1972 (10) TMI 20 - HC - Income Tax

Assessee obtained lease of premises for starting hotel business but the premises were required by the Government of India. Due to this the assessee was not able to commence business - Whether, on the facts and circumstances of this case, the compensation received on account of this is liable to be taxed in the hands of the assessee - assessee was completely prevented from commencing his business of a hotel as a result of the two requisition orders - He never carried on that business until he commenced the same in April, 1947. That he received compensation amounts in September and November, 1947, and March, 1948, does not make any difference to the findings made above - In the result, our answer to the question is in the negative

Summary

Issues Involved:
1. Whether the sum of Rs. 82,460 is liable to be taxed in the hands of the assessee.
2. Determination of the nature of the compensation received by the assessee.
3. Applicability of relevant case law to the facts of the present case.

Issue-wise Detailed Analysis:

1. Whether the sum of Rs. 82,460 is liable to be taxed in the hands of the assessee:
The primary question referred to the court was whether the sum of Rs. 82,460 received by the assessee is liable to be taxed. This amount was part of a larger compensation settled at Rs. 1,15,610 for the loss of profit due to the requisition of the premises by the army authorities during the war.

2. Determination of the nature of the compensation received by the assessee:
The court examined the nature of the compensation received by the assessee. The facts revealed that the assessee had entered into a lease agreement to run a boarding and lodging hotel but was unable to commence the business due to the requisition of the premises by the Government of India. The assessee initially carried on a catering business under the directions of the army authorities until October 31, 1943, after which the premises continued to be in the possession of the army authorities. The compensation received was for the loss of profit due to the inability to start the intended hotel business.

The Income-tax Tribunal confirmed that the sum of Rs. 82,460 was compensation for damages in settlement of the original claim of Rs. 6 lakhs and was not compensation for loss of profits of any business taken over by the authorities under any requisition order. The Tribunal's findings were that the business intended by the assessee was not the same as the catering business carried out temporarily under military directions.

3. Applicability of relevant case law to the facts of the present case:
The revenue relied on the Supreme Court cases of Commissioner of Income-tax v. Shamsher Printing Press and Commissioner of Income-tax v. Manna Ramji and Co. to argue that the compensation was for loss of profits and thus taxable. However, the court found these submissions unjustified based on the facts and the Tribunal's findings.

The court referred to the Supreme Court's decision in Senairam Doongarmall v. Commissioner of Income-tax, where compensation for the requisition of business premises was not considered taxable income. The court noted that in Senairam Doongarmall, the business was entirely stopped due to the requisition, and compensation was not for loss of profits but a solatium for not carrying on business.

The court distinguished the present case from Shamsher Printing Press and Manna Ramji and Co., where the businesses continued despite requisition orders, and compensation was for loss of business volume, not for complete cessation of business.

Conclusion:
The court concluded that the compensation of Rs. 82,460 received by the assessee was not taxable as it was not related to any business or trading activity. The compensation was a solatium for not carrying on the intended hotel business and thus not revenue. The court answered the question in the negative, ruling in favor of the assessee and directing the revenue to pay the costs.

Question answered in the negative.