees with the report appearing in the authorised report. But the observations that I have quoted from Kennedy J. in 4 Tax Cas. at page 433 are different in [1901] 2 K.B at pages 352-53. The report in the authorised version of Kennedy J.'s observation are as follows:

“If, as has been admitted by the respondents, they are not justified in deducting from their profits the expenses of applications for new licences where the applications are successful, it is difficult to see now how they can claim to deduct the expenses where the applications are unsuccessful, In my opinion no distinction can be drawn between the two classes of expenses. The fact that the expenditure does not turn out to be a profitable investment cannot alter the nature of the expenditure, or make it any the less an investment of capital.”

20. Although the reports are different, the conclusions are the same as well as the reasons.

21. The other authority against the contention of the assessee is Pyrah v. Annis & Co. Ltd. This case really proceeded on the fact that the expenditure was incurred in an attempt to improve the capital position if the company and therefore it was accordingly not allowable as a deduction for computing profits for taxation purposes. There the respondent-company in 1939 held a public carrier's licence for seven rigid tipper vehicles and subsequently certain changes took place in the number and type of vehicles licensed. In 1952 the company applied to the licensing authority to vary its then existing licence which was for four articulated vehicles, by the inclusion of further three articulated vehicles. The company's application was refused and its appeal to the Transport Tribunal was dismissed. The company incurred legal costs, £1,272, on the application and the appeal. The assessee claimed to deduct this but was disallowed and the taxing authority's decision was upheld both by Vaisey J. as well as by the Court of Appeal in England. At page 169 of the report, Vaisey J. observed as follows:

“Now, here the purpose for which this sum of £1,272 was expended, as I have already mentioned, in an attempt to make the fleet of lorries owned by this company more useful and more advantageous as income-winning assets, is not part of the carrying on of the business at all. It was an expenditure which was designed to improve the capital position of the company, and I think that this unsuccessful attempt to better the capital position by obtaining the desired variation of the ‘A’ licence was a matter which was properly attributable in the accounts to capital and not to income.”

22. This observation that expenditure even on unsuccessful attempt to better capital is capital expenditure, is against the assessee's contention in the present case before us. This matter came up before the English Court or Appeal which upheld the decision of Vaisey J. At page 172 of the same report, Lord Evershed M.R quoted the above observation of Vaisey J. and made the following remarks:

“Mr. Talbot drew attention to the words (which I somewhat emphasised in reading)—‘which is not part of the carrying on of the business at all’. On a strict scrutiny that view is not perhaps expressed with complete accuracy: for the operation of improving your capital asset may well be in one sense, of course, part of the conduct of your business. But, apart from that slight criticism (which is, I think, simply a criticism of terminology), as a statement of principle that paragraph again seems to me to be unimpeachable.”

23. Reference to Southwell's case has been made in India for instance in Munshi Gulab Singh & Sons v. Commissioner of Income-tax by Mahajan J., and in Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax by Ramlswami C.J To conclude this line of cases, reference may be made to the recent decision of the Supreme Court in A.V Thomas & Co. Ltd. v. Commissioner of Income-tax [1963] 48 I.T.R S.C 67., which also discussed a claim for deduction under section 10(2)(xv) of the Income-tax Act. Hidayatullah J., at page 74 of that report observed as follows:

“This clearly shows that the assessee-company intended to acquire a capital asset for itself. This purpose takes the case of the assessee-company out of section 10(2)(xv) of the Income-tax Act, because no expenditure can be claimed under that clause which is of a capital nature.”

24. Mr. Pal, appearing for the taxing authorities, has relied on this last observation to say that so long as the purpose or the view to acquire capital asset was present, there was an end of the matter and any expenditure for that purpose, whether it ultimately produced capital or not, must be regarded as in the nature of capital expenditure.

25. I shall cite one more decision to conclude the list of citations to show how strongly entrenched is this doctrine. It is the decision of the English Court in Collins v. Joseph Adamson & Co., where, at pages 408-9, Lawrence J. noticed and observed as follows:

“The Solicitor-General also referred to the case of Southwell v. Savill Brothers Ltd., where it was held that money spent by a brewery company in unsuccessfully attempting to get more brewery licences was equally a capital charge as in cases where the money was spent successfully for that purpose. It was argued for the Crown that that shows that it is not necessary, in order that the expenditure should be of a capital nature, that there should be any tangible asset created by the expenditure. If the money is spent for the purposes of the trade, and the expenditure would, if success ful, produce either a capital asset or an asset of an enduring nature, or an advantage of an enduring nature, which is of a capital nature, it is equally a capital payment if the expenditure is unsuccessful. From this case, I think it may be deduced that you cannot test the question whether the payment is properly a capital or a revenue payment by seeing whether it can, be shown to be productive.”

26. That settles the point on the authorities. In conclusion we make a bare reference to a recent judgment which we delivered in this court in I.T.R No. 10 of 1960, Liberty Cinema v. Commissioner Of Income-Tax, Calcutta., where we have discussed other authorities on legal expenses and it is not necessary for us to repeat those discussions in deciding the particular short; point raised in this reference before us.

27. On the authorities therefore and on the reasons stated above, we answer the question in the negative and hold that, on the facts and in the circum-stances of the case, the sum of Rs. 4,680-13-0 cannot be claimed as a revenue expenditure in the year of account. There will be no order as to the costs of this reference.

Laik, J.:— I agree.

28. Reference answered accordingly.