9911796707
TMI Blog1946 (9) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... efore February 25, 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 company's business ? 2. 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 Mill owners' Association, Bombay. They are its 'old' trade marks, in the sense that the company had been continuously using them since before February 25, 1087, 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 registration of their trade marks and incurred an expense of ₹ 16,707 on account of the prescribed application fees. It debited the amount to its revenue account and, in its assessment for 1934-44, claimed allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deemed 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. 4. 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 registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Cave's judgment which has since been much quoted is to be found at p. 213: when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. And Lord Atkinson said (p. 221): 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all 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 Atherton's 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 it' 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. (1940) 10 I.T.R. (Sup.) 1 The expenditure in question in that case was the legal expenses incurred by a company in England in defending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 advantage for the enduring benefit of the trade ?" Can it be said that periods of seven and fifteen years are sufficiently permanent to make it enduring? 1 think not. It could not, in my 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 affect 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? 15. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally effected. 16. 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 a new right, it is not enduring since in order to keep it up, periodic payments are necessary. 17. 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 question should be answered in the affirmative. 18. 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 company's 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. 19. The Commissioner should pay the costs. M.C. Chagla, J. 20. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for deceit lay in the common law Courts and in equity an action also lay for an infringement of a trade mark; and as pointed out in Kerly on Trade Marks, sixth edition, by 1838 the right of property in trade mark was established by a series of decisions of English Courts. And as pointed out by the learned Chief Justice, in the two cases 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed amounted to an infringement. The House of Lords rejected that claim on the ground that the defendant's use of the mark was not for the purpose of indicating the origin of his goods and, therefore, did not infringe the right conferred 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o existence a capital expenditure. 25. 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 1 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 advantage. 26. Mr. Setalvad has referred to a decision in Kneeshaw v. Abertolli. (1940) 9 I.T.R. (Sup.) 121 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, and the respondent was ordered to pay that amount by three annual installments. Mr. Justice Lawrence hold that each one of the installments 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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