(delivering the judgment of the Court): The question raised in this appeal is whether certain payments made by the taxpayer company (T) came within the deductible expenses as "expenses wholly and exclusively incurred during that period by such person in the production of the income" in section 14(1) of the Income Tax Ordinance 1947 (the Ordinance).

T. is a plantation group working several rubber plantations throughout the country. It employs agents under contracts. The first agreement is made on May 17, 1961 with the Eastern Industries Ltd. of London (the London Agents) for the entire secretarial work and general conduct and management of the affairs of T. in England. The second made on March 30, 1966 is with Eastern Plantations Agency Ltd. (the Malaysian Agents) for such duties as are usually undertaken and performed by sole agents in the East of plantation companies, in particular for the forwarding of all produce from the estates of T. to the place of manufacture and the shipment of any produce as required. Remuneration in each case is calculated on so much per planted acre and a commission or commissions. It is apparent therefore that the attractiveness of the contracts of service is directly related to the total acreage of T.'s rubber plantations. Any decrease in this acreage must inevitably result in a corresponding decrease in the remuneration. For this reason, provision is made for a suitable compensation for the agents for such decrease in acreage. That in the agreement with the London Agents — Clause 12 — reads as follows:

"12. If and whenever during the currency of this Agreement the Company shall in the ordinary course of conducting its business voluntarily sell or dispose of some part of its estates the Agents shall be entitled to be paid by way of compensation for loss of commission in respect of that part a sum equal to 21/2 per cent of the consideration for the sale or disposal or such higher percentage as may be agreed between the parties hereto."

The corresponding provision in the agreement with the Malaysian Agents is in clause 7 which is as follows:

"7. In the event of the sale by the Company of the whole or any part of its estates the Agents shall be paid by the Company by way of compensation for loss of earnings hereunder a sum equal to two and one-half per centum of the gross sale price."

It is stated by T. and accepted by Revenue that, in 1961, having doubts of the long-term prospects for rubber, it decided to convert to oil palms to maintain, if not to increase, its profitability, and to find the necessary finance for this conversion by the sale of the more-outlying estates, particularly those with a large proportion of old rubber-trees which yielded only a marginal profit. In furtherance of this policy, T. sold several rubber estates. The net proceeds of the sales were wholly expended on oil-palm development. In the process, the agents were paid their compensation in accordance with the provisions in Clauses 12 and 7 of the respective agreements.

The Director-General of Inland Revenue accepted these as agreed facts but disputed that these payments were deductible as expenses under section 14(1) of the Ordinance. T. contended however that the compensations were not capital expenditure as to be caught by sections 15(c) and (d) of the Ordinance, but were expenses wholly and exclusively incurred in the production of income, arising out of contractual obligations and that the fact that the payments were not referable to the profits of any particular year was irrelevant.

Before the Special Commissioners, no evidence was led and the case was argued entirely on a statement of agreed facts. The Special Commissioners agreed with Revenue. Their decision was therefore not a finding of fact but one of law. On appeal by way of case stated, the High Court overruled the Special Commissioners and allowed the deductions of such payments. Hence this further appeal by Revenue.

The phrase "expenses wh