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Issues Involved:
1. Whether the compensation of Rs. 81,069 received by the assessee was a capital receipt or a revenue receipt. 2. Whether this compensation was assessable to income-tax u/s 10(1) of the Indian Income-tax Act, 1922. Summary: Issue 1: Nature of Compensation (Capital vs. Revenue Receipt) - The assessee, an insurance company, received Rs. 81,069 as compensation u/s 7 of the Life Insurance (Emergency Provisions) Act, 1956, for the deprivation of the management of its life insurance business. - The Income-tax Officer treated this amount as a revenue receipt, while the Appellate Assistant Commissioner and the Tribunal held it to be a capital receipt. - The Tribunal's decision was based on the Supreme Court's ruling in Dwarkadas Shrinivas v. Sholapur Spinning & Weaving Co. Ltd., which stated that the right to manage a business is a property and compensation for its deprivation is a capital receipt. - The Delhi High Court's decision in Lakshmi Insurance Co. (P.) Ltd. v. Commissioner of Income-tax was cited, where it was held that such compensation is a capital receipt as it pertains to the deprivation of a capital asset, not merely its user. - The court agreed with the Delhi High Court's reasoning, emphasizing that the right to manage the business was an integral part of the assessee's profit-making apparatus and thus a capital asset. Issue 2: Assessability to Income-tax u/s 10(1) - The court reframed the question to focus on whether the compensation was assessable as a revenue receipt u/s 10(1) of the Indian Income-tax Act, 1922. - The court held that the compensation was not a revenue receipt as it did not arise from the ordinary course of business but from the total deprivation of the management and possession of the life insurance business. - The court noted that the compensation was for the sterilization of the entire profit-making apparatus of the assessee, making it a capital receipt. - The court dismissed the argument based on the amendment to section 28 of the Income-tax Act, 1961, introduced by the Finance Act, 1973, as it did not apply to the assessment year in question. Conclusion: - The court concluded that the compensation received by the assessee was in the nature of a capital receipt and was not taxable as a revenue receipt. - The question was answered in the affirmative and in favor of the assessee, with no order as to costs. Agreement: - C. K. Banerji J. concurred with the judgment.
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