1960 (3) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 63,259 received by the assessee from the Government is income and can be brought to tax under any of the provisions of the Indian Income-tax Act.

Detailed Analysis:

1. Nature of Compensation:
- The primary issue is whether the compensation of Rs. 63,259 received by the assessee from the Government for the requisition of property is to be treated as income and taxed under the Indian Income-tax Act.
- The assessee argued that the compensation was for damages due to disturbance in business and should be considered a capital receipt.
- The Government requisitioned the property temporarily, and the compensation was assessed based on the loss of income and other expenses like transportation of machinery and insurance premiums.

2. Legal Basis for Compensation:
- The compensation was determined under Section 19(1)(b) of the Defence of India Act, 1939, which refers to the principles of the Land Acquisition Act, 1894.
- The relevant sections of the Land Acquisition Act consider damages affecting earnings as part of the compensation.

3. Revenue vs. Capital Receipt:
- The Tribunal held that the compensation was a revenue receipt, as it was an incident in the business career of the assessee and did not involve the deprivation of a profit-earning asset.
- The assessee contended that the compensation was for the sterilization or destruction of part of the profit-making apparatus, thus making it a capital receipt.

4. Case Law Analysis:
- The judgment referenced multiple cases to discern whether the compensation should be treated as a capital or revenue receipt:
- Glenboig Union Fireclay Co. Ltd. vs Commissioners of Inland Revenue: Compensation for sterilization of fireclay deposits was held to be a capital receipt.
- Commissioner of Income-tax vs Vazir Sultan and Sons: Compensation for the termination of part of an agency was considered a capital receipt.
- Godrej and Co. vs Commissioner of Income-tax: Compensation for releasing a company from an onerous contract was deemed a capital receipt.
- Commissioner of Income-tax vs Jairam Valji: Compensation for the cancellation of a trading contract was held to be a trading receipt.
- Commissioner of Income-tax vs Shamsher Printing Press: Compensation for requisitioned premises was considered a capital receipt.
- Higgs (H. M. Inspector of Taxes) vs Olivier: Payment for a restrictive covenant was outside the scope of profits or gains from the profession.

5. Application of Principles:
- The court examined whether the requisition of the property by the Government amounted to a sterilization of a capital asset or merely an interruption of business.
- It was concluded that the temporary requisition did not sterilize the profit-earning apparatus but merely interrupted the business.
- The compensation was assessed based on the profits earned by the assessee at a different location (Katpadi), indicating it was for loss of income rather than a capital asset.

6. Final Determination:
- The court held that the compensation received was not for the sterilization of a capital asset but for the loss of income due to the temporary requisition.
- Therefore, the compensation was deemed to be a revenue receipt.
- However, since it was not income from business but from other sources, it fell under Section 6(v) of the Indian Income-tax Act and was exempted from tax under Section 4(3)(vii) as a casual, non-recurring receipt.

Conclusion:
- The question was answered in the negative, favoring the assessee.
- The compensation of Rs. 63,259 was not taxable as it was considered a casual, non-recurring receipt from other sources, exempt under the Indian Income-tax Act.