STONE, C.J. - This is a reference under Section 66 (1) of the Income-tax Act, and the problem which we have to consider arises for the assessment year 1943-44 in respect of the account year of the assessee company, which is the calendar year 1942. The questions referred to us concern an expenditure of Rs. 16,707 in fees consequential upon the assessee company, who carry on the business of textile mills, making an application for registration of their trade marks which had been continuously in use since before the 25th of February, 1937. The questions submitted to us by the Tribunal are these : (1) Whether in the circumstances of the case the expense of Rs. 16,707 incurred by the assessee company in the material year of account in respect of application fees for the initial registration of its 'old' trade marks, i.e., trade marks which had been continuously in use since before the 25th day of February, 1937, was rightly held to be expenditure attributable to revenue (2) If it was revenue expenditure, whether it was incurred wholly and exclusively for the purposes of the assessee companys business ?
In this case we are glad to note that there is an agreed statement of facts from which it appears that :-
'The assessee company carries on a business of manufacture and sale of textile goods which are branded or stamped with its distinctive trade marks. The company had registered these trade marks with the Millowners Association, Bombay. They are its old trade marks, in the sense that the company had been continuously using them since before the 25th February, 1937, which date is important having regard to one of the material sections of the Trade Marks Act, V of 1940.'
And then a little further on :-
'In the account year 1942 which is material to the assessments in question, the company made one or more applications for the first registrations of their trade marks and incurred an expense of Rs. 16,707 on account of the prescribed application fees. It debited the amount to its revenue account and, in its assessment for 1943-44, claimed allowance in respect of it in the computation of it business profits, under Section 10 (2) (xii) of the Indian Income-tax Act.'
The first question, we have to consider, depends primarily on an appreciation of the nature and effect of the Trade Marks Act, 1940. As its preamble shows, it was enacted because it was expedient to provide for the registration and more effective protection of trade marks. The definition section is Section 2 and by sub-clause (i) 'registered' (with its grammatical variation) means registered under this Act; (j) 'registered trade mark' means a trade mark which is actually on the register and (l) 'trade mark' means a mark used or proposed to be used in relation to goods for the purpose of indicating or so as to indicate a connection in the course of trade between the goods and some person having the right, either as proprietor or as registered user, to use the mark whether with or without any indication of the identity of that person. The procedure which has to be adopted in order to effectuate registration is contained in Chapter III and in section 18 provision is made for the duration and renewal of registration. By sub-section (1) of that section, registration of a trade mark shall be for a period of seven years, and it may be renewed from time to time in accordance with the provisions of the section. Then sub-section (2) provides for the renewal of registration after the initial seven years for periods of fifteen years, and sub-section (3) provides that at the prescribed time before the expiration of the last registration of the trade mark the Registrar shall send notice in the prescribed manner to the registered proprietor of the date of expiration and the conditions as to payment of fees and otherwise. Under a schedule which is referential to prescribed rules made under the Act the quantum of fees which have to be paid is provided for. Chapter IV is headed, 'Effect of Registration,' and commences with Section 20. Sub-section (1) of that section provides that no person shall be entitled to institute any proceeding to prevent, or to recover damages for, the infringement of an unregistered trade mark unless such trade mark has been continuously in use since before the 25th of February, 1937, by such person or by a predecessor in title of his and unless an application for its registration, made within five years from the commencement of the Act, has been refused; and the registrar shall, on application in the prescribed manner, grant a certificate that such application has been refused. Sub-section (2) saves rights with regard to passing off actions. Section 21 sets out the rights conferred by registration and it is in these terms :-
'Subject to the provisions of Sections 22, 25 and 26, the registration of a person in the register as proprietor of a trade mark in respect of any goods shall, if valid, give to that person the exclusive right to the use of the trade mark in relation to those goods and, without prejudice to the generality of the foregoing provision, that right shall be deeded to be infringed by any person who, not being the proprietor of the trade mark or a registered user thereof using by way of the permitted use, uses a mark identical with it or so nearly resembling it as to be likely to deceive or cause confusion, in the course of trade, in relation to any goods in respect of which it is registered....'
Mr. Setalvad on behalf of the Commissioner submits with reference to these two sections that they show that a trade mark is a capital asset, and that this expenditure for registration is to preserve that capital asset and to make it more effective, whilst Section 21 gives to the registered proprietor a proprietary right to the trade mark, which he had not got before. Section 23 makes registration prima facie evidence of validity, and by Section 24 registration after seven years is to be conclusive as to validity. Section 28 which stands at the head of Chapter V, which chapter is entitled 'Assignment and Transmission,' provides that the person for the time being entered in the register as the proprietor of a trade mark shall, subject to the provisions of the Act and to any rights appearing from the register to be vested in any other person, have power to assign the trade mark, and to give effectual receipts for any consideration for such assignment.
Section 29 provides :-
'Notwithstanding anything in any other law to the contrary, a registered trade mark shall, subject to the provisions of this Chapter, be assignable and transmissible whether in connection with the goodwill of a business or not, and in respect either of all the goods in respect of which it is registered or of some only of those goods.'
Section 30 which is concerned with the assignability of unregistered trade marks provides that an unregistered trade mark shall be assignable and transmissible whether in connection with the goodwill of a business or not, provided that, except in connection with the goodwill of a business, assignment or transmission shall be permissible only in the circumstances therein set out, which make it incumbent that the unregistered trade mark should be used in the same business as a registered mark and be assigned at the same time and to the same person as the registered and that it relates to goods in respect of which a registered mark or transmitted.
These sections, Mr. Setalvad submits, give new rights which did not exist before and he contends that these new rights add to and alter the nature of this capital asset, viz., the trade mark.
The leading authority on this branch of the law is British Insulated and Helsby Cables Limited v. Atherton. That case was with reference to a sum of 31,784 pounds, which a company had laid out to form the nucleus of a fund to provide the amount necessary in order that past years of service of their then existing staff should rank for certain pension benefits, the sum being arrived at by actuarial calculations and on the basis that the sum would ultimately be exhausted when the object for which it was provided had been attained. The passage from Viscount Caves judgment which has since been much quoted is to be found at page 213 :-
'When an expenditure is made, not only once and for all, but with a view to bringing into existence as asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.'
And Lord Atkinson at page 221 said :-
'It is difficult to see on what principle the company are, for the purposes of the assessment of income-tax for the year in which the payment was made, entitled to deduct it from their profits and gains for that year, since it cannot, I think, be regarded as forming part of the cost by which those profits and gains have been acquired, nor as an expenditure which, however prudent from the employers point of view, was essentially necessary for the acquisition in that, or any subsequent year, of any portion of the profits and gains of the appellants business. It would certainly appear to me not to be - to adopt Lord Summers phrase used by him in his judgement in Ushers Wiltshire Brewery Ltd. v. Bruce - a proper debit item to be charged against incomings of the trade when computing the balance of profits of it. That is apparently the view of it taken by Warrington, L. J. He said : The real question I think which we have to determine is whether this is a proper debit item to be charged against the incomings of the trade when computing the balance of profits of it. He held it was not a proper debit item.'
The next case is Anglo-Persian Oil Co. v. Dale, Lord Hanworth at page 138, referring to the passage in Lord Caves judgment which I have read, said :-
'Lord Caves test that where money is spent for an enduring benefit it is capital, seems to leave open doubts as to what is meant by enduring. In Mitchell, v. B. W. Noble Ltd., the dismissal of the director once and for all might have connoted an enduring benefit, but the expenditure was held not to be a capital expense'.
And Lord Justice Romer at page 145, having referred to the case of Ushers Wiltshire Brewery, Ltd. v. Bruce, said :-
'In these circumstances, it is not surprising that the cases in which the Court has been called upon to say whether some particular deductions is or is not permissible should have been numerous and not always easy to reconcile with others in which the facts were not dissimilar. Nor is it surprising that learned Judges should have applied tests which, however satisfactory for the purpose of solving the particular problem before them, should turn out to be inconclusive or insufficient when applied to the facts of another case.'
'At the end of the year 1925, however, all these authorities were considered by the house of Lords in British insulated and Helsby Cables v. Atherton, and the law applicable to such cases as the present was, as it seems to me, placed beyond the realms of controversy. The boundary line between deductions that were permissible and those that were not had previously been uncertain and difficult to follow. As regards the large majority of deductions, there was and could be no conceivable doubt. They were clearly on one side of the line or the other. But as regards a comparatively small number, it was difficult to say on which side of the line they fell. This was particularly the case where, as in the present one, an expenditure is not a recurring one, but is made once and for all. It was pointed out by Lord Cave in Athertons case that an expenditure, though made once and for all, may nevertheless be treated as a revenue expenditure, and he then added this : (And the Lord Justice then quotes the passage I have read and continues). It should be remembered, in connection with this passage, that the expenditure is to be attributed to capital if it be made with a view to bringing an asset or advantage into existence. It is not necessary that it should have that result. It is also to be observed that the asset or advantage is to be for the enduring benefit of the trade. I agree with Rowlatt, J., that by enduring is meant enduring in the way that fixed capital endures.'
There are two other cases on the subject to which reference can usefully be made, viz., Southern v. Borax Consolidated Ltd. The expenditure in questions in that case was the legal expenses incurred by a company in England in defending certain litigation in America with regard to some of the land of the company in that country and Mr. Justice Lawrence said at page 6 :-
'So here if it could be said that this expenditure had in any way altered the original character of the capital asset which was acquired by the respondent company I should have taken the view that the payment was in respect of capital, but as the capital asset of the respondent company in my opinion remained absolutely unaltered, that payment is properly attributable to revenue.'
The other case is Central India Spinning, weaving and Manufacturing Co. v. Commissioner of Income-tax, C. P. and U. P. That case also dealt with legal expenses, the expenses being incurred in connection with a suit to restrain the infringement of a trade mark, and they were held to be a proper deduction on revenue account.
It has been pointed out by the Advocate-General on behalf of the assessee, that as the owner of the trade marks, the assessee company had the right to sue for infringement of them even before the trade Marks Act of 1940, the right of action being under Sections 54 and 55 of the Specific Relief Act. The explanation to Section 54 actually mentions a trade mark as being 'property' and a trade mark is also referred to in illustration (w) to that section. In the case Ransome v. Graham, Vice-Chancellor Bacon delivering judgment in the year 1882 and speaking of the English Trade Marks Act of 1875, said that the law had undergone no change since the English Act came into force. But that statement must be taken with caution, because in fact the equivalents of Sections 20 and 21 of the Indian Act did not become law in England until the Trade Marks Act of 1905, and Sections 28 to 30 both inclusive did not become law until the English Act of 1938.
Speaking of the English Act of 1875, Lord Justice Cotton in Mitchell v. Henry said :-
'What the Act does, as I understand it, is this :- It enables persons to register a trade mark, and when they register it that is equivalent to evidence of public use of it by them, and during five years the registration is prima facie evidence of their exclusive right to it, and after the five years it is conclusive evidence of such right.'
In the case before us it seems to me that the duration of the advantage gained by registration is uncertain, the fees only preserve it for specified periods, in the first instance seven years, and for subsequent periods of fifteen years. How can it be said, to use the words of Lord Cave, 'to bring into existence an asset or an advantage for the enduring benefit of the trade ?' Can it be said that periods of 7 and 15 years are sufficiently permanent to make it enduring I think not. It could not, in may opinion, be disputed that if in order to protect these trade marks by registration, an annual fee had to be paid, that the payments so made would be revenue payments and deductible for tax purposes, and, in my opinion, the fact that the periodic payments are spaced by longer intervals cannot effect the principle, so long as the payments are recurrent and they are not made once and for all. But were the payments made for the purpose of maintaining a capital asset of the assessee company, or, have they created a new asset or altered or added to the original nature of the capital asset It does not seem to me that the payment of these fees appreciates the profit earning capacity of the company so far as the use of these trade marks is concerned. The trade marks remain the same as those which have been in use since before February 1937. In one sense every prudent expenditure improves the asset upon which it is laid out, e.g., the repainting and current repairs to business premises given to them at any rate temporarily some enhanced value. In my opinion, neither Section 20 nor Section 21 of the Trade Marks Act creates an enduring benefit, because, even before the Act, the assistance of the Court could be sought in cases of infringement and if registration is not renewed its benefit lapses. The sections take something away from trade marks which remain unregistered rather than they add anything from trade marks which remain unregistered rather than they add anything to those which become registered. But Sections 28 to 30 both inclusive with regard to assignment and transmissibility, do, in one sense, confer a new right, because before the Act you could not transfer a trade mark in gross. But is a separate or altered asset brought into existence It is suggested that the trade mark is now assignable at a separate value apart from the business or its goodwill. The reason for the change in the law is suggested in Bray and Underhay, book on the English Trade Marks Act of 1938, to be as follows :-
'The changes introduced by this section are far-reaching. The theory upon which the law of trade marks has been evolved hitherto has been that the public regarded a trade mark as indicating that the goods bearing the mark emanated from a particular business exclusively, and that, if the link between the mark and the business was broken, it would be contrary to public policy to recognize the continuance of any exclusive right to the mark. See, generally, Kerly, pp. 401 et seq. The questions as to how far a business might be split up and a part assigned as a separate business has never been settled in respect of unregistered trade marks.'
And a little further on :-
'Reasons for introducing changes in the law are given in the report, pp. 26 et seq. In effect, a position had been reached, owing largely to the growth of limited companies and the practice of operating through subsidiaries, in which the old rules had become artificial. The entire control of a business might be changed by a transfer of shares without any assignment of the trade mark, whilst, on the other hand, the transfer of a part of a business to a subsidiary company might involve no real change in control and yet require an assignment of the trade mark which could not be legally effected.'
In my opinion the registration fees paid were not paid for the purpose of acquiring a right of transmissibility, which did not previously exist, the enhanced status of a registered trade mark is only incidental to the registration of an existing asset. But even if it could be regarded as new right, it is not enduring since in order to keep it up, periodic payments are necessary.
This case may fall near the dividing line, but in my judgment it falls on the revenue side of it, and accordingly in my opinion the first questions should be answered in the affirmative.
As to question No. 2, there is no evidence that the trade marks are used in any way except for the purposes of the assessee companys business, and admittedly the expenditure was incurred wholly and exclusively for the purpose of registering these marks and in my opinion the second question must also be answered in the affirmative.
The Commissioner should pay the costs.
CHAGLA, J. - The question whether a certain expenditure is a capital expenditure or a revenue expenditure usually presents considerable difficulty. The legal touchstone which is almost invariably applied is the familiar dictum of Viscount Cave in Athertons case :-
'But when an expenditure is made, not only once and for all, but a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.'
Lord Justice Romer felt that this definition had placed the matter beyond all controversy - see his remarks in the Anglo-Persian Oil Company case. But Lord Macmillian in Van Den Berghs case felt that Lord Justice Romer had been unduly optimistic, and the learned Law Lord was of the opinion that the question whether a particular expenditure fell on one side of the line or other was a task of much refinement. But on the whole I think the definition of Viscount Cave is a good working definition; and if one were to supplement it with the definition suggested by Mr. Justice Lawrence in Southern v. Borax Consolidated, Ltd., whether an expenditure had in any way can be applied to any set of given facts. But to my mind the difficulty does not so much arise in the enunciation of a legal principle as the application of a legal principle to a set of given facts and that is the same difficulty which we have experienced in this case. I agree with the learned Chief Justice that the line dividing capital expenditure and revenue expenditure is usually a very thin one and in the case before us it is markedly thin one.
Now Mr. Setalvad has contended that this is a capital expenditure because the amount expended was to make the capital asset more effective and more valid. It is not disputed that a trade mark is a capital asset. It is also not disputed that a trade mark is a capital asset. It is also not disputed that in this particular case the expenditure, namely, the payment of registration fees, does not bring into existence any new asset, but the question is whether there has been brought into existence an advantage for the enduring benefit of a trade; and Mr. Setalvad said that an enduring advantage has been brought into existence on two specific grounds. The first ground is that the registered holder of a trade mark gets a proprietary right in the trade mark which he did not enjoy before. Mr. Setalvad particularly emphasizes Section 21 of the Trade Marks Act (V of 1940) which confers upon the registered proprietor of a trade mark the exclusive right to the use of the trade mark. Now in England the law governing the question of trade marks was first placed on the Statute Book in 1875. Prior to that, an action also lay for an infringement of a trade mark; and as pointed out by the learned Chief Justice in the two case to which he has referred, the Act of 1875 brought about no change in the legal position. It was really declaratory of the law as it had already existed in England. We had then after 1875 the Act of 1905 and the Act of 1938. The question is whether in India the Trade Marks Act of 1940 has made any change in the legal rights of the owner of a trade mark. To my mind it is clear that even prior to the passing of this Act the owner of a trade mark could maintain an action for the infringement of a trade mark and that action could be maintained on the assumption that he was the owner of the trade mark and he had a proprietary right in the trade mark. Sub-clause (1) of Section 20 of the Trade Marks Act itself assumes and implies that such a right existed in the owner of a trade mark because it said that the unregistered holder of a trade mark can maintain as suit for the infringement of a trade mark provided that the trade mark was in use before the 25th of February, 1937, and an application for registration had been made and refused. Again, turning to Section 54 of may be granted, the explanation to that section lays down that for the purpose of that section a trade mark is property. Therefore, if a person invaded or threatened to invade the other sides right to, or enjoyment of, property, the Court under Section 54 had the discretion to grant a perpetual injunction, and trade mark was as much property for the purposes of Section 54 as any other kind of property.
I, therefore, agree with the learned Advocate-General that all that the trade Marks Act has done is to facilitate the mode of proof. Instead of compelling the holder of a trade mark in every case to prove his proprietary right before he could ask the Court to grant him an injunction, the Trade Marks Act provides a procedure whereby registering his trade mark the owner gets certain facilities in the mode of proving his title. For instance, under Section 23 of the Trade Marks Act registration is to be prima facie evidence of the validity of the trade mark.
Mr. Setalvad has very strongly relied on a recent decision of the Court of Appeal in England in Bismag Ltd. v. Amblins. In that case Sir Wilfrid Greene, Master of the Rolls, held that the Act of 1938 has had the effect of bringing about a radical alteration in the law relating to registered trade marks. Now it is to be noted that what that case actually decided was that the decision of the House of Lords in the Yeast-Vite case the plaintiffs were the registered proprietors of the trade mark 'Yeast Vite,' and they claimed on the ground that the defendants use of the mark was not for the purpose of indicating upon the plaintiffs as registered proprietors of the trade mark under the statutes then in force. It should also be noted that Section 39 of the Act of 1905 conferred upon the proprietor of a registered trade mark the exclusive right to the use of such trade mark upon or in connection with the goods in respect of which it was registered; and Sir Wilfrid Greene came to the conclusion that looking to the language of Section 4 of the Act of 1938, a radical alteration had been brought about in the law relating to registered trade marks and the proprietor of a registered trade mark had acquired certain additional rights. Now our Act of 1940, as is apparent, is subsequent to the English Act of 1938, and Mr. Setalvad contends that this decision of the Court of Appeal applies to our statute and Sections 21 and 22 of that statute. Now one or two important facts have to be remembered. Section 4 of the English Act of 1938 is not in terms identical with Section 21 with which we are concerned and Section 22 of our Act. I should also like to point out that in the Court of Appeal, Lord Justice MacKinnon expressed dissent, and a very emphatic dissent. That learned Judge pointed out that although he had read Section 4 of the English Act several times, he had very little notion of what that section was intended to convey. The learned Judge further stated he doubted if the entire statute book could be successfully searched for a sentence of equal length which was of more fuliginous obscurity. The sentence he was referring to was the sentence of 253 words which constituted sub-section (1) of Section 4 of the English Act of 1938. He also considered the section a masterpiece of obscurity and he described the language as one of dark and tortuous prolixity. I am sure that our Section 21 does not possess all the high attributes which Lord Justice MacKinnon ascribed to sub-section (1) of Section 4 of the English Act of 1938.
The next benefit upon which Mr. Setalvad has relied is the quality of assignability which is now attached to a trade mark under Section 28 of the Trade Marks Act of 1940. It is perfectly true that before this section was enacted a trade mark could only be assigned along with the goodwill; it could not be assigned in gross. I frankly confess that this particular point has caused me some amount of difficulty. But it has got to be borne in mind that the main purpose of a trade mark is the connection it has with the goods, to give the goods a certain reputation and to make them known in the market; and the assignability of a trade mark is, in my opinion, not a substantial advantages which is conferred upon that particular asset. But the greater difficulty in the way of Mr. Setalvad is whether either of these advantages, if they are advantages within the meaning of the definition of Viscount Cave, are of an enduring nature. Before an advantage can be considered to fall within the definition to which I have just referred, it must have a degree of permanence. What that degree should be is a matter which must depend upon the facts of each case. But a mere advantage without it being at the same time an enduring advantage would not be the advantage to which Viscount Cave refers as making the expenditure for bringing it into existence a capital expenditure.
Now in this case all that the payment of the registration fee involves is that for a period of seven years the proprietor of the registered trade mark obtains in the first instance certain procedural rights to which have referred and, secondly, his fixed asset in the trade mark becomes assignable. But these advantages only last for a period of seven years and at the end of that period both the advantages lapse unless he pays a fresh fee for a period of fifteen years. In my opinion this does not constitute the advantage received by the proprietor of a trade mark an enduring advantages.
Mr. Setalvad has referred to a decision in Kneeshaw v. Abertolli. The facts in that case were that the respondent was granted a licence by justices to sell intoxicating liquor and the monopoly value of the licence had been fixed at 75 pounds, and the respondent was ordered to pay that amount by three annual instalments. Mr. Justice Lawrence held that each one of the instalments was an expenditure in the nature of a capital expenditure. Now the distinction between that case and the case before us is indeed very striking. In the case before Mr. Justice Lawrence the respondent obtained the monopoly permanently by paying a fixed amount although that fixed amount was payable by three annual instalments. In the case before us by a payment of the registration fee the assessees do not obtain such rights as are conferred by that registration permanently. It is for a specified definite period - the period of seven years.
In my opinion, therefore, the advantage which has come into existence, assuming such an advantage has come into existence, is certainly not of an enduring nature.
The second question referred to us is whether if this expenditure was revenue expenditure, it was incurred wholly and exclusively for the purposes of the assessee companys business. Mr. Setalvad has relied on the test laid down by the Privy Council in Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, Bombay. The test that their Lordships laid down was that the expenditure, in order to come within the meaning of Section 10 (2) (xii) of the Income-tax Act, should be for the purpose of producing profits in the conduct of the business. Their Lordships also cited with approval the dictum of Lord President Clyde in the case of Robert Addie and Sons Collieries Ltd. v. Commissioners of Inland Revenue :-
'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 companys working expenses - is it expenditure laid out as part of the process of profit earning ?'
Now Mr. Setalvad contends that this expenditure has been incurred for the purpose of appreciating the capital asset of the assessee company. I cannot accept that contention. In my opinion this money has been expended definitely for the purpose of producing profits in the conduct of the business and this expenditure is truly attributable to the companys working expenses. If that is so, then this expenditure was incurred wholly and exclusively for the purposes of the assessee companys business.
In the result I agree with the learned Chief Justice that the question referred to us should be answered in the manner suggested by him.
Reference answered accordingly.