Judgment - Chagla, C.J.

1. The assessee before us is the Shamsher Printing Press which is a registered firm. The sssessment year we are concerned with is 1915-46, the relevant, accounting year corresponding to it being Samvat Year 2000. The business of the assessee consists of purchasing and selling paper, stationery, etc., and it also carries on business as manufacturers of books, exercise books, diaries, etc. The premises in which the assessee carries on this business were requisitioned by the Collector of Bombay by his order dated 11-9-1943, under Rule 75-A(i), Defence of India Rules. The assessee filed a claim before the requisitioning authorities claiming a sum of Rs. 8,10,300 as compensation. A sum of Rs. 93,103 was ultimately awarded for compensation to the assessee. The Income-tax Officer treated a sum of Rs. 61,129 out of this sum as a revenue receipt, and in this particular Reference we are only concerned with an item of Rs. 57,435, and the only question that we have to consider is whether this sum of Rs. 57,435 received by the assessee as compensation for the requisitioning of his premises constitutes a revenue or a capital receipt or in the alternative it is an income of a casual and nonrecurring nature.

2. In the claim that the assessee made in respect of this item, he claimed a sum of Rs. 4,58,900 for the following reason. "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", and in the order awarding compensation the description of the item is the same with the exception of "loss in business" being substituted for "loss of business" and against a claim of Rs. 4,53,900 a sum of Rs. 57,435 is awarded.

3. The contention of Sir Nusserwanji on behalf of the Commissioner is that this sum represents loss of profits, and therefore it is a revenue receipt and taxable as profits arising out of the business of the assessee. The contention of the assessee, on the other hand, is that this amount was awarded to him for damage done to his business, and when a businessman receives compensation for damages, that compensation can never constitute a revenue receipt. It is important to note that in awarding compensation under the Defence of India Rules the measure of damages that has got to be adopted is the same as laid down in Section 23, Land Acquisition Act, and one of the factors that the Court has to take into consideration in determining the amount of compensation is the damage if any sustained by the person interested at the time of the Collectors taking possession of the land by reason of the acquisition injuriously affecting his other property, moveable or im-moveable, in any other manner, or his earnings. Therefore, if by reason of the premises of the essessee being requisitioned, his business was prejudicially or injuriously affected, or even if his earnings were prejudicially or injuriously affected, the assessee would be entitled to compensation for the damages so caused, and it seems to us clear that if the assessee can successfully bring his case under this head, the compensation cannot constitute a revenue receipt.

4. The Department has attempted to tax this amount of compensation as income falling under Section 10, Income-tax Act, and we have to be satisfied that the tax is payable in respect of the profits, gains or any business carried on by the assessee. Can it possibly be said that when damages are awarded to the assessee for his business or his earnings being injuriously affected by reason of the Government taking possession of his property, the compensation that he receives is in respect of the profits or gains of his business? This compensation is certainly not received in the course of the business of the assessee. Sir Nusserwanji says that the amount is assessed on the profits of the business but the mode of assessment or the measure of damages cannot possibly affect the nature of the payment received by the assessee a

Click Here to Read the rest of this document