April 26 v. COMMISSIONER OF INCOME TAX, HYDERABAD·

I now refer to four decisions which in my opinion come closest to the controversy before 11>. \I) In re: Benarsi Das ]agannalh CJ; (2) Mohanlal f-largovind of ]ubbul/1ote v. Commissioner of Income-lax, C. P. and ); (3) Abdul Kayoom v. Commissioner Berar, Nagpw· (2 of Income-tax, Madras (') and (4) Stow Bardolj1h Gravel Co. Ltd. v. Poole (Inspector of Taxes) ('). The first is a decision of the Full Bench of the Lahore High Court, the second, a decision of the Privy Council, the third, a decision of the Full Bench of the Madras High Court and the last a decision of the Court of Appeal in England. The facts in Benarsi Das ]agan11ath (') were these. The assessee, who was a manufacturer of bricks, obtai11ed certain lands on leases for the purpose of the manufacture of bricks. digging out earth Under the deeds he had the right to dig earth up to three to three and a half feet. He had no interest left in the lands as soon as the earth was dug out and removed. The periods of the leases varied from six months to three years. The Income-tax authorities and the Appellate Tribunal held that the considera tion paid by the assessee to the owners of the lands was a capital expenditure and was therefore not an allowable deduction under s. I 0(2)(xv) of the Indian Income-lax Act:. It was held by the Full Bench that the main object of the agreement was the procuring of earth for manufacturing bricks and not the acquisi tion of an advantage of a permanent nature or .of an ~nduring character, that the payments made were the price of raw material and that the assessee was there expenditure fore entitled to claim them as business under s. 10(2)(xv). decision was approved by this Court: in Assa111 Bengal Cement Co. Ltd v. Commissioner of Income-tax, West Bengal C). Bhagwati, J., delivering the judgment of this Court said: It was worthy of note "This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles In cases where which emerge from the authorities. the expenditure is made for the initial outlay or [194G] I.L.R. 27 Lah. 307. (') [1949] L.R. 76 I.A. 23>. (') (') 1.L.R. [1%3] Mad. 1133. (') [195.\] 27 I.T.R. 14G. (') [1955] 1 S.C.R. 972. J... ' ]960 Pingle~ Industries Ltd., Secunderabad v. Commissiouer ef Income-tax, Hyderabad S.K. Das]. -- -- ' . ..), > ' 3 S.C.R. SUPREME COURT REPORTS 689 it is income of looked at either from extension of a business or a substantial replacement of the equipment. there is no dmibt that it is capital expenditure. 1} capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn the concern ·is from the capital or The certainly in the nature of capital expenditure. question, however, consideration where arises expenditure is incurred while the business is going on and is not incurred either for extension of the busi ness or for the substantial replacement of its equipment. Such expenditure can be point of view of what is acquired or from the point of view of what is the source from which the expenditure If the expenditure is made for acquiring is incurred. or bringing into existence an asset or advantage for the enduring benefit of the business properly attributable to capital and is of the nature of capita~ If on the other hand it is made not for expenditure. the purpose of bringing into existence of any asset or advantage but for running the· business or working it with a view to produce . the profits it is a revenue expenditure. enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. Thi; aim and object of the expenditure would determine the character of the it is a revenue expenditure. The capital expenditure or a source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expend iture incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be1 applied to the facts of each particular case in the manner above indicated. It has been rightly If any such asset or advantage for expenditure whether 690 SUPREME COlJRT REPORTS [19GO] 1960 lnd11.>tries Pinglt Ltd., Secunderr-bad v. Commissioner of Income-tax, H)'duabad S.K. Da< ]. to apply in which the actual decision observed that in the great diversity of human affairs and the complicated nature of business operations is difficult to lay down a test which would apply to all . situations. One has therefore got criteria one after the other from the business point of view and come to the conclusion whether on a fair the expenditure appreciation of the whole situation incurred in a particular case is of the nature of capital expenditure or revenue expenditure latter event only it would be a deductible allowance under section I 0(2)(xv) of the Income-tax Act. The question has all along been considered to be a question of fact to be determined by the Income-tax authorities on an application of the broad principles laid down above interfere and the Courts of law would not ordinarily with such findings of fact if they have been arrived at on a proper application of those principles" [ do not read these observations as merely indicating an approval of certain general principles, but not necessarily an approval of this nature it Berwrsidas .f11gannath (') is the application of t.he principles to the facts of a case which presents difficulties, and I do not that this Court. would have made the observations it made, unless it was ap~oroving the actual decision m Benarsidos .faganalh' (') l see no general principles to the facts of that case significant distinction between that case and the one before us. In both cases, what was acquired was raw material--earth in one case and stone in the other-and the payments made were the price of the raw material. The only distinction pointed out is the difference in the period of the contracts; that is a relevant factor bnt not determinative of the problem before us. Even in our case the contract in favour of Government was for five years only. Surely, it cannot be argued that three years in one case and five years in the other will make all the difference. I think· that the real test is, in the context of the controversy before us, what was acquired-an enduring asset or materials for running the business? Judged hy that test the present case stands on the same footing as the nise of Benarsidas .Jagannath ('). [1946] I.L.R. 27 Lah. 307. In cases of this nature advantage, or In cases of (') -- ...... ' ~· 1960 Pi rig le fod11slries Ltd., Securiderabad· v. Commissioner of Income-tax, Hyderabad S.K. Das.]. - > 3 S.C.R. SUPREME COURT REPOR1S 691 country made In Mohanlal Hargovind (1) the facts were these. The assessees carried on business at several places as manu cigarettes factures and vendors of known as bidis. These cigarettes were composed of tobacco rolled in leaves of a tree known as tendu leaves, which were obtained by the assessees by entering into a nuinber of short term contracts· with the Government and other owners of forests. Under the contracts·, in consideration of 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: The assessees were allowed coppice small tenclu plants a few months in advance to obtain good leaves and to pollard tendu trees a few months ,in advance to obtain better and bigger leaves. The picking of the leaves however had to start at once or practically at once and to proceed continuously. The Privy Council distinguished Alianza Co. v. Bell (') and overruling the decision in Income-tax Appellate Trihu nal v. Haji Sabumiyan Haji Sirajuddin (') held 'the expenditure was to secure raW1 material and was allowable as being on revenue account Lord Greene, delivering the judgment of the. Board said: "lt appears to their Lordships that there has been some misapprehension as to the true nature of these agreements and they wish to state at once what in their opinion is and what is not the effect of them. Thev are merely examples of many similar contracts entered into by the appellants wholly and exclusively for the purpose of their business, that purpose being to supply themselves with one of the raw materials of that business. The contracts grant no interest in land and no interest in the trees or plants themselves. They .are simply and solely contracts giving to the grantees the right to pick and car11y away leaves, which, of course, implies the right to appropriate them as their own property." · . "In the present case the trees were not acquired: nor were the leaves acquired until the appellants had reduced them into their own 1 possession and ownership If the tendu leaves had been stored by picking them. (1) [1949] L.R. 76 I.A. 235. (2) [1904] 2 K.B. 666. (3) [1946] 14 I.T.R. 447. 692 SUPREME COURT REPORTS [1960] 1960 in a merchant's g·oclown and the appellants had bought the right to go and fetch them and so reduce them Pingfr Iud.,,,.;,, Ltd., S<cundunbnd into their possession and ownership it could scarcely have been suggested that the purchase price was capital expenditure. Their Lordships see no ground in principle or reason for differentiating· the present case from that supposed." v. Comrr, issio11er of Income-lax, Hyderabad SX. Da; J. . ... - • I also see no ground in principle or differentiating the present case from that of Mohanlal H argovind ('). reason form of a "lease" with In K. T. M. T. M. Abdul Ka"/OOrn and Hussain Sahib v. Commissioner of lncorn.e-taC:., Madras(') a Full Bench of the Madras High Court dissenting from its earlier decisions held that rent paid by a dealer in chank under an agreement Government under which he had an exclusive right "to fish for, take and carry away all the chank shells · in the sea off the coast line" of a certain district, was It was further held allowable as revenue expenditure. there that it made no difference whether what was acquired was raw material for a manufacturing busi ness or stock-in-trade which was intended to be sold without being subject to any manufacturing process. This decision is the subject of Civil Appeal No. 64 of 19.16 which has been heard along with this appeal. I do not see how the present case can be distinguished from the Madras Madras decision was incorrect. case without holding Last, I come to Stow Bardolph Grnvd Co. Ltd. ('). ·1 ·hat was a case in which it was held that sums paid b' a dealer in gravel as consideration for the right to excavate and take away deposits of gravel represented capital expenditure. The decision rested on the fact that the subject matter of the agreement consiste<l of " deposit of gravel lying some feet beneath the surface of the land and requiring to be won from the land by I find it difficult to reconcile a process of excavation. this decision with the decision in. Benars£rl,1s .Tagan uath (') and A l"lul Kayoom (') in both of which also excavation or exploration \Vas 11ecessary to If, as I hold, the decision in Benarsidas raw material. then we ]agannath (') was approved by this Court 'vln (I) (3) (1949) L.R. 7G IA 23". [1955] 27 J.T.R. \.,!.). (2) l.L.R. [1953] M"d. 1133. (19Hi) I.L.R. 27 T.1.h, 307. 1960 Pingle Indusa·ies Lui., Secunderabad v. Commissioner of Income-tax, Hyderab·ad

5.K. Das J. 3 S.C.R. SUPREME COURT REPORTS 693 must accept that decision as correct in preference to me decision of the Court of Appeal I may point out here what Evershed, M. R., said in the course of his judgment in that case: in England. "The Commissioners for the General Purpose of the Income Tax were of opinion that these claims to make deductions were not admissible, but Harman, ] ., was of opinion that the deductions were admissible. I have myself reached a different conclusion that reached by Harman, ]., and I have reached it, I confess, with some slight feeling of regret and mis giving on two grounds: first, I think the result bears a little hardly on the taxpayers for reasons which will, I think, emerge without any necessity for empha sis as I recite the facts; second, I am not for my own part satisfied that if close investigation were made of the method whereby the taxpayers and others in the same line of business carry on their businesses, might not emerge-I say no more than that-that the commissioners would find as a fact, notwithstanding the apparent legal consequences of the agreement to which I have referred, Lhere was here in truth such a taking possession of the deposit of gravel in question that it could sensibly for t~,x purposes and rightly and fairly be said that once the consideration money had been paid under the agreement the deposit was in taxpayer. However, truth the stock-in-trade of the finding I have felt compelled to say that there is no of fact to support such a conclusion, nor there before us any evidence sufficient to warrant it. It is in that respect, I apprehend, that I find myself at variance with Harman, ]." indeed + =- • > "If the facts were as the judge intimated, General Commissioners might find, and might justifi ably find, that a case such as really distinguishable as a matter of law and common sense from a sale of loose objects lying on the surface of the ground, such as windfalls from apple trees, or even from cases like those I have mentioned, which are concerned with crops or leaves growing on trees. But my difficulty is that I can find no justification for that conclusion in the material before us." 26-6 scr I ND I 82 694 SUPREME COURT REPORTS [1960] 1960 Pingle Industries Ltd., Secunderabad v. Commissiontr of Income-tax, Hyderabad S.K. Das J, respect, In view of these observations I have considerable hestitation, and I say this with accepting the decision as a decision on a general ques tion of law. The decision proceeded on the findings of the Commissioners and on the basis that there were no J. materials for the conclusion reached by Harman, If we proceed on the findings of the Tribunal in the present case, there are enough materials to support the finding that the appellant acquired nothing but raw materials by the transactions in question. - distinguished If I may again say so with great I fine! nothing in the decision in Stow Bardolfih Gravel Co. Ltd. (') which need lead me to the conclu sion that the decisions in Benarsidas Jagannath (') and Abdul Kayoom (") were wrong and require recon respect, sideration. the learned Master of the Rolls Privy Council decision in Mohan/al Hargovind (') by saying that that decision rested upon the particular circumstances of the case and upon the fact that the· Board was able to say that from the moment the con tract was entered into and before leaves had actually been picked, the tendu leaves were part of. the raw material of the appellant. He added that 1ie could not say the same of sand and gravel, which were part of the earth itself and which could only become part of the stock-in-trade of the gravel mer chant's business when it had, in the true sense, been won, been excavated and been taken into their posses I do not, however, think that the decision in sion. l\fohan/al Hargovind (') proceeded on the basis In clear gested by the learned Master of the Rolls. and express terms Lord Greene said: "nor were leaves acquired until the appellant reduced them into their possession and ownership by picking them." This shows that the rl.ecision of the Privy Council did not proceed on the ground alleged, n~mely, that even before the leaves had actually been picked, they were part of the raw ·material of the appellant of that case. The decision proceeded on the footing that the leaves became part of the raw material when they were reduced into possession ownership by picking [1946] J.L.R. 27 Lah. 307. [195.5] 27 1.T.R. 146. [1949] L.R. 76 I.A. 235. [1953] 24 1.T.R. 1 IG. (2) (4) (I) (3) 1960 Pingle Industrie, Ltd., Secunderabad v. Commissioner of Incomt-tax, Hyderabad Hidayatu/lah ]. 3 S.C.R. SUPREME COURT REPORTS 695 If that is the correct ratio of Mohanlal Har them. govmd ('), then where is the distinction between case and -the case of the gravel merchant . in Stow Bardolph Gravel Co. Ltd. (')and the stone merchant in the present case? In my opinion there is none. In the result and for the reasons given above, I hold that the expenditure in question was on revenue account and the appellant was entitled to the allow ance he claimed. The answer given by the High Court was wrong and the appeal should be allowed with costs. In Pingle (hereinafter called the year 1343 Fasli, HmAYATULLAH, ].-This is an assessee's appeal on a certificate of the High Court granted under s. 66A(2) of the Indian Income-tax Act. Industries Ltd. assessee) is a ptivate limited Company which carries on, among other businesses, the business of extracting stones from quarries, which, after dressing, it sells as the assessee flag stones. . obtained from Nawab Mehdi Jung Bahadur of Hyderabad the right to extract stones from certain q1iarries belonging -to the Nawab. A quolnama (con tract) was executed, and it has been produced case. Under this quolnama, the assessee was granted the right to extract stones from quarries situated six named villages for a period of 12 years (1346 Fasli to 1358 Fasli) on annual payment of Rs. 28,000. To safeguard payment Rs. 96,000 representing a part of the annual payment at Rs. 8,000 per year were paid in advance as security, and the balance of Rs. 20,000 instalments of 'vas payable each year in monthly Rs. 1,666-10-8 each. In default of punctual payment of these instalments, interest at Re. 1 per cent. was to be charged. Some other conditions of the quolnama assessee may also be briefly mentioned here. The undertook not to manufacture cement and also to be responsible for the payment of the money in spite of "any celestial or terrestrial or unexpected calamity or unforeseen event", while the Nawab on his part undertook not to allow any other person to excavate It was agreed stones in the area of the six villages. contract that in case of default of instalment, (I) [19+9] L.R. 76 LA. 235. (2) [1955] 27 I.T.R. 146. - .. 1960 Pingle Ltd., Industrie~­ -Secunderabad ;, Commissfoner of b.come~l.ix, Hyderabad Hida;•atullah J. G96 SUPREM.E COURT REPORTS fl 9GO I would be re-auctioned after one month's notice to the contractor, who would be responsible for any shortfall but would not have the benefit of any extra amount. The assessee was assessed in the Fasli years 1.357 and 1358 for the account years 1356 and J 357 Fasli. It claimed deduction respectively of Rs. 27,051 and Rs. 28,159 paid to the Nawab in those years, as ex penditure under s. l 2(2)(xv) of the Hyderabad Income tax Act, which· is the same as the corresponding pro vision under the Indian Income-tax Act. The claim for de¢uction was refused by the Income-tax Officer, who held that the amount in each year represented a capital expenditure though tbe whole sum was being paid in inst~lments. The assessee appealed against the two orders of assessment to the Appellate Officer of Income-tax, and questioned this decision. The ·appeals involved other matters also, with which we are not now concerned. The appeals were dismissed. Income-tax The asses; ee appealed further the same Appellate Tribunal, Bombay, and raised contention. The Appellate Tribunal accepted appeals. Different reasons were given by the Presi dent and the Accountant Member. According to the latter, the payment of these sums was similar to the payment of royalties and dead rent which is allowable as working expense in the case of mines and quarries. relied upon Mohan/al Hargovind v. The President Commissioner of Income-tax ('), and held payments represented the purchase of the stock-in trade of the assessee, and that the leases did not create an asset of an enduring character. - The Commissioner of Income-tax, Hyderabad Divi sion, then asked for a reference of the case to the High Court at Hyderabad, and ,;.ppellate Tribunal referred the following question of law under s. 66(1) of the Hyderabad Income-tax Act. "Whether the lease-money paid by the assessee Company to Nawab Mehdi Jung Bahadur and to Government is capital expenditure or revenue expenditure." The reference to Government in the question arises It appears that there was yet another in this way. (I) [1949] I..R. 76 !.A. 235. - 3 S.C.R. SUPREME COURT REPORTS 697 It does not appear taken from Government for 5 years' lease which was the assessee was reguired to pay and under which instalments of Rs. 750 per Rs. 9,000 per year month. terms of this lease were ascertained and the amount does not figure in the order of assessment, though apparently it was assumed Nawab held equally good in regard to the payment to Government. In any event, the books of the assessee kept in mercantile system showed both the sums each year as lease money. that what applied the payment to 1960 Pingle Industries Ltd., Secunderabad v. Commissioner of 11lcome~tax. H;·dercbad Hida)afullah J. The High Court of Hyderabad after an examination of several decisions rendered in India and the United that the payments in each year of Kingdom, held account \~•ere of a capital nature, and that no deduc tion could be given under s. 12(2)(xv) of the Hyderabad Income-tax Act. then applied, and The assessee obtained the certificate as stated, and this appeal has been filed. The arguments in the case involved the interpreta tion of the quolnama as to the right conveyed and the nature of the payments with reference to the provision of the law under which the deduction was claimed. That section reads as follows : "1 2 (l): The tax shall be payable by an assessee under the head profits and gains of business, profes sion or vocation in respect of the profits and gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely:- ~ ;.,.. (xv) Any expenditure (not being in the nature of capital expenditure or personal expenses of assessee) laid out or expended wholly and exclu sively for the purpose of such business, profession or vocation." While the Appellate Tribunal looked to the perio dicity of the payments, the High Court held that the amot1nt payable '"ras Rs. 3,36,000 divided into annual and redivided into monthly instalments. The Tribunal also considered the payments as of 'the nature of rent The High or royalty or as price for raw materials. G93 SUPREivlE COURT REPORTS [19GO J 1960 Pi11glt Industries Ltd., Secu11derabad v. Commissioner of lnrome-tax, H_yduabaa Hida)'lllullah :J. the other hand, disagreed, and held that Court, on business, the money there being no manufacturing expended could not be reg·arded as price of raw mate rials or even as rent but as spent to acquire a capital asset of enduring benefit to the assessee. The High to numerous decisions in which the Court referred question whether a receipt or expenditure is on capital or revenue account has been considered in· India and the United Kingdom. Before us also, many of them were again cited as illustrating, if not layii:ig clown. certain general principles. We shall refer to some of the leading cases later, but we may say at once that no conclusive tests have been laid down which can apply to all the cases. The facts of one case differ so much from those of another that the enquiry is often the distinguishing somewhat fruitless. If, however, featmcs are not lost sight of, the decided cases do afford a guide for the solution of the problem in band.· The arguments of Mr. Palkhivala for the assessec may be shortly stated. He contends that the quolnama it creates is a licence and not· a lease, becat1se 110 is payable for the interest in land and no premium right, but what is paid is periodic compensation cor responding to rent. He contends that the payments can only be regarded as periodic compensation or periodic rovaltv or licence fees and thus revenue in 'I-le' further argues that even if held to be character. a lump sum payment broken up into instalments, it is still allowable as expenditure because it represents the price for the acquisition of raw materials, viewed from According to him, all cases of the business angle. mines and quarries fall into three classes which are: (i) in which mmes and quaries are purchased outright ; (ii) in which ownership is not acquired but only an interest in land; and (iii) in which there is not even an interest in land and de but there is an arrangement in praesenti futnro to ensure supply of raw materials. He contends that this being evidently not a case within the first category, it matters not which 0£ the other two categories it belong·s to, because in ·his sub mission, both the remaining categories exclude a case . - - + j - 3 S.C.R. SUPREME COURT REPORTS 699 of capital expenditure. He, however, seems inclined to put his case in the third category. The learned Additional Solicitor-General on hi side enumerates the tests which determine whether an revenue character. expenditure bears a capital or According to him, decided cases show that capital expenditure is ordinarily once and for all and not of a periodic character, bui· contends that even a single sum chopped up into instalments is not a payment of "!: -periodic character He submits that capital expen diture is "!:me which brings into existence an enduring :idvantage, which, he maintains, the case here, because the monev was spent on the initiation of the business and to obtain a permanent source of raw ,materials and not only the materials. 1960 . S Pinglt Ind1<rtries Ltd., Secund<rn bad v. Commissioner of Income-to.x, Hyderabad Hidayatullah J. reimburse the monthly The quolnama shows that the agreement was for initial sum of 12 years. The assessee paid an Rs. -%.000 as security for the whole contract. He was required to pay Rs. 28,000 per year. The security which was given was being diminished at the rate of Rs. 8.000 per year. It was a guarantee against failure to pziv instalments. but there was no condition that the short payments were to be debited It was rather a guarantee for the overall pay to it. ment and jagir for any loss oc casioned bv a re-audion of the lease after default by the assessee. Further, the payments were to be made even if no stones were extracted or could not be extracted due to force majeure. There was no limit to the quantity to be extracted. There was also a condition that none but the assessee was allowed to work the quarries, which means that the right was exclusive and in the nature of a monopoly. The payment, though divided l ,666-10-8 per month, was the entire lease and of Rs. 3,36,000. really one for Nothing, however. turns upon it. It is pertinent to s:iy that the assessee in its petition for leave to appeal to this Court filed in the High Court, viewed the into various amount as being Rs. 3.36.000 divided parts. This is what it said: instalments of Rs. "O i;ider the terms of the said lease. the Company was required to pziv a .sum of H. S. Rs. 28,000 per annum to the ,lessor. The total amount payable for 1960 Piiigle Industries Ltd., Secmulerabad v. Commissioner of Incorne-tax, }{yde.-aiad Hidayatullah J. 700 SUPREME COURT REPORTS [19601 the entire period amounted to Rs. 3.36,000 out of which a sum of Rs. 96.000 was paid at the time of the execution of the lease deed and the balance of Rs. 2.40,000 was agreed to be paid at the rate of Rs. 20,000 per annum in twelve years. It was also agreed that this sum of Rs. 20,000 per annum should be paid in equal instalments of Rs. 1,666-10,8 every month. On the expiry of the period of lease, it was renewed for a further period of five years and seven months at an annual rent of Rs. 35,000." These being the terms of the lease, the question is the payments in the account years can be _whether regarded as capital or revenue expenditure. 1s capital The question whether an expenditure or reventie in character is one of common occurrence. Its frequency, to elucidate however, has not served the tests with any degree of certainty and precision. ft has now become customary to start with two propo sitions which appear to have been received without much argument. The first was laid down in Vallam l1rosa Rubber Co. Ud. v. Farmer ('), where Lord it was nuncrlin observed that "not a barl criterion of what is ca[iital ~xpcnditure incon1e expcnclit11re to say that as against capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing which is going to recur ever)' year"'. This proposition "·as further qualified by Lord Cave in A lherton. v. British Insulated and .Helsl1y Cables Ltd. (2 ) following words : "in a rough wav" \\rhat 111 lS "\,Vhen an expenditure is made, not only once anrl for all, but with a view to bring·ing into exist ence an asset or an advantage for the enduring benefit of a trade, I think there is very g·ood reason (in the absence of special circumstances oppo.,itc conclusion) for treating such an expendi ture as properly attributable, not to revenue, but to · capital." The words "enduring benefit of a trade" haYe been further explained as. meaning not "everlasting", b':'t "in the way capital endmes", sec Du Parcq, L. J., m leading 'I). (1910) 5 T.C.529. (2) [1926) A.C:. 20.5, 213. 3 S.C.R. SUPREME COURT REPORTS 701 Henriksen v. Grafton Hotel Ltd. (1) and Rowlatt, J., in Anglo-Persian Oil Co. v. Dale (2). 19d1J Pingle Industries Another test propounded by Viscount Haldane m Ltd., Secunderabad v. ]ohn Smith & Son. v. Moore (') is to distinguish, as economists do, between fixed and circulating capital. Commiuioner of to have appealed to Lord Hanworth, This appears M. R., in Golden Horse Shoe (New) Ltd. v. Thurgood(') but in Van Den Berghs Limited v. Clark ('), Lord Hidayatullah J. Macmillan observed that he did not find it very helpful. Often enough, where the character of the expenditure shows that what has resulted is something which is to be used in the way of business, the test may be useful; but in cases close to the dividing line, the test seems useless. 1'f'I;'de~~t:,d - A third test was laid clown by the Judicial Com mittee in Tata Hydro-Electric Agencies Ltd., Bombay v. Commissioner of Income-tax ('). There, it was stated that if the expenditure was part of the working e_x penses in ordinary commercial trading it was not capital but revenue. The Judicial Committee observed: "What is 'money wholly and exclusively laid out for the purposes of the trade' is a question which must be determined upon the principles of ordinary commercial trading. It is necessary, accordingly, to attend to the true nature of the expenditure, and to ask oneself the question, is it a part of the com pany's working expenses; is it expenditure laid out as part of the process of profit earning.?" In addition to these three tests, again by last of which the Judicial Committee in was applied Mohanlal Hargovind's case ('), there are some supple mentary tests, which have frequently been alluded to Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Co. Ltd. (') characterised as capital an outlay made for the initiation of a business, for extension of a business. or for a substantial replace ment of equipment. In that case, there was extensive damage to a ship, and repairs were necessary to resume trading, such expense being held to be capital expend- ( I I (3) (5) (7) (1942) 24 T.C. 453, 462, C.A. (1920) 12 T.C. 266, 282. (1935) 19 T.C. 390. (1949) L.R. 76 I.A. 235. (2) (4) (6) (8) (1931) 16 T.C. 253, 262. (1933) 18 T.C. 280, 298. (1937) L.R. 64 I.A. 215. (1927) 13 T. C.1, 14. 27-6 SCT/ND/82 1960 Pingle Industries Ltd., SecUnderabad v. Commissioner of Income-tax, H.J•derabad Hidayatul/ah J. - 702 SUPREME COURT REPORTS [1960] iture. The questions which Lord Clyde posed Robert Addie & Sons Collieries Ltd. v. Commissioners of Inland Revenue ('), namely: .!.--<. ~ "Is it part of the Company's working expenses. is it expenditure laid out as part of the process of profit earning?-or, on the other hand, is it capital outlay, is it expenditm;e necessary for the acquisi tion of property or of rights of a permanent charac ter, the possession of which is a condition of carrying on its trade at all ? " influenced the Privy Council in Tata Hydro-Electric Agencies Ltd., Bombay v. Commissioner of Income-tax(') (at p. 209), and the latter part of the question is the test laid down by Lord Sands, to which 'we have referred. . There is then the test whether by the expenditure the taxpayer was ensuring supplies of raw material or purchasing them. This test is adverted to by Chan nell, J., in Alianza Co. Ltd. v. Bell (") and approved by the House of Lords. Says Channell, J. : "In the ordinary case, the cost of the material worked up in a manufactory is not a capital expen diture, it is a current expenditure and does not become a capital expenditure merely because the ma~erial is provided by something like a forward contract, under which a person for the payment of a lump sum s~cures a supply of the raw material for a period extending over several years ...... If it is merely a manufacturing business, then the procuring of the raw material would not be a capital expenditure. But if it is like the working of a particular mine, or bed of brick earth and converting the stuff into a marketable commodity, then the money paid for the prime cost of the stuff so dealt with is just as much capital as the money sunk in machinerv or buildings." The application of this proposition finds an example in M ohanlal H argovind' s case ('), where tendu leaves were the subject of expenditure. The firm in that case had paid for purchasing a right to collect tendu leaves from forest, which right included the right of (I) (3) (1924) 8 T.C. 671, 676. (1910) 5 T.C. 60, (2) (4) (1937) L.R. 64 I.A. 21.5. (1949) L.R. 76 I.A. 23.5. 3 S.C.R. SUPREME.COURT REPORTS 703 entry and coppicing and pollarding. No right in the land or, the trees and plants was conveyed, .and the Judicial Committee laid emphasis on the nature of the business of the firm, and equated the expenditure to one for acquiring the raw materials for the manufac- turing business. · The cases to which we have referred and many more of the High Courts in India where the principles were applied with the exception of the one last cited, were all considered by this Court in Assam Bengal Cement In that Co. Ltd. v. Commissioner of Income-tax(1). case, Bhagwati, J., referred to a decision of the Punjab High Court in Banarsidas ]agannath, In re (2), where Mahajan, ]. (as he then was), summarised the position and the various tests. This Court quoted with ap proval this summary, and observed at p. 45 : 1960 Pingle Industries Ltd., Secunderabad v. Commissioner of lncome~tax, Hyderabad Hidayatullah J, "In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired· or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. The question however arises expenditure is incurred for consideration where incurred while the business is going on and is not either for extension of the business or for the sub stantial replacement of its equipment. Such expenoi ture can be looked at either from the point of .view of what i.s acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such the business asset or advantage but for running it with a view to produce the profits or working If any such asset or it is a revenue expenditure. advantage for the enduring benefit of the business is (') (') (1946) I.L.R. 27 Lah. 307. (1955) I S.C.R. 972. ·,. ., 1960 Pingle JndtjJ/ries l.Jd., So;.,.,U,abad v. Commissioner of Income-tax, Hyderabad Hiaayalullah J. - 704 SUPREME COURT REPORTS [1960] The aim and object of thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. expenditure would determine the character of the is a capital expenditure or expenditure whether it a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incur red was part of the fixed capital of the business or If it was part of part of its circulating capital. it· would be of the fixed capital of the business the nature of capital expenditure and it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated." Learned counsel in the present case rested his case the Punjab High Court in Benarsidas case ('), and stated that after its approval bi this Court, the expenditure here could not but be held as on capital account. He relied strongly also upon the decision of the Judicial Committee in Mohan lal H argovind' s case (2 ). Reference was made to other decisions, which we will briefly notice later. the decision of In Benarsidas case ('), the person sought to be assessed was a manufacturer of bricks. He obtained certain lands for digging out earth for his manufacture. Under the deeds which g·ave him this right, he could dig up to a depth of 3 feet.. to 3~ feet. He had no the earth was interest in the land, and as soon as removed, his right was at an end. It was held in that case that the main object of the agreements was the procuring of eat th as ,:aw materials, arid by the expen diture the lessee had not acquired any advantage of a permanent or enduring character. It is, however, to be noticed that the duration of the leases was from six months to three years. The Full Bench referred (') (194G) I.L.R. 27 Lah. 307. (') (1994) L.R. 76 I.A. 235.

#1960. Pingle Industries Ltd., Secunderabad V.· Commissioner of Income-tax, Hyderabad Hidayatulfoh J. 3-S.C.R. SUPREME COURT REPORTS 705 ' some other leases in which the duration was longer, and observec:l: "There are other agreements which are not before us and it seems that the items mentioned in the question referred relate to those agreements as well. We do not know the nature of the agreements, but the question can be answered by saying that ex penses incurred during the year of assessment purchase of earth on basis of agreements of nature mentioned in the case of Benarsidas or of the nature like Exhibit T. E. are admissible deductions, while sums spent for obtaining leases for a substan tially long period varying from 10 to .20 years can not be held to be valid deductions if they amount to an acquisition o fan asset of an enduring advan- · tage to the lessee." It appears that the Full Bench was persuaded to this The first was that view from what was acquired was earth with no interest in land, and the other was the short term of the leases. two considerations. the present . case are The approval given to Benarsidas case(1) by this Court does not extend beyo~d the summary of the tests setlled in it, and the tests have· to be applied the facts of each case in the manner indicated by this Court. But the actual decision was not before this Court, and cannot be said to have been approved. long-term The agreements They give the right to extract stones in contracts. six villages without any limit by measurement· or They give the right exclusively to quarry quantity. This case is thus very differ for a number of years. ent on facts. 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 the right factor to consider. was only for 3 years, but monopoly value having been paid for it, the result was a capital asset of an 'endur ing character. In Henriksen' s case (') In M ohanlal H argovind' s case ('), the person assessed was a bidi manufacturer who had obtained short-term 1 ( ) (1946) I.L.R. 27 Lah. 307. (2) (1942) 24 T.C, 453, 462, C.A. (') ( 1949) L.R. 76 I.A 235. - > 1960 Pingle lnduslrits Ltd.,· Secunderabad v. Commissioner of . Income tax, Hyd.rnbad Hidayatullah J. 706 SlJPREME COURT REPORTS [l 960] contrach with Government and other forest owners to obtain tendu leaves from the forests. These tendu to roll into cigarettes. leaves with tobacco are used The contracts. gave a right of entry into forests to collect the leaves and also to coppice the plants and to 'pollard the tendu trees, but beyond this gave no The Judicial Committee held that interest in land. these contracts were in a business sense for the pur pose of securing supplies to the manufacturers of one of the raw materials of his business. They granted no interest in land or the plants or trees. The small right of cultivation and the exclusive nature of the grant were of no the Judicial Committee observed as follows: significance. Then, - - "Cases relating to the purchase or leasing of mines, quarries, deposits of brick earth, land with standing-timber, etc ... do not appear to their Lord ships to be of assistance." The Board distinguished Alianza Co. Ltd. v. Bell (') which was said to be a case analogus to purcahse or leasing of a mine and Kauri: Timber Company's case ('\, which was a case of acquisition of land or of standing timber which was an interest in land. In either case, it was a capital asset. Thei1 Lordships finally observed: "In the present case the trees were not acquired; nor were the leaves acquired until the appellant> had reduced them into their own possession and ownership by picking them. The two cases can, in their Lordships' opinion, in no sense be regarded as comparable. If the tendu leaves had been stored in a merchant's godown and the appellants had bought the right to go and fetch them and so reduce them into their possession and ownership it could purchase scarcely have been. suggested price was capital expenditure. Their Lordships see no ground in principle or reason for differentiating the present case from that supposed." It is to be noticed that the Privy Council case w;is not applied but distinguished by the Court of Appeal in England in Stow BnrdolfJh Gravel Co. Ltd. v. Poole(') that the ('' [1913] A.C. 771. (') [1954] 35 T.C. 459. t'l (19101 .5 T.C. GO - . "". > 3 S.C.R. SUPREME COURT REPORTS 707 In that ease, the Company was doing the business of It purchased two unworked selling sand ahd gravel. deposits, and it claimed that the payment should be from its profits as being expenditure for deducted acqumng that the its trading stock. Company had acquired a capital asset and not a stock-in-trade. Harman, J ., before whom the appeal came from the decision of the General Commissioners, from the tailings were Golden Horse Shoe case ('), where the regarded as the stock-in-trade of the taxpayer. He observed: that the case · was indistinguishable It was held 1960 Pingle ·Industries Ltd., Secunderahcd v. Commisswner of Income-tax, Hy<krobad Hida;•atullah J. '"Now, it is said here that the opposite conclusion should be reached, and I think in substance reason is because this. gravel had never been raked oft the soil upon which it was lying. There is no question, in any true sense, of extracting gravel; there is no process, as I understand it, gone through here. It is not even suggested that a riddle or sieve is used; you· merely dig it up or rake it up where it lies, put it on the lorry and sell it wherever you It is said what was bought was a mere right can. to go on the place and win the gravel, but, in effect, in the Golden Horse Shoe case(') what was bought was the licence to go on the land ;rnd take away the tailings, and I myself think that it is a distinc tion without difference to suggest that, because nobody had ever applied a rake to this gravel before, it should be treated as capital, whereas if some heaps before the body had raked it contract was made then its purchase would consti tute a different form of adventure. the same situation; it is no more and no less attached to the land." into little It is hard upon the In dealing with this case on appeal, Lord Evershed, M. R. (then Sir Raymond Evershed), felt that the case was a little taxpayer, and further that it' might, if proper enquiry had been made, have been possible to .hold that after the price was paid, the sand and gravel become, in truth, the stock-in-trade of the taxpayer. Taking found, he held that what ·was purchased was a part of the the facts, however, as ( 1 ) (1933) 18 T.C. 280, 298. - - < 708 SUPREME COURT REPORTS [1960]

#1960. Pingle Industries Ltd., Secunderabad v. Commissioner of Income.tax, H_yderabad Hiday{jtullah J. land itself, namely, the gravel in situ. He held that there was a distinction between the purchase of a growing crop or leayes and the purchase of gravel. Lord Evershed the agreement, and observed as follows: then analysed "I think that, once it has to be conceded that there was no sale of the gravel in the way .Judge said there was, then it must follow that what was here acquired was ... the means of getting the excavating and making it part of the gravel by stock-in-trade." Reference was then made by him to cases in which what was purchased or taken on lease was land or an interest in land, and Mohanlal Ha,-govind's case (') was distinguished on the ground that in that case it was pos sible to say of tendu leaves that they were acquired as the raw material for manufacture. The argument of Mr. Magnus i'n the case described as an attempt to substitute sand and gravel for tendu leaves was not accepted, Lord Evershed observing: cannot the sand and gravel, part of the earth itself, which was the sub ject of the contract here in question and which I think only could stock-in-trade of this business when it had in the true sense been won, had been excavated and been taken into their possession." sensibly become part of gravel merchants' same of say the "But I \Ve are in entire agreement that such a distinction is not only palpable but also sensible. The present case lying on the is a fortiori. Here, the stones are not surface but are part of a quarry from which have to be extracted methodically and skillfully before they can be dressed and sold. These deposits are extensive, and the work of the assessee carries him deep under the earth. Such a deposit cannot be described as the assessee. but stones detached and won can only be so described. Before we deal with the other cases, we wiili to state the distinguishing features of the cases alreadv mentioned, and which have not often been viewed together. In the A lianza case (2 ), the sale was Hot of the caliche as such but of the right to win it from a (2) the stock-in-trade of (1949) L.R. 76 I.A. 23',, (1910) 5 T.C. GO. (') 3 S.C.R. SUPREME COURT REPORTS 709' 1960 Ping!• Jndustries Ltd., Secunderabad v. Commissioner of /ncome•1tax, Hyderaht;d Hidayatullak J. - . • deposit thereof, and it was treated as an expenditure In the Stow Bardolph case('), the of a capital nature. finding was that sand and gravel had to be won, and it was held that they could not be treated as stock-in trade till they were actually won. The doubt expressed by Lord Evershed was that if the taking of sand and gravel involved merely taking them up and putting them into trucks, the finding could have been other wise. Harman, J., made this distinction, but in view of the finding, the Court of Appeal came to different conclusion. Indeed, Harman, J., .. himself would have decided differently if there was, in any true sense, a question of extracting gravel. He, therefore, thought that the case resembled the Golden Horse Shoe case(') where the "tailing( were bargained for and paid for, and became the stock-in-trade of the tax-prayer. In Mohanlal Hargovind's case('), interest in land or trees or plants and the right of cultivation and the exclusiveness o~ the right to contracts were treated le<1.ves being insignificant, the as leading to acquisition of the raw materials. The leaves on trees were treated as equal to leaves ill a shop. It was o,n this ground that that case was distin- . guished from the. Kauri Timber ComfJany case('), in which land and interest .in land in the ~hape of stand ing timber were involved. The case in Hood-Barrs v. C ornmissioners of Inland Revenue(') was similar the last case, the assessee In the present acquired a right to extract stones and his lease included not only the stones on the top but also those buried out of sight under tons of other stones, which he could only reach after extracting those above. This case is thus within the rule of those cases in which the right acquired is to a source from which the raw materials The doubt expressed by Lord are to be extracted. Evershed does not apply to the facts here, because reasons given by Harman, .J., cannot be made applic able at all. there being cited. In Kamakshya Narain Singh v. Commissioner ?f Income-tax('), the case involved payment of certam annual sums by way of salami for mining rights, and (l) (3) (5) [1955] 27 I.T.R. 146. [1949] 17 I.T.R. 473. [1958] 34 I.T.R. 238. 28-6 SCI/ND/82 (2) (4) (6) [1933] 18 T.C. 280. [1913] A.G. 77.1. [1943) 11 I.T.R . .'ill!. P.C . 1960 Pingle Industries Ltd., Secunderabad v. Commissioner of Income-tax, Hyderabad Hida;•atullah J. 710 SUPREME COURT REPORTS [1960] these were regarded as capital income. There were also two other namely, royalty on coal payments, raised and a provision for minimum royalty. These were regarded as not capital receipts but as assessable income. In dealing with the nature of the working of a mine, certain observations were made. It was con tended that the payments amounted to conversion of a 'capital asset into cash. The argument was repelled by the Judicial Committee in these words: "These are periodical payments, to dig and sink to be made by the lessee under his covenants in consideration of the benefits which he is granted by the lessor. What these benefits may be is shown by the extract the lease quoted above, which illustrates how quate and fallacions it is to envisage the royalties as merely the price of the actual tons of coal. The tonnage royalty is indeed payable when the coal or coke is gotten and despatched; but that is merely the last stage. As preliminary and ancillary to that culminating ac.t, liberties are granted to em.er on the pits, to erect land and searlch, engines and machinery, coke ovens, furnaces All these and the like form railways and roads. liberties show how fallacious it is to treat the as merely one for the acquisition of a certain num ber of tons of coal, or the agreed item of royalty as merely the price of each ton of coal. 'The contract is in truth much more complex. The royaltv is 'in substance a rent; it is the compensation which the occupier pays the landlord for that spacies of occu pation which the contract between them allows' to quote the words of Lord Denman in R. v. W rst hrook ('). He was referring to leases of coal mines, clay pits and slate quarries_ in all the occupation was only valuable· by the removal of portions of the_ soil. It is true that he was dealing with occupation from the point of. view of rating, but compensation bas th_e same meaning in its application to matters of taxation such as are involved in this case." Thus, the contention of the learned counsel for the assessee th_~t we should treat this quolnama as merely (I)· (1875) IO Q.B. 178. I-le added that - -• 3 S.C.R. SUPREME COURT REPOR'fS 711 transfer of interest showing a licence and not a ·lease creating interest land is not correct. A lease to take out sand was des cribed in Kanjee and Moolji Bros. v. Shanmugam Pillai(') as amounting to a immovable property and also so, in connection with the Registration Act in Secretary of State for India v. Kuchwar Lime and S,tone Co. ('). It is thus clear that what the, assessee acquired was land, a pi\rt of which in the shape of stones he was to appropriate under the covenants. He was not purchasing stones, and the price paid could not in any sense be referable to stones as stock-in-trade. The stones extracted might have become his stock-in-trade, but the stones in situ were not so. Nor do we agree that the. periodicity of payments has any significance. As was pointed out by Lord · Greene, M. R., in H enrilden' s case('): 1960 Pingle Industries Ltd., Secunderabad v. Commissioner of Income-tax, Hyderabad Hidayatullah J. - "If the sum payable is not in the nature. of revenue expenditure, it cannot be made so by per mitting it to be paid in annual instalments. These payments by respect of monopoly. instalments in value have not the annual quality of the _payments for the grant of the anriual excise licence, bm are of a different character altogether ............ Here Appellants were minded to acquire as asset in the shape of a licence for a term of years." The learned Master of the Rolls added tliat "a false appearance of periodi- ~· annual payments gave city". · Applying the above test to the· present case, obvious that the monthly payments of Rs. 1,666-10-8 did' not represent the lease amount for a month. This was a case in ~1hich the assessee had acquired an asset of an enduring character for which he had to put his hand in his pocket for a very large sum indeed. He paid Rs. 96,000 down, ·but for the rest he asked for easy terms. The amount paid every month was not in any sense a payment for acquisition of the right from month to month. convenience. chopped into .small Nor amount be described as a business can the expense, because the outgoings every month were not payments for his It was really the entire sum' (1) (1933) T.L.R. 56 Mad. 169. (3) (2) (1942) 24 T.C. 453, 462, C.A. (1937) L.R. 65 I.A. 45, 54. 1960 Pingle Industries Ltd., Secunderabad v. Commissioner of Income-tax, H;,derabad Hidayatullah j. 712 SUPREME COURT REPORTS [1960] to be taken as spent over purchase of stones but discharge of the entire liability to the jagir. 111 case of Some of the cases to which we were referred may now be briefly noted. Hakim Ram Prasad, In re(') was a renting of a cinema projector 10 years. The amount paid was thus hire for machine. In Commissioner of Income-tax v. Globe Theatres Ltilf.(') the assessee advanced Rs. 10,000 to a company for the construction of a cinema house which was never built. Since the amount was not salami or premium but orily advance rent, it was held deduct· ible. Commissioner of Income-tax v. Kolhia J-11rdagarh Co. Ltd.(") was a case of commission on every ton of coal raised, and it was held to be revenue expenditure. These cases are entirely different, and can be of no authority for payments, such as we have. - They involved Reliance was also placed' upon Parmanand Haveli Ram In re('), Nand Lal Bhoj Raj, In re (')and Com missioner of Income-tax v. Tika Ram & Sons ("). In the first two, expenditure to acquire lands bearing certain salts in the earth, which could be converted into potassium nitrate, sodium chloride or saltpetre, was regarded as revenue expenditure. They follow the line of reasoning which the same Court adopted in the Full Bench case of Benaridas('), which we have considered in detail earlier. term contracts, and in the Full Bench case it was stated that the case of long-term leases was a different footing, the decisive factors in such cases will be the nature of the acquisi tion and the reason for the payment. other side of the line where payments were regarded as capital expenditure are Commissioner of lncome tax v. Chengalroya Mudaliar(') and Chengalvaroya. Chettiar v. Commissioner of Income-tax ('). There the expenditure was Since the lease conferred exclusive privilege shells. started, the payment was and a new business was the shells but for the regarded not as the pnce for right to win shells. for a lease for excavation of though, in our opinion, Cases on (I) (3) (5) (7) [1936] 4 1.T.R. 104. [19491 17 I.T.R. 545. [1946) 14 LT.R. 181. [1947) 15 l.T.R. 18.5. (2) (41 (6) (8) [1950] 18 I.T.i<.. 403. [1945) 13 1.T.R. 157, [1937] 5 l.T.R. 544. [1935) I.L.R. 58 Mad, !. (9) [1937] 5 I.T.R. 70, 3 S.C.R. SUPREME COURT REPORTS 713 All these cases turned on different facts, and it to decide which of them in the special not necessary nrcumstances were correctly decided. will hardly help in the solution of the case in hand. We are, however, satisfied that in this case the asse~­ long-term lease a right to win see acquired by his ~tones, and the leases conveyed to him a part of land. The stones in situ were not his stock-in-trade 111 business sense . but a capital asset from which extraction he converted trade. The payment, though periodic neither rent nor royalty but a lump payment in instal- ments for acquiring a capital asset of enduring benefit to his trade. In this view of the matter, the High 1 Court was right in treating the outgoings as on capital account. stock-in- in fact, wa~ the stones into his 1960 Pingle Industries This enquiry Ltd., Secunderabad v. rommissioner of Income-tax, Hyderabad a Hidayatullah J. In the result, the appeal fails, and will be dismissed with costs. BY CQUR'I': judgment of the costs. In accordance with the majority Court, the appeal is dismissed with Appeal dismissed. / THE PRINTERS (MYSORE) PRIVATE LTD. v. POTHAN JOSEPH. (P. B. GAJENDRAGADKAR, K. N. vVANCHOO and K. c. DAS GUPTA, JJ.) · ' Arbitration Agreement:-Power of court to st~y legal proceedings -Order by trial court refusing stay of proceedings affirmed in appeal -Supreme Court, if and when can interfere with concurrent exercise of discretion by the courts below-Arbitration Act, 1940 (x of 1940), s. 34-Constitution of India, Art. 136. 1960 April 27. The respondent was the Editor of the Deccan Herald, owned and published by the appellant, and the two contracts executed by the parties contained an arbitration clause that if in the inter pretation or applicatio.n of between the parties the same shall _ be referred to arbitration :ind the award shall be binding between the parties and also provided for, apart from his monthly salary, the payment of 10% of the profits to the respondent. Upon the termination of his services by the appellant, the respondent brought a suit for ·accounts and payment of the profits ·found. due to him. The appellant by an any difference the contract