1969 (10) TMI 5 - HC - Income Tax

Allowance was made for the expenditure incurred by the assessee for the godown and compensation was awarded on the ground that the assessee had been deprived of the use of the godown - whether compensation paid to an assessee by government constituted income under sub-section (2A) of section 10 - Held, no

Summary

Issues:
1. Whether a certain amount of compensation paid to an assessee constituted income under sub-section (2A) of section 10 of the Indian Income-tax Act, 1922.
2. Whether the compensation received by the assessee should be treated as income for the relevant assessment year.
3. Whether the compensation awarded to the assessee constitutes income under sub-section (2A) of section 10 of the Act.

Analysis:
The High Court of Allahabad considered a case where an assessee, a Hindu undivided family, owned a building known as Chhittermal Dharmshala, which was requisitioned by the State Government for storing foodgrain. The assessee claimed compensation for the loss of the Dharmshala, which was awarded by the munsif at a rate of Rs. 250 per month. The Government paid the assessee Rs. 23,840 as compensation. The Income-tax Officer treated this amount as income for the assessment year 1959-60. The Appellate Assistant Commissioner confirmed this view, leading to the dispute being referred to the High Court. The Tribunal partially accepted the assessee's claim for litigation expenses but held that the balance should be treated as income under sub-section (2A) of section 10 of the Act.

The Tribunal referred two questions to the High Court, focusing on whether the net surplus received as compensation is assessable under section 10(2A) and if so, whether it was properly assessed in the relevant assessment year. The department relied on sub-section (2A) of section 10, which deems any amount received in respect of loss or expenditure to be profits and gains of business. However, the Court analyzed sub-section (2A) and emphasized that the compensation must be paid for the loss or expenditure mentioned in the first part of the section. In this case, the compensation was awarded for the deprivation of the use of the Dharmshala, not for the same expenditure for which allowance had been made in former years. Therefore, the compensation did not constitute income under sub-section (2A) of section 10.

The Court highlighted that the rate of compensation awarded was not based on the rent paid for an alternative godown but on the deprivation of the Dharmshala. As the compensation was not for the same expenditure for which allowance had been made earlier, it did not fall under sub-section (2A) of section 10. Consequently, the Court answered the first question in the negative, in favor of the assessee. The second question did not arise due to the negative answer to the first question. The Commissioner of Income-tax was directed to pay the assessee costs of the reference.