1980 (10) TMI 18 - HC - Income Tax

Summary

Issues:
1. Nature of receipt of Rs. 24,000 - capital or revenue?
2. Accrual of profit in the assessment year 1962-63 or earlier years?
3. Taxability of the receipt under section 28 of the Income-tax Act, 1961.

Detailed Analysis:
Issue 1: The first issue pertains to determining whether the receipt of Rs. 24,000 is a capital or revenue receipt. The Income-tax Appellate Tribunal initially held that the receipt was not in the nature of a capital receipt. The assessee contended that the amount should be considered income for the period from 1944 to 1947 when the business was no longer operational. However, the Tribunal found that the amount was a trading receipt and not a capital receipt, as it was received as compensation for damages related to the business. The High Court supported this finding, stating that damages recovered for an injury to trading constitute a trading receipt.

Issue 2: The second issue revolves around the accrual of profit in the assessment year 1962-63 or earlier years. The Tribunal concluded that the right to receive the income accrued to the assessee in the assessment year 1962-63 when the decree was passed in his favor. The High Court upheld this decision, emphasizing that the assessee maintained accounts on the mercantile basis, where income accrues when the right to receive it arises, even if not yet received. Therefore, the profit of Rs. 24,000 was deemed to have accrued in the assessment year 1962-63.

Issue 3: The final issue concerns the taxability of the receipt under section 28 of the Income-tax Act, 1961. The Tribunal found that the business in question was being carried on by the firm of which the assessee was a partner during the assessment year 1962-63. The High Court agreed with this assessment, stating that the income of Rs. 24,000 was chargeable to tax under section 28 of the Act. The Court highlighted that the compensation received was related to the failure of the Mills to supply cloth bales during the years 1944 to 1947, and as the business was continued by the firm, the income was taxable.

In conclusion, the High Court answered all three questions in the affirmative, supporting the Tribunal's findings and ruling against the assessee. The judgment reaffirmed the taxability of the receipt under section 28 of the Income-tax Act, 1961, based on the nature of the receipt, accrual of profit, and continuity of the business.