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Issues Involved:
The judgment addresses the question of whether certain receipts by the assessee company during the assessment year 1965-66 are taxable under the head "Income from other sources" as determined by the Income Tax Officer (ITO) or if they are of a capital nature as contended by the assessee. The key issues revolve around the nature of the receipts from the sale of tender forms, sale of trees, grass, stones, boulders, and recovery from contractors for providing water and electricity during the period when the business was in the process of being set up. Receipts from Sale of Tender Forms: The assessee company had received Rs. 40,540 from the sale of tender forms for construction and erection of plant and machinery. The Income Tax Officer (ITO) treated this amount as income taxable under the head "Income from other sources." However, the Appellate Assistant Commissioner (AAC) and the Tribunal held that these receipts were not revenue receipts chargeable to tax, as they were related to the construction activities undertaken by the company. The Tribunal emphasized that these receipts were directly linked to the source of income under the head 'Business, profession and vocation' and were part of the capital structure of the business being set up. The High Court concurred with the Tribunal's view, stating that these receipts were capital in nature and should be treated as deductions from the cost of construction. Receipts from Sale of Trees, Grass, Stones, and Boulders: The assessee also received amounts from the sale of trees, grass, stones, and boulders during the process of clearing land for the construction of the factory. The ITO considered these receipts as taxable income, but the AAC and the Tribunal disagreed. They held that these receipts were capital in nature and were directly related to the capital structure of the business being set up. The High Court agreed with this assessment, stating that these receipts represented the capital cost of the land utilized for construction and should be treated as part of the capital investment in the business. Recovery from Contractors for Water and Electricity: Additionally, the assessee received Rs. 7,520 from contractors for providing them with water and electricity at the construction sites. The ITO treated this amount as taxable income under "Income from other sources." However, the AAC and the Tribunal viewed these receipts as part of the capital expenditure during the business setup phase. The High Court concurred, emphasizing that since the business was not fully set up, these receipts and payments were on capital account and should be considered as reducing the cost of construction. Conclusion: The High Court upheld the Tribunal's decision that the receipts from the sale of tender forms, sale of trees, grass, stones, boulders, and recovery from contractors for water and electricity were capital in nature and not taxable under the Income Tax Act. The Court emphasized the close connection of these receipts to the process of setting up the business and their direct relation to the capital structure of the company. The judgment highlights the distinction between revenue receipts and capital receipts during the phase of establishing a business, affirming that such receipts should be treated as part of the capital investment rather than taxable income.
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