JUDGMENT

BHAGWATI, J.:— This appeal by special leave raises the vexed question whether a particular expenditure incurred by the assessee is of capital or revenue nature. This question has always presented a difficult problem and continually baffled the courts, because it has not been possible, despite occasional judicial valie, to formulate a test for distinguishing between capital and revenue expenditure which will provide an infallible answer in all situations. There have been numerous decisions where this question has been debated but it is not possible to reconcile the reasons given in all of them, since each decision has turned upon some particular aspect which has been regarded as crucial and no general principle can be deduced from any decision and applied blindly to a different kind of case where the constellation of facts may be dissimilar and other factors may be present which may give a different hue to the case. Often cases fall on the border line and in such cases, as observed by Lord Greene M. R. in Inland Revenue v. Birtish Salmson Aero Engines Ltd. (1938) 22 Tax Cas 29 "the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons." But this is not one of those border line cases. The answer to the question here is fairly clear. But first let us state the necessary facts.

2. The assessee is a limited company carrying on business of manufacture of jute. It has a factory with a certain number of looms situate in West Bengal. It is a member of the Indian Jute Mills Association (hereinafter referred to as the Association). The Association consists of various jute manufacturing mills as its members and it has been formed with a view to protecting the interests of the members. The objects of the Association, inter alia, are (i) to protect, forward and defend the trade of members; (ii) to impose restrictive conditions on the conduct of the trade; and (iii) to adjust the production of the Mills in the membership of the Association to the demand on the world market. It appears that right from 1939, the demand of jute in the world market was rather lean and with a view to adjusting the production of the mills to the demand in the world market, a working time agreement was entered into between the members of the Association restricting the number of working hours per week, for which the mills shall be entitled to work their looms. The first working time agreement was entered into on 9th Jan. 1939 and it was for a duration of five years and on its expiration, the second and thereafter the third working time agreements, each for a period of five years and in more or less similar terms, were entered into on 12th June, 1944 and 25th Nov. respectively. The third working time agreement was about to expire on 11th Dec. 1954 and since it was felt that the necessity to restrict the number of working hours per week still continued, a fourth working time agreement was entered into between the members of the Association on 9th Dec. 1954 and it was to remain in force for a period of five years from 12th Dec. 1954. We are concerned in this appeal with the fourth working time agreement and since the decision of the controversy before us turns upon the interpretation of its true nature and effect. We shall refer to some of its relevant provisions.

3. The first clause of the fourth working time agreement (hereinafter referred to as the "working time agreement") to which we must refer is Cl. (4) which provided that, subject to the provisions of Cls. (11) and (12),

"...... no signatory shall work more than forty five hours of work per week and such restriction of hours of work per week shall continue in force until the number of working hours allowed shall be altered in accordance with the provisions of Cl. 7 (1), (2) and (3)."

Clause (5) then proceeded to explain that the number of working hours per week mentioned in the working time agreement represented the extent of hours to which signatories were in all e