Compensation paid for loss of profits during the period of disruption of business is a revenue receipt and liable to tax.

Judgment

SARKAR, J. : The question raised is whether a certain sum received by the respondent was a capital receipt or a revenue receipt.

2. The respondent was a firm carrying on a business of purchasing and selling paper, stationary and other things and manufacturing books, exercise books, diaries etc. and for the purpose of its business it had a printing press. The business was carried on and the press housed, in a building belonging to its partners where the latter also resided. This building was requisitioned by the Government in September 1943 for the duration of the war. The respondent had thereupon to shift its business to another place where it was restarted sometime later. The respondent claimed compensation for the requisition on various accounts and was paid various sums. One of the claims was made in these words: "On account of the compulsory vacation of the premises disturbance and loss of business on the basis of two years at Rs. 2,29,450/- per annum.....Rs. 4,58,900. On this head the Government paid Rs. 57,435/-.

3. The question is whether this sum of Rs. 57,435/- was liable to income-tax and excess profits-tax. It would be liable if it was a revenue receipt and not, if it was a capital receipt. It was, no doubt, paid in respect of some injury suffered by the respondent on account of the requisition. If that injury was to the respondent s capital assets then the receipt would be a capital receipt. If, on the other hand, the injury was to the respondent s trading, then it would be a revenue receipt.

4. It is clear that the requisition did not cause any injury to any of the tangible capital assets of the respondent s business. Indeed, it is not contended that there was any injury to any of them. What is said on behalf of the respondent is that there was injury to its profit making apparatus. By that it is not suggested that the respondent s business had a profit making apparatus apart from its tangible capital assets, of the kind found to have been in existence in Van Den Berghs Ltd. v. Clark, 1935 AC 431. What is said is that there was a loss to the goodwill, that is to say, the benefit that the respondent s business derived from its connection with the building where it was carried on. It is said that this benefit was lost as the business had to be shifted from the old premises to a new one as a result of the requisition. This is the contention that we have to examine in this case.

5. It is not disputed on behalf of the Department that such a goodwill would be a capital asset. The Department contends that there was no claim for injury to any such goodwill. It says, we think rightly, that goodwill is a question of fact. It may exist, it may not exist: see Hill v. Fearis, (1905) 1 Ch 466. The department does not contend that the existence of the goodwill had to be proved. What it says is that since it does not follow that every business has a goodwill, a loss to such goodwill has at least to be claimed and in the absence of such a claim it would follow that there was no such goodwill and nothing could therefore have been paid in respect of it. This seems to us to be an argument of substance and we did not understand learned counsel for the respondent to contend to the contrary. What he said was that there was a claim for a loss to the goodwill.

6. We turn now to the words in which the claim was made which we have earlier set out. There is no mention of any loss to goodwill there. It is said on behalf of the respondent that the claim was for "compulsory vacation of the premises and also for "disturbance and loss of business and that the claim for "compulsory vacation of the premises" was for the injury to the goodwill. That indeed would be a strange way of making a claim for loss of goodwill. There is a claim for loss of business in express terms and this was computed at two years loss of profits. Why was loss of business claimed? Clearly, because the business would be stopped or disturbed for some time by the compu