JAGADISAN J.

There was a Hindu undivided family consisting of one Arunachalam Chettiar, his son, Narayanan Chettiar, and his grandsons by Narayanan, namely, Peria Narayanan, Chinna Narayanan and Ramaswami. Narayanan Chettiar, the son of Arunachalam Chettiar, died on 9th June 1946. The family was carrying on money-lending business at Malacca and Tampin under the vilasam of P.AR.N.AR. and also at Tangak under the vilasam N.AR. In the course of these businesses the family acquired rubber estates which comprise rubber trees and coolie lines. The immoveable properties acquired in the course of the money-lending businesses were treated as the stock-in-trade of the respective business in the course of which they came to be acquired. During the recent world war the properties suffered damage due to enemy action and claims were preferred to the Malayan authorities for payment of the compensation payable under the laws and regulations in that territory. The claim was made on 28th April, 1946. There was a partition among the members of the family on 28th October, 1949. Arunachalam Chettiar's son, Narayanan Chettiar, was dead by that time and the parties to the partition were, therefore, the grandfather, Arunachalam, and his three grandson, one of whom, Ramaswami, was a minor. It is now common ground that as a result of this partition one of the businesses referred to above was allotted to Arunachalam and the other two business to the three grandsons in equal shares. On 31st October, 1949, the grandsons formed themselves into a firm of partnership to carry on the money-lending business allotted to them under the partnership. Ramaswami, one of the shares, was then a minor and he was admitted to the benefits of the partnership. This partnership was, however, dissolved on 31st December, 1952. The partners took their respective shares of the money-lending outstanding and of the properties belonging to the businesses at the value and opened separate books of account in their individual names on and from 1st January, 1953. After the dissolution there was no fresh money-lending business done in the erstwhile vilasam of the pre-existing firms. In the calendar year 1953, the relevant previous year for the assessment year 1954-55, a sum of 27, 136 dollars was received on 4th September, 1953, as ex gratia compensation or award from the War Damages Commission before whom the original joint family had preferred a claim in respect of the damages suffered by the war. This amount was split up into three equal shares and each of the three grandsons, Peria Narayanan, Chinna Narayanan and Ramaswami, got 9, 045 dollars. These amount were credited by them in their respective capital account in their books. In the assessment of these three individual for the assessment year 1954-55 the question raised was whether the sum of 9, 045 dollars should be treated as income or capital.The Income-tax Officer brought the amount to tax on the basis that it was income. The view of the Income-tax Officer was that the sum represented damages received by the assessee in respect of the stock-in-trade of the original family and, being the money equivalent of the stock-in-trade, should be treated as a revenue receipt. On appeal to the Appellate Assistant Commissioner by the three individual assessees the decision of the Income-tax Officer was affirmed. The reasoning of the appellate authority was that the family had opted for the "special scheme", and that it was admitted that any subsequent receipt of revenue losses allowed under the "special scheme" would be included in the total income of the appellant. The Appellate Assistant Commissioner observed that the Hindu undivided family having itself in a particular manner by opting for the special scheme, the individual assessees being only legal successors of the family were equally bound. In other words, according to the Appellate Assistant Commissioner, though the receipt should normally be treated as a capital recei