Law:

Section:

Section 28(i) , read with section 256, of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 1961-62 - Whether where Tribunal did not go into merits of question whether receipt, which was admittedly part of decreetal amount, was capital or revenue in nature, it was not right to assume as question referred seemed to do that amount was held to be capital receipt - Held, yes FACTS As machinery purchased by the assessee from the German Firms was not only delivered late but was also defective, the assessee instituted a suit against the German firms in the year 1935 for damages. On 15-12-1952, the suit was decreed in toto plus pendente lite and future interest. For the assessment year 1961-62, in its return the assessee showed receipt of compensation and claimed that this compensation was on capital account and, therefore, was not taxable. The ITO brought these receipts to tax on the footing that they represented revenue receipt. The AAC reversed the finding of the ITO holding that the amount being compensation for delay in the erection of the plant and for defects in the plant was capital receipt. The Tribunal held that as the assessee was following mercantile system of accountancy regularly, the compensation was receivable by the assessee on the date of the decree and the date being 15-12-1952, it could not be held that the amount was earned during the previous year. On this ground the Tribunal dismissed the revenues appeal. On rectification application under section 254(2), the Tribunal held that as the amount fell due in the year 1952, it was not necessary to consider in this appeal whether or not the amount as received was revenue account. At instance of revenue Tribunal referred following question. "Whether, upon the facts and circumstances of the case, the Tribunal was right in law in holding that the amount received by the assessee as compensation was a capital receipt ?" HELD From a perusal of the rectification order it was apparent that the Tribunal did not go into the merits of the question whether the receipt, which was admittedly a part of the decretal amount, was capital or revenue in nature. It was hence not right to assume,…

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