Law:

Section:

Section 4 of the Income-tax Act, 1961 - Capital or revenue receipt - Assessee-company had entered into certain agreements with Government of Burma, in connection with its business of selling timber - These were entered in or about 1925 and were for duration of 15 years - Under these leases, assessee was authorised to fell teak trees and convert them into logs and upon completion of extraction thereof, to remove logs after payment of royalty to Government of Burma - Clause 27 of such leases authorised assessee even after expiry of 15 years of lease but within 3 years of such expiry to remove logs in respect whereof extraction had been completed upon payment of royalty - Before period of 15 years mentioned in these leases expired, Second World War started and Japanese army overran Burma - Therefore, execution of said leases was suspended by Government of Burma till such time as it became possible to resume forest operations - Thereafter, when Union of Burma came into existence it sought to nationalise entire forest exploitations - Accordingly, it entered into agreements with assessee whereby assessee had to hand over its residuary rights under said forest leases to Government of Burma - As agreed, assessee received certain loss of logs from Government of Burma which were against non-duty paid logs handed over by assessee and also against depreciation assets like land and buildings, elephants, etc. - Whether said forest leases affected very structure of operations of assessee and thus same constituted capital assets of assessee and, therefore, payments made for cancellation or sterilisation of rights under these leases would be capital receipt - Held, yes Second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922 [corresponding to section 41(2) of the Income-tax Act, 1961] - Balancing charge - Whether in view of facts mentioned under head 'Capital or revenue receipt' 'realisation made against logs received for transfer of depreciable assets could be brought to tax under second proviso to section 10(2)(vii), having regard to fact that it was reciprocal transfer and not an agreed sale - Held, no Facts The assessee-company derived income from several…

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