MEWAR SUGAR MILLS LTD., BHOPAL SAGAR versus COMMISSIONER OF INCOME-TAX, RAJASTHAN, JAIPUR

Citation: [1973] 2 S.C.R. 429 · Decided: 26-09-1972 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Case Partly allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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MEW AR SUG~R MILLS LTD., BHOPAL SAGAR 
v. 
429 
COMMISS!ONER OF INCOME.TAX, RAJASTHAN, JAIPUR 
September 26, 1972 
(K. S. HEGDE, P. JAGANMOHAN REDDY, I. D. DUA AND H. R. 
KHANNA, JJ.J 
/"come Tax Act (11 of 1922), s. 10(2) (xv)-Payment in respect of 
monopoly rights and licence and in respect of royalty-Whether capital nr 
revenue expenditure. 
The grantee of a monopoly from the Government to 
manufacture 
sugar, transferred his rights, with the permission of the Government, to 
the appellant-company (assessee), under a.n agreement., Under the terms 
of the grant and the agreement, the assessee was liable to pay royalty at 
2% on the price of sugar manufactured by the assessee and this rate was 
»evisable, if after five years, it was found to be excessive; but no other 
tax was to be charged on the sugar manufactured. The assessee had to 
pay to the transferor and to his nominee, evecy year 
H% of the 11et 
profits of its business, in lieu of the monopoly rights and licence. 
For the assessment years 1~50-53, the assessee claimed that, (a) Tlie 
<!mount paid to the transferor in respect of the monopoly and licence, and 
(b) the royalty.paid to the Government in respect of the sugar manufac' 
lured were deductible expenses but the Department, Tribunal 
and the 
High Court, on reference, held aga.inst the assessee. 
Partly allowing the appeal to this Court, 
HELP : The payments in respect of the monopoly rights are of a 
capital nature, but the royalties paid are of a revenue nature deductible 
under s. 10(2) (xv) of the Income-tax Act, 1922. [436 B-C] 
None of the tests laid down in the various decisions for determinine 
whether an expenditure incurred in bringing into existence an asset is of 
a ca?ital or revenue nature, is either exhaustive or universal, because, it is 
not always easy to determine whether a particular asset belongs to one 
category or the other; nor docs it depend in any way on what may be the 
nature of the asset in fact or in law. 
The determining factor depends 
largely on the nature of the trade in which the asset is employed and the 
quality of the payment therefor. [434 C-D, FJ 
In the present case, { 1) no arguments were addressed regarding pav· 
ments in respect of monopoly rights a.nd licence. [433 BJ 
· 
(2) As regards the royalty "n the sugar manufactured. (a) the words 
'no other tax will be charged' suggest that what was being charged, was 
intended to be a tax in some form, and (b) the payment of the ~oyalty 
is directly related to the sugar manufactnred by the appellant and is not 
for securing an enduring advantage. 
Therefore, the expenditure is a 
revenue expenditure. [433 E; 434 F-G; 435 BJ 
, 
Golan Lime Syndicate v. Commissioner of I. T. 59 J.T.R. 718 
anJ 
Associated Stone lndu<fries ( Kotah) Ltd. v. C./.T., 82 l.T.R. 896. fol· 
lowed. 
43 0 
SUPREME COURT REPORTS 
[l 973] 2 S.C.I!.. 
R. B. Seth Moo/c/1a11d S11ga11cha11d v. C.l.T., Delhi, C.A. No. 2020 of 
A 
1972 decided on 19.9.1972. and Si11gare11i Collieries Co. Ltd. v. C<nn1liis~. 
sioner of /, T., 66 l.T.R. 553. referred to. 
Assa111 Bengal Ce111en1 C~o. Ltd. v. (~.l.T .. ivest BenKal, 27 l.T.R. 34, 
explained. 
CivIL APPELLATE JURISDICTION : Civil Appeals Nos. 1596 
to 1598 of 1969. 
B 
Appeals by certificate from the judgment and order dated 
November 27, 1967 of rhe Rajasthan High High Court in Income-
tax Referencee No. 29 of 1962~ 
S. T. Desai, A. K. Verma, J.B. Dadachanji, 0. C. Mathur and 
Ravinder Narain, for the appellant. 
,t 
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S. C. Manchanda, J. Ramamurthy, B. D. Sharma and R. N. 
· Sachthey, for the respondent. 
The Judgment of the Court was delivered by 
JAGANMOHAN REDDY, J. These appeals are by certificate 
against the judgment of the Rajasthan High Court answering the 
questions ·referred to it by the Inco1ne-tax Appellate Tribunal 
under s. 66(1) of the Income-tax Act. 1922 (hereinafter refer-
red to as the 'Act' partly Jn favour of the revenue and against 
the assessee. 
The assessee appellant is a public company on 
which the assessments in dispute were levied for the years 1950-
51, 1951-52 and 1952-53. the corresponding 
previous 
years· 
being the years ending 31st March 1950, 31st March 1951 and 
31st March 1952 respectively. 
It appears from the statement 
of the case that the appellant carries on the business of sale of 
sugar and oil, that the manufacture of sugar was started in 1940 
while that of oil in 1942. On April' 5, 1932 the Maharana of 
the Udaipur State, i

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