JUDGMENT

D.K. Jain, J. —

1.This appeal, by special leave, at the instance of the Revenue is directed against the judgment and order dated 27th June, 2001 delivered by the High Court of Gujarat at Ahmedabad in Income Tax Reference No.44 of 1986. By the impugned judgment, the High Court has answered the following questions, referred to it by the Income Tax Appellate Tribunal, Ahmedabad (for short “the Tribunal”) under Section 256(1) of the Income Tax Act, 1961 (for short “the Act”), in the affirmative and in favour of the assessee.

(i) Whether the Tribunal has not erred in law on facts in holding that the amount of Rs.8,50,000/- received by the assessee was not taxable as revenue receipt in the hands of the assessee?

(ii) Whether the finding of the Tribunal that the receipt relating to liquidated damages cannot be treated as a revenue receipt but must be held to be a capital receipt not exigible to tax is correct in law?

(iii) Whether the assessee is entitled to the addition made to the machinery during the year thus determining the capital employed for the purpose of claim under Section 80J of the Income Tax Act, 1961?

2.At the outset, we may note that insofar as question No.(iii) is conc