Compensation paid for the deprivation of a capital asset is a capital receipt.

( 1 ) THIS reference under Section 66 (1) of the Indian Income-tax Act, 1922, relates to the assessment year 1957-58 for which the relevant previous year ended on the 31st December, 1956,

( 2 ) THE assessce is an insurance company. On January 19, 1956, the management of its life insurance business vested in the Central Government under the provisions of the Life Insurance (Emergency Provisions) Ordinance, 1956 (hereinafter referred to as the " Ordinance " ). From the 19th January, 1956, to 31st August, 1956, a Custodian was in the management, of the said life insurance business under the provisions of the Ordinance and the corresponding section of the Life Insurance (Emergency Provisions) Act, 1956 (hereinafter stated as " the Act " ). The assessee was paid under Section 7 of the Act a compensation of Rs. 81,069 for the deprivation of the management of the said life insurance business for the aforesaid period when the Custodian was in the management of the said business. Thereafter, the life insurance business in India was nationalised by the Life Insurance Corporation Act, 1956, and under Section 7 of that Act the assets and liabilities of the insurers appertaining to the life insurance business stood transferred to and vested in the Life Insurance Corporation of India with effect from September 1, 1956.

( 3 ) THE Income-tax Officer brought the aforesaid amount to tax as a revenue receipt by rejecting the assessee's contention that it was a capital receipt. In view of the decision of the Supreme Court in the case of Dwarkadas Shrinivas v. Sholapur Spinning and Weaving Co. Ltd. the Appellate Assistant Commissioner held that the right of the assessce to manage its life insurance business was a property and that the compensation paid for the deprivation of the said property was in the nature of a capital receipt in the hands of the assessee. Accordingly, he allowed the appeal filed by the assessee.

( 4 ) THE Tribunal dismissed the appeal filed by the department and at the instance of the Commissioner referred the following question of law for the opinion of this court:" Whether, on the facts and in the circumstances of the case and on a proper construction of the relevant provisions of the Life Insurance (Emergency Provisions) Act, 1956, the Tribunal was right in holding that the sum of Rs. 81,069 was not assessable to income-tax ? "

( 5 ) IN view of the real controversy between the parties and to pinpoint the issue, we reframe the question as suggested by the learned counsel for both the parties, as follows :" Whether, on the facts and in the circumstances of the case and on a proper construction of the relevant provisions of the Life Insurance (Emergency Provisions) Act, 1956, the Tribunal was right in holding that Rs. 81,069 was in the nature of a capital receipt in the hands of the assessee and was, therefore, not assessable as a revenue receipt under Section 10 (1) of the Indian Income-tax Act, 1922 ? "

( 6 ) SAVE for slight changes, the provisions of the aforesaid Ordinance and the Act are substantially the same. They were passed for taking over, in the public interest, of the management of the life insurance business pending nationalisation thereof. Since the management of the life insurance business of the assessee vested in the Central Government and it was taken over by the Custodian as aforesaid, the provisions of Sub-sections (3), (5) and (6) of Section 3 of the Act, as rightly admitted by the learned counsel for both the parties, had no application respecting the said life insurance business in view of Sub-section (3) of section 4 of the Act.

( 7 ) IN the state of the law as aforesaid and on the facts and circumstances of the case as stated by the Tribunal as aforesaid, Mr. B. L. Pal, learned counsel for the revenue, argues before us as follows: the right of the assessee to manage its life insurance business cannot be said to be an integral part of its profit-making apparatus and it was not even its asse