Compensation for compulsory acquisition of leasehold interest is a capital receipt and not taxable.

1. The following question was referred under Section 66(1), Income Tax Act for our opinion. Whether in the circumstances of the case the sum of Rs. 26,700-0-0 received by the Assessee is the Assessee's income for the purpose of Income Tax Act?

2. The Assessee is carrying on the business of exhibiting cinema pictures at five theatres in Nagpur. One of them was known as Saroj Talkies. The Assessee held a lease of the premises for a period of ten years commencing from 5-10-1937, equipped the premises with machinery and furniture and carried on his business of exhibiting films there. The premises were acquired for the Nagpur Improvement Trust and the Assessee handed over possession of the premises on 1-10-1945. The Land Acquisition Officer paid a sum of Rs. 26,700-0-0 as compensation to the Assessee for acquiring the Assessee's interest in the Saroj Talkies. This amount was received in the account year 1946-47 and was sought to be taxed in the assessment year 1947-48. This amount of compensation was in addition to the sum of Rs. 55,000-0-0 payable to the owner of the premises. The award of the Land Acquisition Officer, giving compensation to the Assessee, states that he will be given a sum of Rs. 26,700-0-0 in cash "by way of compensation for requiring the said Rai Bahadur to-give up his lease-hold interest in the cinema, viz. the Saroj Talkies, which is a part of the subject-matter of acquisition in these proceedings by terminating his lease of the said Saroj Talkies before the expiry of the said lease which is up to 30-9-1947.

3. The appellate Tribunal held that this compensation was a capital receipt as it was a compensation for acquisition by the Nagpur Improvement Trust of the leasehold interest of the Assessee in the Saroj Talkies.

4. The learned Counsel for the Commissioner contends that this is a revenue receipt as it is a compensation for the loss of profits during the period of interruption of the business of exhibition of films at a particular place. Reliance was placed on - Commr. of Income Tax v. Globe Theatres Ltd., 1952 AIR(Cal) 145; - Jogendra Chandra v. Rajendra Nath ; - Burma Steamshio Co. v. Commr. of Inland Revenue,1931 16 TaxCas 67; - Benarasidas Jagannath In re:,1947 AIR(Lah) 162; - Ensign Shipping Co. v. Commr. of Inland Revenue,1927 12 TaxCas 1169.

5. In - : AIR 1952 Cal 145 (A), (cit. sup.), it was held that the amount was not paid as premium or Salami for the loss but was an advance payment of rent under the lease which was to come into existence and it was therefore an allowable deduction under Section 10(2)(xii) of the Act, - AIR 1947 Lah 162 (D), was dealing with the claim for expenditure under Section 10(2)(xii). It was held that the main object of the agreements being to procure earth for manufacturing bricks and not the acquisition of an advantage of a permanent nature or of an enduring character, the payments made were the price for raw material and the Assessee was therefore entitled to claim them as business expenditure under Section 10(2)(xii) as it then was. The present proviso is 10(2)(xv). Their Lordships added that the sums paid for obtaining leases for a substantially long period varying from 10 to 20 years could not be held to be valid deductions if they amounted to acquisition of an asset of an enduring advantage to the lessee. In - Mohanlal Hargovind v. Commr. of Income Tax, C.P. and Berar, 1949 AIR(PC) 311, their Lordships allowed deduction under this provision of sums paid to pick and carry away the bidi leaves. Their Lordships held that under the contracts which granted no interest in the land and no interest in the trees and plants themselves, it was the "tendu" leaves and nothing but the 'tendu' leaves that were acquired and the sums paid for them, was expenditure on revenue account. It will thus be clear that in all these cases the expenditure that was claimed was for the price of raw material acquired by the Assessee. To the same effect is the decision in - Jagat Bus Service,