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Issues Involved:
1. Whether the petitioner is entitled to carry forward the loss for a period of six years under the Indian Income-tax Act despite the loss occurring under the Travancore Income-tax Act. 2. Whether the amount of Rs. 15,125-3-0 received by the petitioner from the lessees of the factory is assessable or not. Issue-Wise Detailed Analysis: Issue 1: Carry Forward of Losses The petitioner contended that under section 24(2) of the Indian Income-tax Act, they should be allowed to carry forward the loss of Rs. 4,032 incurred in the assessment year 1123 M.E. for six years. The Income-tax Officer refused this set-off, citing section 32(2) of the Travancore Income-tax Act, which allowed carrying forward the loss only for two years. The Tribunal upheld this decision, stating that the carry-forward of losses should be determined by the law in force when the loss occurred. The court examined whether the assessment should be governed by the law at the time of assessment or the law in force when the loss occurred. It referenced several cases, including *Commissioner of Income-tax v. Sind Hindu Provident Fund Society* and *Maharajah of Pithapuram v. Commissioner of Income-tax*, which established that the law at the time of the assessment governs the assessment. The court concluded that the Indian Income-tax Act should apply, allowing the petitioner to carry forward the loss for six years. The court also considered section 3 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, which was argued by the Department to limit the carry-forward period to what was allowed under the Travancore Act. The court rejected this interpretation, stating that the section was intended to preserve larger rights under the state laws, not to curtail the rights under the Indian Act. Thus, the petitioner was entitled to carry forward the loss for six years. Issue 2: Assessability of Rs. 15,125-3-0 The petitioner received Rs. 15,125-3-0 from the lessees for breach of clauses 14 and 16 of the lease deed. The Income-tax Officer treated this amount as income, while the petitioner argued it was a capital receipt. Clause 14 stipulated that the lessees should not compete with the lessors during the lease and for three years after its expiration, with a penalty of Rs. 10,000 for breach. Clause 16 imposed a penalty of Rs. 10,000 for discontinuing the lease before the agreed period. The petitioner credited Rs. 7,075-1-6 and Rs. 8,050-1-6 for breaches of clauses 14 and 16, respectively. The court examined the nature of the receipts. It referenced *Commissioner of Income-tax v. South Indian Pictures Limited*, which distinguished between capital and revenue receipts based on the nature of the transaction. The court concluded that the damages under clause 16 were capital receipts because they compensated for the termination of the lease, which was the main structure of the petitioner's business. Conversely, the damages under clause 14 were revenue receipts as they related to non-competition agreements, which are part of the ordinary business. The court also addressed the Tribunal's doubts about the arbitration and the allocation of damages. It found no basis for these doubts as the Department had not disputed the arbitration or the allocation at any stage. Separate Judgments: The court delivered a unified judgment without separate opinions from different judges. Conclusion: 1. The petitioner is entitled to carry forward the loss for six years under the Indian Income-tax Act. 2. Out of Rs. 15,125-3-0 received, Rs. 8,050-1-6 is not assessable (capital receipt), and Rs. 7,075-1-6 is assessable (revenue receipt). The Department was directed to pay two-thirds of the petitioner's costs, with an advocate's fee of Rs. 100.
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