Judgement

T. L. VENKATARAMA AIYAR, J. : This is an appeal against the judgment of the High Court of Nagpur in a reference under S. 66 (1) of the Indian Income-tax Act (XI of 1922), hereinafter referred to as the Act, and the point that is raised for our determination is whether a sum of Rs. 2,50,000 received by the respondent on August 2, 1941, is chargeable to income-tax. While, according to the Department, the amount in question is a revenue receipt liable to be included in the chargeable income, according to the respondent it is capital receipt not liable to tax. The Appellate Tribunal held, affirming the decisions of the Income-tax Officer and the Appellate Assistant Commissioner, that the amount in question was a trading receipt, and was income liable to be assessed. On the application of the respondent, it referred the following question for the decision of the High Court :

"Whether in the circumstances of the case the sum of Rs. 2,50,000 received by the assessee as damages or compensation for the premature termination of the contract of 9th May 1940 is income assessable within the meaning of the Indian Income-tax Act."

The reference was heard by Sen and Deo JJ. who held, disagr