Law:

Section:

Section 28(i) of the Income-tax Act, 1961 (Corresponding to section 10 of the Indian Income-tax Act, 1922 - Business income - Chargeable as - Assessment year 1951-52 - Assessee's godowns being used for timber business, were requisitioned by Government against compensation for loss of earnings - However, office premises were left out on assessee's request where it continued to carry on some business, though at reduced scale - Whether compensation paid to assessee represented supposed profit which assessee would have earned during years premises remained under requisition but which it could not earn because of requisition - Held, yes - Whether, therefore, amount of compensation received for loss of earnings was a revenue receipt in hands of assessee assessable as income under section 10 of 1922 Act - Held, yes FACTS The assessee-firm was carrying on timber business. Its six godowns which were used for storing timber were requisitioned under the Defence of India Act against compensation of Rs. 1,25,500 for loss of earnings. On the request of the assessee, its office premises were allowed to remain in assessee's possession. The compensation was received by the assessee in the previous year relevant to the assessment year 1951-52. The ITO brought to tax the sum of Rs. 1,05,074 under section 10 of 1922 Act after deducting Rs. 20,426 spent by assessee for pursuing the claim for compensation. The AAC held the amount as capital receipt. The Tribunal again held it as revenue receipt. The High Court held that the amount received by the assessee for the requisitioning of the six sheds or godowns was in the nature of capital receipt in the hands of the assessee-firm for the damage sustained in the profit-making apparatus. It was, in the opinion of the High Court, not a revenue receipt and, as such, not taxable. On appeal to the Supreme Court : HELD The amount received in lieu of the profits which would have been earned, if the premises had not been requisitioned, would partake of the same character as the profits. The instant case was not a case, wherein the assessee-firm was permanently deprived of a source of income but it continued to carry on business from the same…

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