1951 (3) TMI 34 - HC - Income Tax

Summary

Issues:
Taxability of compensation received from military authorities for requisitioned land.

Analysis:
The case involved a reference made by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act of 1922 regarding the taxability of compensation received by the assessee from the military authorities for the requisitioned land. The assessee had purchased a piece of land for setting up a market, which was later requisitioned by the military authorities under the Defence of India Rules. The military authorities used the land as a store-yard and paid the assessee a monthly compensation of &8377; 1,100, totaling &8377; 13,200 for the year 1946-47. The Income-tax Officer held that the net sum of &8377; 9,699 received by the assessee was taxable as profit derived from the land.

The Appellate Assistant Commissioner initially ruled in favor of the assessee, stating that the amount was not taxable as it was compensation for preventing the assessee from using his capital asset. However, the Appellate Tribunal overturned this decision and held that the amount was indeed taxable as profit derived from the land. The High Court was tasked with determining whether the sum of &8377; 9,699 received by the assessee was taxable in view of the facts and circumstances of the case.

The assessee argued that the amount was compensation for the sterilization of the capital asset and should not be taxed. Reference was made to a case where compensation for sterilization of a capital asset was held to be a capital receipt, not taxable as profit. However, the Court distinguished the facts of that case from the present situation, emphasizing that the compensation received by the assessee was indeed a profit derived from the land. The Court held that the amount was taxable, agreeing with the decision of the Appellate Tribunal. The reference was answered accordingly, and the assessee was directed to pay the cost of the reference to the Commissioner of Income-tax along with a hearing fee of &8377; 250.

In conclusion, the High Court ruled that the compensation received by the assessee from the military authorities for the requisitioned land was taxable as profit derived from the land, rejecting the argument that it was a capital receipt for sterilization of the capital asset.