2002 (6) TMI 35 - HC - Income Tax

Capital Or Revenue Receipt, Accrual - 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding the sum of Rs. 97,94,949 being the amount received under the arbitration award for the work done in connection with the feeder canals for the Farakka Barrage Project during the period from January 1, 1967 to September 30, 1969, was not a revenue receipt but only a capital receipt in the hands of the assessee, Shri J. H. Tarapore, and, therefore, exempt from tax? - 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the source being the work executed by the firm, the income accrued to the firm and that as it passed on to the assessee Shri J.H. Tarapore, in terms of settlement deed it can be only in application of income? - 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that a sum of Rs. 28,99,484 represents the income of the assessee? - 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the above receipts are revenue in nature and cannot be characterised as a windfall or casual receipt falling under section 10(3) of the Income-tax Act, 1961?

Issues Involved:
1. Whether the sum of Rs. 97,94,949 received under the arbitration award is a capital receipt or a revenue receipt.
2. Whether the sum of Rs. 28,99,484 represents the income of the assessee and if it is revenue in nature or a windfall/casual receipt under Section 10(3) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Nature of Rs. 97,94,949 Received Under Arbitration Award

Facts and Background:
- The assessee was assessed as an "individual" for the assessment year 1974-75.
- The assessee and Loganatha Mudaliar were partners in the firm "Tarapore and Co." which had a contract with the Government of India for the Farakka Barrage Project.
- After the death of Loganatha Mudaliar, the firm dissolved, and the assessee took over the business.
- The assessee pursued an arbitration claim for higher rates for work done between January 1, 1967, and September 30, 1969, resulting in an award of Rs. 97,94,949.

Contentions:
- Revenue's Argument: The amount received was the profit earned by the erstwhile partnership firm and should be treated as a revenue receipt. The character of the receipt did not change due to the dissolution of the firm.
- Assessee's Argument: The amount was a capital receipt as it was received after the dissolution of the firm and was part of the assets distributed to the assessee.

Judgment:
- The Tribunal held the amount as a capital receipt based on the rationale that it was for work done by the firm and not by the assessee individually.
- The High Court disagreed, stating that the business continued in the hands of the assessee after the dissolution, and the amount received was directly related to the work done by the firm.
- The Court cited several precedents, including CIT v. P.R.A.L. Muthu Karuppan Chettiyar and CIT v. M. Uttama Reddy, to conclude that the amount retained its character as a revenue receipt.
- The Court held that the sum of Rs. 97,94,949 was a revenue receipt and taxable.

Conclusion:
The amount of Rs. 97,94,949 received under the arbitration award was a revenue receipt and not a capital receipt.

Issue 2: Nature of Rs. 28,99,484 as Income of the Assessee

Facts and Background:
- The assessee continued the business of the dissolved firm and completed the unfinished work under the Farakka Barrage Project.
- The assessee received Rs. 28,99,484 as an ex gratia payment for the work done, which he claimed as exempt from income-tax.

Contentions:
- Revenue's Argument: The amount was integrally connected with the business and was a revenue receipt.
- Assessee's Argument: The amount was a casual receipt or a windfall, falling under Section 10(3) of the Income-tax Act, 1961.

Judgment:
- The Tribunal and lower authorities held that the amount was a revenue receipt as it was connected with the business activity of the assessee.
- The High Court agreed, stating that the amount was earned due to the business activity and was not a windfall or casual receipt.
- The Court distinguished the case from M. Balamuralikrishna and Mehboob Productions P. Ltd., emphasizing that the amount was anticipated and claimed by the assessee.

Conclusion:
The sum of Rs. 28,99,484 was a revenue receipt and taxable as income of the assessee.

Final Decision:
Both sums, Rs. 97,94,949 and Rs. 28,99,484, were held to be revenue receipts and taxable. The questions were answered in favor of the Revenue and against the assessee.

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