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Issues:
1. Taxability of the sum received by the assessee from Somasundaram Mills as compensation for machinery use. Analysis: The case involved a partnership where the partners faced difficulties in starting a business due to lack of electricity supply. To resolve disputes over machinery ownership and compensation for its use, the partners entered into arbitration resulting in an award directing Somasundaram Mills to pay the assessee a sum of Rs. 75,000 as compensation. The Income-tax Officer initially exempted the sum related to property value from tax as capital but included the Rs. 75,000 as income. The Appellate Tribunal reversed the decision, arguing that since the partnership did not conduct any business, the amount could not be considered business income. However, the court disagreed, stating that even if the partnership did not operate, the compensation could still be income under Section 12 of the Income-tax Act. The court emphasized that the amount received was part of the assessee's share of profits from the machinery's use by Somasundaram Mills. The relationship between the partners as co-owners or co-partners was deemed irrelevant as long as one partner earned profits by utilizing the partnership asset. The court rejected the argument that the sum represented property value depreciation, clarifying that it was compensation for machinery use, as stated in the arbitration award. Unlike precedents where sums were deemed capital, in this case, the profits arose over multiple years from the machinery's utilization, making it taxable income under the Act. The court distinguished previous cases where sums were considered capital or not income based on the source of the payment. In this instance, the compensation arose from the machinery's use, making it taxable income. The court also highlighted that the claim was for compensation, not damages, indicating a clear intention to treat the sum as income. Ultimately, the court held that the Appellate Tribunal's decision was erroneous, ruling in favor of taxability. The respondent was directed to pay costs to the Commissioner of Income-tax.
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