1996 (12) TMI 39 - HC - Income Tax

Capital Asset Capital Or Revenue Receipt Capital Receipt Carrying On Business Mercantile System

Summary

Issues:
1. Whether interest income is fully taxable in the assessment.
2. Whether compensation received under the Land Acquisition Act constitutes a capital receipt.

Analysis:
1. The first issue pertains to the taxation of interest income. The High Court referred to a previous decision in Moti Lal Chaddami Lal Jain v. CIT [1980] 122 ITR 949 (All) where a similar question was decided in favor of the Revenue. Following this precedent, the court ruled in favor of the Revenue, stating that only a portion of the interest income was liable to be included in the assessment.

2. The second issue involves determining whether the compensation received under the Land Acquisition Act should be treated as a capital receipt. The court examined the nature of the trade in which the asset was employed, citing the principles established in CIT v. Vazir Sultan and Sons [1959] 36 ITR 175. The court emphasized that if the payment was for the acquisition of a capital asset, it would amount to a capital receipt. In this case, the compensation received was considered payment for the acquisition of a capital asset, namely the land on which the business was conducted. Therefore, the court held that the compensation constituted a capital receipt in the hands of the assessee.

In conclusion, the court ruled in favor of the assessee on the second issue, stating that the compensation received should be treated as a capital receipt.