judgement:
Appeal No. 1768 of 1969.
Appeal by special leave from the judgment and order dated October 8, 1968 of the Mysore High Court in Writ Petition No. 657 of 1968.
189 M. C. Setalvad, Ram Punjwani and section P. Nayar, for the appellants.
R. B. Datar and M. section Narasimhan, for the respondent.
M. K. Ramamurthi, Shyamala Pappu and J. Ramamurthi, for intervener No. 1.
section Ramasubramanian and J. Ramamurthi, for intervener No.2.
The Judgment of the Court was delivered by Vaidialingam, J.
In this appeal, by special leave, the question that arises for consideration is regarding the validity of the new Note substituted in place of the old Note on December 23, 1967 to cl.
(b) of rule 2046 (F.R. 56) of the Indian Railway Fundamental Rules.
The High Court by its judgment and order, under appeal, dated October 8, 1968, has struck down the new Note as dis criminatory and violative of article 14 of the Constitution.
The respondent was originally an employee of the Madras and Southern Mahratta Railway Company (hereinafter to be referred as the Company) having joined the service on August 16, 1927 as Clerk Grade 1.
His date of birth, there is controversy, was April 15, 1910.
The Company was amalgamated with the Indian Railway Administration in the year 1947 and on .such amalgamation, the respondent became the employee of the Indian Railway Administration.
There is also no controversy That he came within the classification of a "ministerial railway servant" within the meaning of that expression, occurring in rule 2046.
Rule 2046 deals with retirement of a railway servant At the time of amalgamation, under cl.
(1) of the said rule, the date of retirement of a railway servant, other than a ministerial railway servant was the date on which he attained the age of 55 years.
It was also provided therein that the said railway servant, ,after attaining the age of retirement, may be retained in service with the sanction of the competent authority on public ground to be recorded in writing.
But there was a prohibition regarding retention of such a railway servant after the age of 60 years except in very special circumstances.
Clause (2) of the said rule, which deals with a ministerial railway servant, under which category the respondent falls, at the time of amalgamation was as follows : "2046 (2) (a) A ministerial servant, who is not governed by sub clause (b), may be required to retire at the age of 55 years, but should ordinarily be retained in service, if he continues efficient up to the age of 60 190 years.
He must not be retained after that age except in very special circumstances, which must be recorded in writing, and with the sanction of the competent authority.
(b) A ministerial servant (i) who has entered Government service on or after the 1st April, 1938, or (ii) who being in Government service on the 31st March, 1938 did not hold a lien or a suspended lien on a permanent post on that date.
shall ordinarily be required to retire at the age of 55 years.
He must not be retained after that age except on public grounds which must be recorded in writing,, and with the sanction of the competent authority and he must not be retained after the age of 60 years except in very special circumstances.
" It will be noted that under sub clause (a), quoted above, a ministerial servant, who is not governed by sub clause (b) may be required to retire at the age of 55 years; but if he continues to be efficient, he should ordinarily be retained in service upto the 'date of 60 years.
Retention in service after the age of 60 years, can only be under very special circumstances, to be recorded in writing and with the sanction of the competent authority.
There was a further special provision made under cl.
(b) in respect of a ministerial servant who had entered Government service on or after April 1, 1938 or being in Government service on that date, did not hold a lien or a suspended lien on a permanent post oh that date.
On December 5, 1962, the Railway Board addressed a com munication to the General Managers of All Indian Railways that the Government were considering the question for some time whether the age of compulsory retirement of railway servants should be raised above 55 years.
It is further stated that the President is pleased to direct that the age of compulsory retirement of railway servants should be 58 years subject to the three exceptions mentioned in the order.
The only relevant exception is Exception No. 1 relating to ministerial railway servants, which was as follows : "(i) The existing rule 2046 (F.R. 56) (2)(a) RII, under which ministerial railway servants who held a lien or suspended lien on a permanent post on 31st March, 1938 are to be retained in set vice upto the age 191 of 60 years subject to their continuing to be efficient and physically fit after attaining the age of 55 years, will remain in force.
It will be seen from the decision,of the Government, as com municated in the above letter, that the age of retirement of railway servants was raised from 55 to 58 years.
But this was subject to the restriction regarding the continuance of a ministerial servant after 55 years upto the age of 60 years as provided for under sub clause (b) of cl.
(2) of rule 2046.
On January 11, 1967, the old rule 2046 as amended in 1962 was substituted by the new rule.
The new rule consisted of four clauses, but we are not concerned with clauses (c) and (d) The material part of the said rule relevant to be noted are clauses (a) and (b) together with the note to clause (b) which ran as follows : "2046 (FR. 56) (a) Except as otherwise provided in this rule, every railway servant shall retire on the day he attains the age of fifty eight years.
(b) A ministerial railway servant who entered Government service on or before the 31st March, 1938 and held on that date (i) a lien or a suspended lien on a permanent post, or (ii) a permanent post in a provisional substantive capacity under Clause (d) of Rule 2008 and continued to told the same without interruption until he was confirmed in that post,shall be retained in service till the day he attains the age of sixty years.
NOTE : For the purpose of this Clause, the expression "Government Service" include service rendered in ex company,, and ex State Railways, and in a former provincial Government." Two aspects broadly emerge from the above new rule : (a) every ministerial railway servant who had entered Government service on or before March 31, 1938 and who satisfied the conditions mentioned in sub clause (i) or (ii) of clause (b) had a right to continue in service till he attained the age of sixty years; and (b) under the Note, the expression "Government Service" in clause (b) takes in service rendered in ex company, ex State Railways and in a former provincial Govern 192 ment.
There is no controversy that the respondent held a permanent post in the Company on March 31, 1938.
Therefore,, under this new rule, he would be entitled to continue in service till he attained the age of sixty years, as provided in cl.
(b) read with the Note thereto.
On December 12, 1967, the Note to cl.
(b) of rule ' 2046 defining the expression "Government Service" as per the order dated January 11, 1967 was deleted, and a new Note was substituted in its place.
The order dated December 23.
1967 together with the new Note is as follows : "For the existing note, substitute the following For the purpose of this clause the expression "Government Service" includes service rendered in a former provincial government and in ex.
Company and ex.
State Railways, if the rules of the Company or the State had a provision similar to Clause (b) above.
" From the new Note, extracted above, it will be seen that the definition of the expression "Government Service" was changed.
The effect of the new Note, so far as the respondent is concerned, is that whereas he was entitled to continue in service upto 60 years, as per clause (b) read with the note thereto under rule 2046 as substituted on January 11, 1967, now he can get service upto 60 years only if the Company had a provision similar to cl.
(b) of rule 2046.
There is no dispute, that under the service conditions applicable to the respondent, when he was an employee of the Company, he had no right to continue in service till he attained the age of sixty years.
On the other hand, under the service conditions of the Company he had to retire at the age of 55 years.
It appears, that after the introduction of the new rule 2046 on January 11, 1967, the Divisional Accounts Officer, Hubli, passed an order on March 31, 1967 that the respondent was entitled to continue in Office till he attained the age of 60 years.
But after the new Note to cl.
(b) to rule 2046 was substituted on December 23, 1967, the Divisional Accounts Officer, Hubli, passed an order on January 17, 1968 to the effect that the respondent is to retire from service on April 14, 1968 on which date he would be attaining the age of 58 years.
The said order also states that this action was being taken in view of the new Note substituted on December 23, 1967 to cl.
(b) of rule 2046.
The respondent filed on March 6, 1968 in the Mysore High Court, Writ Petition No. 657 of 1968 challenging the legality and validity of the order dated January 17, 1968 retiring him from service with effect from April 4, 1968.
In the writ petition 193 he had referred to his previous service in the Company and to the latter being amalgamated with the Indian Railway Administration in 1947.
According to him, after such amalgmation he has become a ministerial railway servant under the Indian Railway Administration and all the rules applicable to the employees of the latter became applicable to him.
In particular, he pleaded that he was entitled to continue in service, until he attained the age of sixty years, as per the new rule 2046 introduced on January 11, 1967, as he satisfies all the conditions prescribed under cl.
(b) thereof.
He particularly attacked the new Note to cl.
(b) substituted on December 23, 1967 as discriminatory and violative of article 14 of the Constitution.
According to him, the members of the Indian Railway Service, similarly situated like him, will be.
entitled to continue in service till 60 years, whereas that right has been denied, to persons like him, under the new Note.
He also referred to the order passed on March 31, 1967 by the Divisional Accounts Officer, Hubli in and by which it was directed that he was entitled to continue in service till 60 years.
According to the respondent, the Railway Administration was not entitled to go back on this order.
On these grounds, the respondent challenged the validity of the order directing him to retire on the basis of the new Note.
The appellant contested the writ petition on the ground that the order dated March 31, 1967 was passed on the basis of the rule 2046, read with the Note, as it existed on January 11, 1967 But the position was changed by the deletion of the original Note to cl.
(b) and its substitution by the new Note on December 23, 1967.
The appellant claimed that the service conditions of persons, like the respondent, have always been different from those serving under the Railway Administration and that by the introduction of the new Note, no discrimination has been practised on any officer.
On the other hand, according to the appellant, the new Note only gave effect to the conditions of service, which obtained in the Company, where the respondent originally joined service.
The appellant further pleaded that the new Note does not violate article 14 of the Constitution.
The High Court, by its judgment and order dated October 8, 1968 has accepted the contentions of the respondent and held that the new Note substituted to cl.
(b) of rule 2046 on December 23, 1967 is discriminatory and violative of article 14 of the Constitution.
In this view, the said Note was struck down.
In consequence, the High Court set aside the order dated January 17, 1968 and gave a declaration that the respondent was entitled to continue in service till he attained the age of sixty years.
Mr. M. C. Setalvad, learned counsel for the appellant, Rail way Board, has strenuously attacked the finding of the High 194 Court that the new Note, substituted on December 23, 1967 to cl.
(b) is discriminatory and violative of article 14 of the Constitution.
On the other hand, he urged that a distinction has always been made in the case of ministerial railway servant who is governed by cf.
(b) and those who are not so governed by that clause of rule 2046.
Different provisions regarding the age of retirement have been provided in respect of those two classes of ministerial railway servants.
The new Note, Mr. Setalvad pointed out only gives recognition to the practice that has been obtain ing in respect of the ministerial railway servants under their previous employers.
He further pointed out that the Note to cf.
(b) of rule 2046, incorporated on January 11, 1967 gave the benefit of the expression "Government Service ' 'to persons, like the respondent, who have previously been working in ex Company, provincial Government or ex State Railways.
The new Note keeps the same categories of employees within the expression "Government Service", but adds a qualification that in order to have the benefit of a longer period of service, they should have had such benefit under their previous employers.
Mr. Setalvad further pointed out that a government servant has no right to continue in service till the age of 60 years and that the option to so continue him upto that age, vests exclusively within the discretion of the authority concerned.
For this proposition the counsel relied on the decision of this Court in Kailash Chandra vs Union of India(1) interpreting clause (2) of rule 2046 as it existed prior to the amendment in 1962.
In any event, Mr. Setalvad pointed out, that the officers who had worked under a former provincial Government, Ex Company or Ex State Railways and who have been dealt with under the new Note substituted on December 23, 1967 form a class by themselves and therefore there is a reasonable classification of such officers, and that satisfies the requirement of article 14 of the Constitution.
On all these grounds, Mr. Setalvad urged that the new Note is not discriminatory and it does not violate article 14 of the Constitution.
Mr. R. B. Datar, learned counsel for the respondent and M/s M. K. Ramamurthi and J. Ramamurthi, who appeared for the two interveners have supported the reasoning of the High Court for holding that article 14 is violated by the new Note to cl.
(b) of rule 2046.
We are of the opinion that the contentions of Mr. Setalvad cannot be accepted.
No doubt, the counsel is justified in his contention only to this limited extent, namely, that under cl.
(2) of rule 2046, as it existed prior to its amendment on January 11, 1967 that ministerial railway servant falling under that clause, has no right to continue in service beyond the age of 55 and that (1) ; 195.
the appropriate authority has the option to continue him in service after his attaining the age of 55 years, subject to the condition that the servant continues to be efficient.
This Court in Kailash Chandra 's case(1) had an occasion to consider rule 2046 (2) (a) as it originally stood.
It was held that the ministerial railway servants falling under the said clause may be compulsorily retired on attaining the age of 55 years.
But when the servant is between the age of 55 and 60 years, the option to continue him in service, subject to the servant continuing to be efficient, exclusively vests with the appropriate authority.
It was further laid down that the authority is not bound to retain a railway servant after the age of 55 years, even if the continues to be efficient.
It was.
further emphasised that the rule gave no right to a ministerial railway servant to continue in service beyond the age of 55 years.
It is in view of the above principles laid down by this Court,.
we have observed, earlier, that Mr. Setalvad 's contention in respect of the rule 2046, as it originally stood, is well founded.
But this Court, in the above decision, had no occasion to consider the problem that now arises, by virtue of the new Note added to, cl.
(b) of rule 2046.
There is no controversy that after the amalgamation of the Company with the Indian Railway Administration, the respondent has become an employee of the latter.
If so, in our opinion, the respondent is entitled to be given the same rights and privileges that are available to the other emplo yees employed by the Indian Railway Administration.
That exactly was the position under the rule 2046, as it originally stood; after its amendment on December 5, 1962 increasing the age of retirement to 58 years; as also under the new rule 2046, incorporated on January 11, 1967.
All these rules upto and inclusive of January 11, 1967 treated the former employees of the Ex Company, Ex State Railways and former provincial Governments, who were amalgamated with the Indian Railway Administration in 1947, on a par the other original employees of the Indian Railway Administration.
In fact, the Note to cl.
(b) of rule 2046 incorporated on January 11, 1967, reinforced this position, by making it clear that the expression "Government Service ' 'in cl.
(b) will include service under the various employers referred to therein.
Mr. Setalvad placed reliance on the fact that rule 2046, as it existed upto and inclusive of January 11, 1967, dealt differently with the age of retirement in respect of : (i) a railway servant coming under cl.
(a) and (ii) a ministerial railway servant coming under cl.
He further pointed out that even in respect of a ministerial railway servant coming under cl.
(b), the latter, in order to be eligible to have a longer age of retirement should be one who complies with the conditions mentioned there 1. ; 196 in.
These conditions are as per el.
(b) existing on January 1 1, 1967, that the officer should have entered government service on ,or before March 31, 1938.
The said officer should also have the ,one or the other of the qualifications mentioned in sub clauses (i)and (ii).
That is, according to the learned counsel, if a ministerial railway servant has not entered government service before March 31, 1938, he will not be eligible for the longer age ,of retirement.
These circumstances will clearly show, according to Mr. Setalvad that the rule has been through out maintaining a distinction even amongst the ministerial railway servants working under the Indian Railway Administration.
This argument, may on the face of it appear to be attractive; but in our opinion, it cannot be accepted.
The point to be noted is that though a distinction has been made in the rule between a railway servant coming under el.
(a) and a ministerial railway servant coming under el.
(b), those clauses will apply uniformly to all members of the Indian Railway Administration depending upon whether .they are railway servants coming under el.
(a) or a ministerial railway servant coming under el.
(b), as the case may be.
To all railway servants coming under el.
(a) the age of retirement is the same.
Similarly to all ministerial railway servants coming under el.
(b), the age of retirement is again the same.
Further .if a ministerial railway servant does not satisfy the requirements of cl.
(b) he will not be eligible to get the extended period Of retirement.
That again will apply to all ministerial railway servants, who do not satisfy the requirements of el.
We are emphasising this aspect to show that no distinction has been made either in el.
(a) or el.
(b) regarding the uniform application in respect of the age of retirement to the officers mentioned ,therein and who are governed by those clauses.
That is, there is no inter se distinction made.
The distinction made in el.
(b) regarding the ministerial railway servants who entered government service on or before March 31, 1938 is again of uniform application.
That rule only makes a broad distinction between the ministerial railway servants who entered government service on or before March 31, 1938 and who entered government service after that date.
As per the Note to el.
(b) to rule 2046, incorporated on January 11, 1967, the respondent is a person who has entered government service on or before March 31, 1938 .and satisfies also the requirements under sub cl.
(ii) or el.
(b) Similarly, another railway servant may have entered government service under the Indian Railway Administration on or before March 31, 1938.
He also, under el.
(b) will be a ministerial railway servant who has entered government service on or before March 31, 1938 and if he satisfies one or other of the conditions mentioned in sub clauses (i) and (ii) of el.
(b), he will be entitled to continue in service till 60 years.
That means both persons, like the respondent, and the officers who have straight 197 joined the service under the Indian Railway Administration, prior March 31, 1938 and who satisfy the requirements under sub clause (i) or sub clause (ii) of clause (b) will be equally entitled continue in service till they attain the age of 60 years.
These acts clearly show that cls.
(a) and (b) of rule 2046 had uniform application to all the employees of the Indian Railway Administration.
Coming to the new rule 2046, incorporated on January 11, 1967, the conditions of service of persons, like the respondent, have been better crystalised.
Read with the Note, under cl.
(b), the respondent is a ministerial railway servant, who had entered government service on or before March 31, 1938.
By virtue of cl.
(b), he was entitled to be retained in service till he attains the age of 60 years.
It is to be noted that there is no option left with the employer, but to retain such a ministerial railway servant upto 60 years.
In other words, if the ministerial railway servant satisfies the requirements of cl.
(b), he is, as of right, entitled to be in service, till he attains the age of 60 years.
Similarly, cl.
(a) introduced on January 11, 1967, gives a right to a railway servant to continue in office, till he attains the age of 58 years.
Here again, there is no option vested with the authorities except to continue him till that age.
The option to extend the period of service of the officers mentioned in cls.
(a) and (b) is dealt with under sub,, clauses (d) and (c) respectively, which we have not quoted.
Sub clauses (c) and (d) deal with the granting of extension of service beyond the period mentioned in sub clauses (b) and (a).
The option to extend the service beyond the period mentioned in sub causes (a) and (b) may be with the authorities; but they have no voice in a railway servant coming under cl.
(b), continuing upto 60 years.
That the authorities also understood the position in the manner mentioned above, is clear from the order dated March 31, 1967, of the Divisional Accounts Officer, Hubli declaring the right of the respondent to continue in service upto 60 years.
in fact, this order was passed in consequence of the new rule 2046 substituted on January 11 1967.
Therefore, from what is stated above, it is clear that upto and inclusive of January 11, 1967, no distinction inter se apart from that made by clauses (a) and (b), between the officers of the Indian Railway Administration, from whatever source they may have come, was made.
Even at the risk repetition, we may state that under cl.
(b) of rule 2046, as introduced on January 11, 1967, the original employees of the Indian Railway Administration, as well as persons, like the respondent, who came into the Indian Railway Administration in 1947, were both entitled, as of right, to continue in service till they attained the age of 60 years.
This position admittedly has been changed, by altering the definition of the 198 ,expression "Government Service" by the new Note to cl.
(b) introduced on December 23, 1967.
Under that Note, it cannot be gain said, that a distinction has been made between the original employees of the Indian Railway Administration, and the new ,employees, who were amalgamated with the Indian Railway Administration in 1947, but who had their previous service, with either a former provincial Government, or an Ex Company or Ex State Railways.
In the case of such employees, the benefit ,of the extended age of retirement, that has been given to the other employees of the Indian Railway Administration, was made available, only if the new 'employees had the same benefit under their previous employers.
Therefore, the position is that on and after December 23, 1967, though all the employees are under the Indian Railway Administration, there will be two sets of rules relating to the age of retirement, depending upon the fact whether they were in the original employment of the Indian Railway Administration or on the fact of their coming from one or , the ,other of the employers mentioned in the new Note.
It is in consequence of the new Note, that the order dated January 17.
1968 was issued by the Divisional Accounts Officer, Hubli, that the respondent has to retire at the age of 58 years, on April 14, 1968.
The question is whether the distinction made under the new Note to cl.
(b) substituted on December 23, 1967 valid? In our opinion, such a rule, which makes a distinction between the employees working under the same Indian Railway Administration is not valid. The position, after the new Note was added, is that the employee who had through out been under the Indian Railway Administration is entitled to continue in service till he attains the age of 60 years; whereas the persons, like the respondent, who are also the employees of the Indian Railway Administration, but whose previous services were with the Company, will have to refire at the age of 58 years, because a provision similar to cl.
(b) did not exist in the service conditions of the Company.
Discrimination, on the face of it, is writ large in the new Note, which is under challenge.
Mr. Setalvad, no doubt, urged that the ministerial railway servant, who was originally employee of a Company, Ex State Railway or a former Provincial Government dealt with under the new Note are a class by themselves, and, therefore, there is a reasonable classification.
Once the employees dealt with under the new Note, have taken up service under the Indian Railway Administration and have been treated alike upto January 11, 1967, it follows, in our opinion, that they cannot again be classified separately from the other employees of the lndian Railway Administration.
Therefore, we are not inclined to accept the 199 contention that the classification of these officers, under the new Note, is a reasonable classification and satisfies one of the essential requisites of article 14 of the Constitution, as interpreted by this Court.
We will assume, that in dealing with the types of employees under the new Note, there is a reasonable classification.
Nevertheless, the further question arises whether the reasonable classification, with the added condition in the Note incorporated on December 23, 1967, can be said to have a nexus or a relation to the object sought to be achieved by cl.
(b) of rule 2046 ? The object of rule 2046 itself is to provide for the age of retirement of the two types of officers coming under cls.
(a) and (b).
Where there is no indication that any further distinction inter se is sought to be made amongst the officers mentioned in cls.
(a) and (b) and when an uniform age of retirement has also been fixed in respect of the officers coming under these two clauses, the classification, carving out the ex employees of the three authorities mentioned therein, with the added condition that the rules of the Company or the State should have a provision similar to clause (b), has, in our opinion, no nexus or relation to the object of the rule.
For the reasons given above, we are of the view that the High Court was justified in striking down the order of the Divisional Accounts Officer, Hubli, dated January 17, 1968 directing the respondent to retire from service on April 14, 1968, on which date he will attain the age of 58 years.
However, it is not clear from the judgment of the High Court whether the entire new Note substituted under cl.
(b) of rule 2046 on December 23, 1967 has been struck down or whether it has struck down only the new condition incorporated in the said Note.
Even as per the Note under cl.
(b), incorporated along with the new rule 2046 on January 11, 1967, the expression "Government Service" included service rendered in Ex Company, Ex State Railways and in a former provincial Government, and such a provision is beneficial to the employees like the respondent.
In the new substituted Note dated December 23, 1967.
the first part of the Note including in "government service" any service rendered in a former provincial Government, Ex Company and Ex State Railways is more or less identical with the original Note of January 11, 1967, though in the new Note the order of the former employees has been slightly changed.
In our opinion, that part of the new rule providing that for the purpose of cl.
(b) the expression "Government Service" includes service rendered in a former provincial Government and in a Ex Company and Ex State Railways can be allowed to stand to this extent.
Therefore, the offending part in the new Note are the further words "if the 200 rules of the Company or the State had a provision similar to Clause (b) above".
This offending part can be deleted without doing violence to the definition of the expression "Goverment Service" even under the new Note.
Therefore, it is only necessary to strike down the offending part in the Note, namely, "if the rules of the Company or the State had a provision similar to Clause (b) above" and this part of the Note alone is struck down as discriminatory and violative of article 14 of the Constitution.
Subject to the above directions, the judgment and order of the High Court are confirmed and this appeal dismissed.
Special leave to appeal has been granted on August 7, 1969 subject to the conditions that the appellant is to pay the costs of the respondent in any event.
The respondent, accordingly, will be entitled to his costs in the appeal.
K.B.N. Appeal dismissed.

summary/full:
Rule 2046 (F.R. 56) of the Indian Railway Fundamental Rules was substituted on January 11, 1967, by a new Rule.
Undo cl.
(b) of the new Rule 2046 every ministerial railway servant who had entered government service on or before March 31, 1938 and who satisfied the conditions mentioned in sub cls.
(i) and (ii) of cl.
(b) had a right to continue in service till he attained the age of 60 years.
The Note to the Rule, defined the expression 'government service ' as including service rendered in ex company and ex State Railway, and in a former provincial government.
On December 23, 1967 a new Note was substituted which stated that the expression "government service" ' included "service rendered in a former provincial government and in ex company and ex State Railways, if the rules of the company or the State had a provision similar to cl.
(b) above".
The respondent joined the service of the Madras and Southern Mahratta Railway company on August 16, 1927.
The company was amalgamated with the Indian Railway Administration in 1947 and on such amalgamation the respondent became the employee of the Indian Railway Administration He was a "ministerial servant" within the meaning of that expression in r. 2046.
On March 31, 1938, he held a permanent post in the company.
After the introduction of r. 2046 on January 11, 1967, the Divisional Accounts Officer passed an order that the respondent was entitled to continue in office till he attained the age of 60 years.
But, after the new Note to cl.
(b) to r. 2046 was substituted on December 23, 1967, another order was passed to the effect that the respondent was retired from service on April 14, 1968, on attaining the age of 58 years.
The order also stated that this action was being taken in view of the new Note substituted on December 12, 1967.
The respondent filed a writ petition in the High Court challenging the legality of the order retiring him from service.
The High Court struck down the order and gave a declaration that the respondent was entitled to continue in service till he attained the age of 60 years, on the ground that the order was discriminatory and, therefore, violative of article 14 of the Constitution.
Dimissing the appeal to this Court, HELD : The High Court was justified in striking down the order directing the respondent to retire from service.
(1) Rule 2046 as it stood originally and on January 11, 1967 treated the former employees of the ex company, ex State Railway and former provincial Government 188 who were amalgamated with the Indian Administration in 1947 on a par with the other original employees of the Indian Railway Administration.
In fact the Note to cl .
(b) of r. 2046 incorporated in January 11, 1967 only reinforced this position.
Read with the Note, under el.
(b), the respondent is a ministerial servant who had entered government service on or before March 31, 1938 and, therefore, by virtue of el.
(b) he was entitled to be retained in service till he attained the age of 60 years.
C] (2) Up to and inclusive of January 11, 1967, no distinction, inter se, apart from that made by cls.
(a) and (b) between officers of Indian Railway Administration, from whatever source they may have I come, was made.
The position admittedly has been changed by altering the definition of the expression "government service" by the new Note to el.
(b) Thus on and after December 23, 1967, though all the employees are under the Indian Railway Administration, there will be two sets of rules relating to the age of retirement, depending upon the fact whether they were in the original employment of Indian Railway Administration or on the fact of their coming from one or the other employers mentioned in the new Note.
Discrimination, is writ large on the face of the new Note.
Once the employees dealt with under the new Note have taken up service under the Indian Railway Administration and have been treated alike up to January 11, 1967, if follows that they cannot again be classified separately from the other employees of the Indian Railway Administration.
Therefore the classification of these officers under the new Note is not a reasonable classification.
[197 G, 198 F] (3) Assuming there is a reasonable classification, the classification cannot be said to have a nexus or relation to the object sought to be achieved by el.
(b) of r. 2046 which is to provide for the age of retirement of the two types of officers coming under cls.
(a) and (b).
Where there is no indication that any further distinction inter se is sought to be made amongst the officers mentioned in cls.
(a) and (b) and when a uniform age of retirement has also been fixed in respect of officers coming under these two clauses, the classification carving out the ex employees of the three authorities mentioned therein with the added condition that the rules of the company or the State should have a provision similar to el.
(b) has no nexus or relation to the object of the Rule.
[199 B] (4) Though a distinction has been made in the Rule between a railway servant coming under el.
(a) and a ministerial railway servant coming under el.
(b) in regard to age of retirement, those clauses will apply uniformly to all members of the Indian Railway Administration depending upon whether they are railway servants coming under el.
(a) or ministerial railway servants coming under el.
The distinction made in el.
(b) regarding the ministerial railway servants who entered government service on or before March 31, 1938, is again of uniform application.
[196 H] (5) It is only necessary to strike down the offending part in the Note, namely, "if the rules of the company or the State had a provision similar to el.
(b)," and this part of the Note alone is struck down as discriminatory and violative of article 14 of the Constitution.
[200 B]


judgement:
l Appeals Nos. 1494 to 1498 of 1971.
Appeals by special leave, from the judgment and order dated November 15, 1967 of the Calcutta High Court in Income tax Reference No. 13 of 1963.
section T. Desai, section K. Aiyar, R. N. Sachthey and B. D. Sharma, for the appellant (in all the appeals).
N. A. Palkhivala, T. A. Ramachandran and D. N. Gupta, for the respondent (in all the appeals).
The Judgment of the Court was delivered by Khanna, J.
This judgment would dispose of five Civil Appeal Nos. 1494 to 1498 of 1971 by Special Leave filed by the ,Commissioner of Income tax, West Bengal against the judgment of Calcutta High Court whereby the question referred to that ,Court under section 66(1) of the Indian Income tax Act, 1922 (hereinafter referred to as the Act) for five assessment years was answered in favour of the assessee respondent Coal Shipments (P) Ltd.
During the pendency of the appeals, the name of the respondent was changed to Heilgers Investment Ltd. The matter relates to the assessment years 1951 52, 1952 53, 1953 54, 1954 55 and 1955 56, the corresponding accounting years for which ended on 31 3 1951, 31 3 1952, 31 3 1953, 31 3 1954 and 31 3 1955 respectively.
The respondent was one of the companies which exported coal from India to Burma before the Second World War.
Amongst the other exporters were Messrs. Karamchand Thaper & Bros. Ltd., Messrs" Macheill Barry Ltd., Messrs. Andrew Yule & Co. Ltd. and Messrs. R. V. Low & Co. Ltd. The shipment of coal to Burma Railways before the war was the subject of open tender.
After the cessation of hostilities in 1946, it became possible to resume the export of coal to Burma.
In order to overcome the difficulties in the conduct of the trade following the war, the members of the coal trade in Bengal formed an association styled Coal Exporters and Charters Association.
The respondent company as well as M/s. H. V. Low & Co. Ltd. were two of the major members 1091 of the said association.
When M/s. H. V. Low & Co. learnt of the, resumption of coal export to Burma by the respondent in 1946, they also expressed intention to export coal to Burma.
Thereupon the two companies came to an understanding and arrived at a mutual arrangement or agreement on the following lines : (i) M/s. H. V. Low & Co. Ltd. would not export coal to Burma during the subsistence of the agreement.
(ii) M/s. H. V. Low & Co. Ltd. would assist the respondent in procuring coal for shipment to Burma.
(iii) The respondent would carry on the coal shipping business and pay M/s. H. V. Low & Co. Ltd. Rs. 151 per ton (subsequently raised to Rs. 1 5 per ton) of coal shipped to Burma.
According to the respondent, the last shipment of coal under the above arrangement was made in June, 1954 after which the arrangement came to an end automatically and the Government of Burma made some other arrangement for its coal requirement.
The assessee respondent claimed to have made the following payments to M/s. H. V. Low & Co. Ltd. or their nominees in pursuance of the aforesaid agreement during the period of five accounting years from 1st April, 1950 to March 31,1955: Rs. 1951 52. . . . 91,149 1952 53. . . .
1,77,898 1953 54. . . . 3,03,631 1954 55. . . . 2,32,355 1955 56. . . . . 79,917 The amounts mentioned above were taxed in the hands of M/s. H. V. Low & Co. Ltd. The respondent claimed the payment of the above amounts as admissible business expenditure for the assessment years in question.
The Income tax Officer held that the expenditures claimed could not be allowed, as there was no written agreement in proof of the alleged arrangement and it was not possible to say that the payments were made for the purpose of the assessee 's business.
The Income tax Officer further held that even assuming that the payments were made to keep off M/s. H. V. Low & Co. Ltd. from the Burma trade, they were payments to secure a monopoly and were not, therefore, allowable as revenue expenditure.
The Appellate Assistant Commissioner on appeal upheld the order of the Income tax Officer.
When the matter came up in second appeal before the Income tax Appellate Tribunal, the Tribunal found that there was some 1092 discrepancy in the facts stated on behalf of the assessee and the Revenue.
The Tribunal thereupon required the respondent company to swear an affidavit in support of the facts relied upon by it.
In pursuance thereof, Sir Walter Michelmore, Director of Managing Agents of the respondent company filed an affidavit.
Sir Walter was also examined orally before the Tribunal.
The case was thereupon remanded to the Income tax Officer to verify the facts as stated in the affidavit of Sir Walter and report back to the Tribunal.
The Income tax Officer after making further investigation submitted his report.
In deciding the appeal, the Tribunal formulated two points for its decision : (1) Were the payments made for the purpose of the assessee 's trade in terms of the alleged agreement? (2) If the answer to the above question is in the affirmative, did the assessee acquire a monopoly by such payment ? Both the questions were answered in favour of the respondent by the Tribunal.
It was held that the payments were made in pursuance of the alleged agreement in the interest of the respondent 's trade.
The version of the respondent about its agreement with M/s. H. V. Low & Co. Ltd. was accepted.
According to the agreement, M/s. H. V. Low & Co. Ltd. agreed to assist the respondent in procuring coal for export to Burma whenever asked to do and further agreed not to export coal to Burma during the subsistence of the arran gement.
The agreement was found to have been acted upon and it was held that M/s. H. V. Low & Co. Ltd. supplied varying quantities of coal to the respondent for shipment to Burma.
It was further held that the respondent company did not acquire any monopoly rights to carry on Burma trade and the impugned payments were made to carry on the trade in a more facile and profitable manner.
The Tribunal found that the arrangement arrived at verbally between the respondent and M/s. H. V. Low & Co. Ltd. was a temporary measure liable to be terminated ,at will and the respondent company did not derive any advantage of an enduring character by such payments.
The expenditures in question were, in the opinion of the Tribunal, attributable to revenue and not to capital.
As such, they were held to be permissible expenditures under section 10(2) (xv) of the Act.
On application filed by the Revenue, the following question was referred to the High Court "Whether on.
the facts and in the circumstances of the case, the payments made by the assessee to M/s. H. V. Low & Co. Ltd. or their nominees were of a capital nature and as such not allowable under section 10(2) (xv) of the Income tax Act, 1922 ?" 109 3 .lm0
It was not disputed before the High Court that there was an.
agreement between the respondent and M/s. H. V. Low & Co. Ltd. on terms stated by the respondent and that the payments in question were made under that agreement.
The High Court held that the arrangement entered into by the respondent with M/s. H. V. Low & Co. Ltd. was not such as was likely to have an enduring beneficial effect.
In the opinion of the High Court, there was no cert ainty of duration and the arrangement could be terminated or revoked at any time.
The consideration of the arrangement, it was observed, was not paid once for all but was related to uncertain shipments to be made.
The arrangement, it was further held, did not create any monopoly or bring about any capital advantage to the assessee.
The respondent was held entitled to claim the deduction of the expenditures under section 10 (2) (xv) of the Act.
In the result, the question referred to the Court was answered in the negative and in favour of the assessee.
We have heard Mr. Desai on behalf of the appellant and Mr. Palkhiwala on behalf of the respondent and are of the opinion that there is no merit in these appeals.
The Tribunal has found that the amounts in question were paid by the respondent to M/s. H. V. Low & Co. Ltd. in pursuance of the agreement according to which M/s. H. V. Low & Co. Ltd. were to assist the respondent in procuring coal for shipment to Burma and were themselves not to export coal to Burma during the subsistence of the agreement.
The above findings of fact are, for the purpose of these proceedings, binding upon the appellant and consequently no attempt was made either in the High Court or in this Court to assail them.
The payments which were made by the respondent to M/s. H. V. Low & Co. Ltd., it would thus appear, were because of the assistance rendered by them for shipment of coal to Burma and for abstaining from exporting coal to Burma during the subsistence of the agreement.
So far as the payment is concerned which was made to M/s. H. V. Low & Co. Ltd. for assistance to the respondent in procuring coal for shipment to Burma, it was admittedly an item of revenue expenditure.
The controversy between the parties has centered on the point as to whether that part of the payment which was made because, of M/s. H. V. Low & Co. Ltd. having agreed riot to export coal to Burma during the subsistence of the agreement constituted capital expenditure or revenue expenditure.
Mr. Desai on behalf of the appellant contends that as the payment was made for warding off competition by rival coal exporter, that payment should be held to be a capital expenditure.
The fact that there was no certainty of the duration of the arrangement between the respondent and M/s. H. V. Low & Co. and the same could be terminated at any time, according to the learned counsel, 1094 is wholly immaterial.
As against that, Mr. Palkhiwala argues that in order to constitute capital expenditure, the object of the expenditure should be to secure an advantage of enduring nature.
When there is no certainty of the duration of the arrangement and the same can be revoked at any time, the advantage cannot be said to be of an enduring character and the expenditure cannot be held to be of a capital nature.
Further.
as the payment was related to the quantum of coal shipped to Burma in the course of trading activity and was not connected with the capital value of the assets, the payment, Mr. Palkhiwala submits, should be considered to be revenue expenditure.
In our opinion, there is considerable force in Mr. Palkhiwala 's submission.
Judicial decisions have, from time to time, laid down some broad principles in order to determine whether an expenditure is of a capital nature or revenue nature.
Despite the enunciation of those principles, it is not always easy to decide the question in the context of the circumstances of an individual case.
Considerable difficulty is experienced in border line cases.
It was in this connection that Hidayatullah, J. (as he then was) observed in Abdul Kayoom vs Ccommissioner of Income tax(1) that "none of the tests (laid down in various authorities) is either exhaustive or universal.
Each case must depend 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 . by matching the colour of the one case against the colour of another".
It may be apposite at this stage to refer to some of the broad tests which have been.laid down to distinguish the capital expenditure from revenue expenditure.
In the case of Atherton vs British Insulated and Helsby Cables Ltd.(2) , Lord Cave, L.C. laid down the following criterion which has been referred to in most of the subsequent cases : "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 the special circumstances leading to an oppo site conclusion) for treating such an expenditure as properly attributable not to revenue but to capital." The Courts have to bear in mind, according to the dictum laid down in the above case, whether it was an expenditure forming " part of the cost of the income earning machine or structure" as (1) .
(2) 1095 opposed to part of "the cost of performing the income earning operations".
In that case, the House of Lords dealt with a fund which had been created by the respondent company as a nucleus of a pension fund for its employees.
After handing over the money to trustees for the employees, the company claimed that the money should be charged to revenue.
The claim of the company was rejected by the House of Lords on the ground that the payment of money created for itself an enduring benefit or advantage which was of a capital nature.
In the case of Robert Addie and Sons ' Collieries Limited vs The Commissioners of Inland Revenue(1), Lord President Clyde gave the following test: "It is necessary accordingly to attend to the true nature of the expenditure, and to ask one 's self the question, is it a 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 a capital outlay ? is it expenditure necessary for the acquisition of property or of rights of a permanent character, the process of which is a condition of carrying on its trade at all ? The expression 'once and for all ' used in the dictum laid down in Atherton 's case (supra) was referred to by Bhagwati, J. speaking for this Court in the case of Assam Bengal Cement Co. Ltd. vs Commissioner of Income tax, West Bengal(2) and it was observed that the expression was used to denote an expenditure which is made once and for all for procuring an enduring benefit to the business as distinguished from a recurring expenditure in the nature of operational expenses.
The character of the payment can be determined, it was added, by looking at what is the true nature of the asset which has been acquired and not by the fact whether it is a payment in a lump sum or by instalments.
It is also an accepted proposition that the words 'permanent ' and ' enduring ' are only relative terms and not synonymous with perpetual or ever lasting.
There are some other tests like those of fixed capital and circulating capital for determining the nature of the expenditure.
An item of disbursement can be regarded as capital expenditure when it is referable to fixed capital.
It is revenue when it can be attributed to circulating capital.
It is not the case of any party that this test of fixed and circulating capital can be invoked in this case nor has reference been made to some of the other tests.
The case which has been set up on behalf of the revenue is that as the object of making the payments in question was to eliminate competition of a rival exporter, the benefit which enured to the respon (1) (2) 109 6 dent was of an enduring nature and as such, the payment should be treated as capital expenditure.
We find ourselves unable to accede to this contention because we find that the arrangement between the respondent and M/s. H. V. Low & Co. Ltd. was not for any fixed term but could be terminated at any time at the volition of any of the parties.
Although an enduring benefit need not be of an ever lasting character, it should not, at the same time,, be so transitory and ephemeral that it.
can be terminated at any time at the volition of any of the parties.
Any other view would have the effect of rendering the word 'enduring ' to be meaningless.
No cogent ground or valid reason has been given to us in support of the contention that even though the benefit from the arrangement to the respondent may not be of a permanent.
or enduring nature, the payments made in pursuance of that arrangement would still be capital expenditure.
Such a contention indeed was repelled by the Judicial Committee in the case of Commissioner of Taxes vs Nchanga Consolidated Copper Mines Ltd.(1).
The respondent company in that case together with two other companies Rhokana Corporation Ltd. and Bancroft Mines Ltd. formed a group for carrying on the business of copper mining.
Following a steep fall in the price of copper in the world market the group, in common with other producers, decided voluntarily .to cut their production by 10 per cent.
In effecting the cut, it was agreed that Bancroft Mines Ltd. should cease production for one year and that the respondent company and Rhokana Corporation Ltd. should undertake between them the whole group programme for the year reduced by the overall cut of 10 per cent.
It was further agreed to pay a sum of Bancroft Mines Ltd. to compensate it for the abandonment of the production for the year.
,Question arose whether the compensation which the respondent company had paid to Bancroft Mines Ltd. was expenditure of capital nature ? The Judicial Committee held that the compensation paid was an allowable deduction in determining the respon dent company 's taxable.
, income.
The expenditure, in the view ,of the Judicial Committee, had no analogy with expenditure for the purpose of acquiring a business or a benefit of long term or enduring contract.
Viscount Radcliffe who delivered the judgment while dealing with the question of expenditure observed: "It bought one right only, the right to have Bancroft out of production for 12 months.
While, no doubt, money paid to a cquire a business or to shut a business down for good or to acquire some contractual right to last for years may well be capital expenditure, it seems a contradiction in terms to speak of what Nchanga thus acquired, which exhausted itself and was created (1) 1097 to exhaust itself within the 12 months ' period within which profits are ascertained, as constituting an enduring benefit or as an accretion to the capital or incomeearning structure of the business.
If the expenditure is to be treated as capital expenditure at all, it cannot be for any reason such as that".
Although we agree that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the .same result would not follow if there is no certainty 'of the duration of the advantage and the same can be put to an end at any time.
How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and the facts of each individual case.
In the case of Assam Bengal Cement Co. Ltd.(1) the appellant company acquired from the Government of Assam a lease of certain lime stone quarries for a period of twenty years for the purpose of carrying on the manufacture of cement: In addition to the rent and royalties, the appellant agreed to pay the lessor annually a sum of Rs. 5,000/ during the whole period of the lease as a protection fee and in consideration of that payment the lessor undertook not to grant to any person any lease, permit or prospecting licence for lime stone in a group of quarries without a condition that no limestone should be used for the manufacture of cement.
The appellant also agreed to pay Rs. 35,000/ annually for five years as a further protection fee and the lessor in consideration of that payment gave a similar undertaking in respect of the whole district.
It was held by this Court that as a result of the annual payment of the amounts of Rs. 5,000/ and Rs. 35,000/ , there enured an advantage to the appellant for the whole period of the lease and as such it was capital expenditure.
Apart from the above, we find that the payments made to M/s. H. V. Low & Co. Ltd. were related to the actual shipment of coal in the course of the trading activities of the respondent and had no relation to the capital value of the assets.
The payments were not related to or tied up in any way to any fixed sum agreed between the parties.
The dictum laid down by this Court in Travancore Sugars and Chemicals Ltd. vs Commissioner of Income tax, Kerala(2) in the circumstances is attracted.
The appellant company in that case was to take over the assets of sugar manufacturing concern, a distillery and a tincture factory of the Government of Travancore.
The promoters of the appellant company in that connection entered into an agreement with (1) (2) 18 LI 19 Sup Cl/72 1098 the Government.
The cash consideration for the sale of the assets of the ' sugar manufacturing concern was Rs. 3.25lakhs, that for the sale of the distillery was agreed to be arrivedat as a result of joint valuation and that for the sale of the assets of the tincture factory was the book value.
The Government agreed to recognise the transfer of the licence for the distillery to the appellant company and to secure the continuance of the licence for a period of 5 years after the termination of the existing licence.
The Government also agreed to purchase the pharmaceutical products manufactured by the appellant company.
Apart from the cash consideration, clause 7 of the agreement provided that the Government would be entitled to 20 per cent of the annual net profits subject to a maximum of Rs. 40,000/ after providing for depreciation and remuneration of the secretaries and treasurers.
Clause 7 was amended in January, 1947 to the effect that the Government would be entitled to 10 per cent of the annual net profits.
Question arose whether an amount of Rs. 42,480/ which was, payable under clause 7 of the agreement was a permissible expenditure under section 10 of the Incometax Act.
It was held that the above payment was in the nature of revenue expenditure and not capital expenditure.
Ramaswami, J. speaking for the Court dealt with the matter in the following Words : "Examining the transaction from this point of view, it is clear in the present case that the consideration for the sale of the three undertakings in favour of the appellant was : (1) the cash consideration mentioned in the principal agreement, viz. clauses 3, 4(a) and 5(a) and (2) the consideration that Government shall be entitled to twenty per cent of the net profits earned by the appellant in every year subject to a maximum of Rs. 40,000/ per annum.
With regard to the second part of the consideration there are there importan t points to be noticed.
In the first place, the payment of commission of twenty per cent on the net profits by the appellant in favour of the Government is for an indefinite period and has no limitation of time attached to it.
In the second place, the payment of the commis sion is related to the annual profits which flow from the trading activities of the appellant company and the payment has no relation to the capital value of the assets.
In the third place, the annual payment of 20 per cent commission every year is not related to or tied up, in any way, to any fixed sum agreed between the parties as part of the purchase price of the three undertakings.
There is no reference to any capital sum in 1099 this ' part of the agreement.
On the contrary, the very nature of the payments excludes the idea that any connection with the capital sum was intended by the parties.
The above observations, in our opinion, have a direct bearing on the present case.
Mr. Desai has referred to the following observations of Lord Greens in Henriksen (Inspector of Taxes) vs Grafton, Hotel Ltd.(1) : "It appears to me that there can be no difference in principle between a payment out and out for monopoly value and a payment in respect of a term.
Each licence granted for a term must stand by itself since an application for its renewal falls to be treated as an application for a new licence.
This is what I mean when I say that there is a false appearance of periodicity about these payments.
Whenever a licence is granted for a term, the payment is made as on a purchase of a monopoly for that term.
When a licence is granted for a subsequent term, the monopoly value must be paid in respect of that term, and so on.
The payments are recurrent if the licence is renewed; they are not periodical, so as to give them the quality of payments which ought to be debited to revenue account.
The thing that is paid for is of a permanent quality, although its permanence, being conditioned by the length of the term, is short lived.
A payment of this character appears to me to fall into the same class as the payment of a premium on the grant of 'a lease which is admittedly not deductible".
Particular reliance has been placed by Mr. Desai upon the concluding part of the above observations.
The portion relied upon, in our opinion, has to be read in the context of the preceding lines and the facts of that case.
The lessees of the licenced premises in that case, under.
a covenant in their lease, paid annually certain sums imposed by the licensing justices as instalments of the monopoly on the grant and renewal of the licence for three years period.
It was contended that those sums were not capital payments but should be regarded as revenue payments.
It was held that monopoly value payments were imposed for the term of the licence on grant or renewal though the fact that permission was given to pay by yearly instalments gave a false appearance of periodicity.
Such payments.
in the opinion of the Court, fell into the same class as a premium paid (1) 1100 on the grant of a lease and as such should be regarded as of capital nature.
It is obvious that the question involved in that case was different and the appellant can derive no assistance from it.
The appeals consequently fail and are dismissed with costs.
One set of costs.
V.P.S. Appeals dismissed.

dataset_name: IN-Abs

summary/full:
In pursuance of an agreement between the assessee respondent and another firm L & Co., by which, L agreed to assist the respondent in procuring coal for export whenever asked to do so and not to export any coal during the subsistence of the agreement, L supplied various quantities of coal to the respondent and the respondent made payments as pet the agreement.
The respondent claimed the payments as admissible expenditure under section 10(2)(xv) of the Income tax Act, 1922, during the relevant assessment years.
The Department held that they were payments.
to secure a monopoly and were therefore not allowable as revenue ex penditure.
The Tribunal found that the respondent did not acquire any monopoly rights, that the payments were only made to carry on trade in a more facile and profitable manner, that the arrangement was a temporary measure liable to be terminated at will, that the respondent did not derive any advantage of an enduring character and that therefore.
the expenditure was attributable to revenue and not to capital.
and held in favour of the assessee.
The High Court, on, reference, agreeing with the findings of the Tribunal and holding that the consideration was not paid once for all but was related to uncertain shipments to be made, decided in favour of the assessee.
In appeal to this Court it was contended that though the payment for assistance to the Respondent in procuring coal was an item of revenue expenditure, that part of the payment which was made because of L agreeing not to export coal during the subsistence of the agreement constituted a capital expenditure and not a revenue expenditure.
Dismissing the appeal, HELD : Although payments made to ward off competition in business, to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time.
How long the period of contemplated advantage should be in order to constitute an enduring benefit would depend upon the circumstances and facts of each individual case.
An enduring benefit need not be of an everlasting character, but it should not, at the same time, be so transitory and ephemeral that it can be terminated at any time at the volition of any of the parties.
[1096 B; 1097 B C] Further, the payments were related to the actual shipments of coal in the course of the trading activities of the respondent and had no relation to the capital value of the assets.
The payments were not related to or tied up in any way to any fixed sum agreed between the parties.
It was not a case of monopoly value payments being permitted to be paid in instalments giving a false appearance of periodicity.
[1097 F G; 1099 G H] 1090 Travancore Sugars and Chemicals Ltd. vs C.I.T., Kerala , followed.
Atherton vs British Insulated and Halaby Cables Ltd. 10 T.C. 155, Robert Addie and Sons ' Collieries Ltd. vs Commissioners of Inland Revenue, 1, Assam Bengal Cement Co. Ltd. vs C. I. T., West Bengal, , Commissioner of Taxes vs Nchanga Consolidated Copper Mines Ltd. 58 I.T.R. 241 and Hanrikesen (Inspector of Taxes) vs Grafton Hotel Ltd., , referred to.