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Commissioner of Income-tax, Bombay City-i Vs. J. Voyantizies and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Judge
Reported in[1973]91ITR345(Bom)
ActsIndian Income-tax Act, 1922 - Sections 10
AppellantCommissioner of Income-tax, Bombay City-i
RespondentJ. Voyantizies and ors.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateS.P. Mehta, Adv.
Excerpt:
.....whether trading receipts liable to be taxed in hands of assessee - amount of trading receipts not income made by assessee in course of carrying on business under section 10 - payment of amount purely sort of compensation for damages - business never existed and no profit arises under section 10 - amount not liable to be taxed. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward category (regulation of issuance and verification of) caste certificate act (23 of 2001), sections 6 & 10: [s.b. mhase, a.p. deshpande & p.b. varale, jj] caste certificate petitioner seeking appointment against the post reserved for member of schedule tribe his caste certificate was invalidated subsequently held,..........had carried on after the requisitiion order was served as up to 31st october, 1943, was not the hotel business. it was a catering business carried on under the directions and on behalf of the military authorities. that business was not the same business as the assessee had intended to start, namely, running of an upto date hotel. the tribunal also found that as a result of the requisition the assessee had not remained a tenant of the building. the assessee had in fact sold away about november, 1943, some equipment he had purchased as a caterer to the landlords and the assessee had no assets of his own in use in the business at any time. the tribunal accordingly held that the sum of rs. 40,000 was not trading receipt and liable to tax. 6. in the present assessment year once again on.....
Judgment:

K.K. Desai, C.J.

1. In the reference under section 66 (1) of the Indian Income-tax Act, 1922, the question of law referred to this court reads as follows :

'Whether, on the facts and circumstances of this case, the sum of Rs. 82,460 is liable to be taxed in the hands of the assessee?'

2. The question relates to the assessment year 1948-49, the relevant previous year being the calender year ending 31st December, 1947. The facts which require to be noticed are as follows :

Under an agreement of lease dated 21st July, 1942, the relevant previous year being the calender year ending 31st December, 1947. The facts which requires to be noticed are as follows : Under an agreement of lease dated 21st July, 1942, the assessee agreed to become a tenant of certain premises situated at plts. Nos. 7 and 12, Marine Drive, for using the premises as a boarding and lording hotel. The lease was to commence from the date the building was ready and completely constructed and possession was delivered to the assessee. The assessee was to provide crockery, cutlery, silverware, glassware, napkins and such other things for running the business of the hotel. That lease was to be for a period of five years from the date of delivery of possession of the building for running the hotel.

3. By a requisition order dated 25th April, 1942, the Government of India requisitioned and directed delivery of possession of the property to the army authorities. The requisition was to continue for the period of the war and six months thereafter. The assessee, thereupon, made certain representations and the army authorities then made a catering contract with the assessee. He carried on the business of this catering contract and served the army authorities thereunder from 1st January, 1943, to 31st october, 1943. That contract was then terminated and from 1st November. 1943, the premises continued in the possession of the army authorities. The catering contract was from that the date given to the landlords of the premises. In this connection another order dated 13th November, 1942, was passed and under that order the entirepremises along with the equipment for catering was taken over by the Government. Having regard to the above situation on 31st October. 1943, the assessee sold away some equipment for catering was taken over by the Government. Having regard to the above situation on 31st October, 1943, the assessee sold away some equipment that he had purchased for running the catering business also to the landlords of thr premies. The assessee, thereafter, by his letter dated 19th October, 1945, lodged a claim of Rs. 6 lakhs. The particulars of the claim were that the assessee would make profit of rs. 15,000 per month and Rs. 1,80,000 per year. he would have to bear income-tax at the year. The lease was ot be fo a period of 5 years and with option to extend it for another period of 5 years. For the period of 5 years of the lease he was entitled to Rs. 3 lakhs for disturbance and Rs. 3 lakhs for goodwill making Rs. 6 lakhs in all.

4. On or about 6th May, 1946, the assessee was paid a sum of Rs. 40,000. By the letter of the Collector dated 6th May, 1946, the assessee was informed that this was the agreed compensation and that upon the derequisition of the property possession would be given to the assessee. he stated '... I am requesting the military authorities to release. The property as early as possible. The parties had then expected that possession would be delivered to the assessee in July, 1946, and that thereupon the assessee would be delivered to the assessee in July, 1946, and that thereupon the assessee would be able to carry on his business. In September, 1946, the assessee addressed correspondence to the authorities in respect of thier having not delivered possession of the premises to him in July, 1946, and that the agreement to accept to Rs. 40,000 was not binding. He revived his claim for payment of Rs. 6 lakhs. Ultimately, the premises were restored to the assessee on 1st December, 1946. He was able to renovate the premises for carrying on business of a hotel by 31st March, 1947. In April, 1947, there were negations between the parties in connection with the claim of the assessee for payment of larger compensation and this claim was ultimately settled at Rs. 1,15,610. The assessee by his letter dated 20th January, 1948, stated that he was willing to accept the above sum in full and final settlement of his claim in respect of requisition of the premises by the army authorities during the war and thereafter. The assessee was paid the respective sums of Rs. 25,000 Rs. 25,000 and Rs. 65,610 respectively on September 1, 1947, November 25, 1947 and March 4, 1948. The particulars of the claim settled as above shows that out of the above sum of Rs. 1,15,610 Rs. 33,150 were paid in respect of the rent that the assessee had to pay to the landlords. The question raised in the present reference accordingly relates to the balance of rs. 82,460 paid in above manner by the army authorities to the assessee.

5. In connection with the sum of Rs. 40,000 which had already been paid to the assessee on 6th may, 1946, on behalf of the revenue, it was contended tht it was trading receipt and liable to tax. The Income-tax Tribunal negative that claim by its order dated 13th February, 1953, by holding that the business which the assessee had carried on after the requisitiion order was served as up to 31st October, 1943, was not the hotel business. It was a catering business carried on under the directions and on behalf of the military authorities. That business was not the same business as the assessee had intended to start, namely, running of an upto date hotel. The Tribunal also found that as a result of the requisition the assessee had not remained a tenant of the building. The assessee had in fact sold away about November, 1943, some equipment he had purchased as a caterer to the landlords and the assessee had no assets of his own in use in the business at any time. The Tribunal accordingly held that the sum of Rs. 40,000 was not trading receipt and liable to tax.

6. In the present assessment year once again on behalf of the revenue it was contended that the above sum of Rs. 82,460 was trading receipt and liable to tax. The finding made by the Income-tax Officer were reversed by the Appellate Assistant Commissioner who held that even catering contractors business of the assessee had come to a stop on 1st November, 1943, and that the amount was not the income made by the assessee in the course of the carrying on of the business or any business which the assessee was carrying on which could be requisitionby the Government. his finding was that he payment of the amounts was purely a sort of compensation for damages in settlement of the original claim. (of Rs. 6 lakhs) and not compensation for loss of profits of any business taken over by the authorities under any requisition order.

7. The Income-tax Tribunal by its order dated 18th April, 1961, proceeded to confirm the above findings and stated :

'From a review of the evidence on record it is clear that when the Government authorities were confronted with the revival of the original claim of Rs. 6 lakhs they settled the matter by making the assessee agree to accept the payment equivalent to the loss the assessee would have suffered for the period for which the Government failed to restore the premises. Though calculated with reference to the profits that might have been earned in the period of 7 monthsm, the amount paid to the assessee was compensation for damages in settlement of the original claim of Rs. 6 lakhs which was revived by the assesee..... It was not compensation for loss of profits of any business taken over by the authorities, under any requisitioning order, from the assessee.'

8. These findings are now challenged before us by Mr. Joshi for the revenue by relying upon the observations of the Supreme Court in the case of Commissioner of Income tax. v. Shamsher Printing press 1, and Commissioner of Income-tax v. Manna Ramji and co. : [1972]86ITR29(SC) The submissioin made by Mr. Joshi for the revenue was that the above sum of Rs. 82,460 had not been received by the assessee as compensation in respect of any injury to his capital asset. the above sum was received by him as compensation for loss of profits which hada accrued by reason of the requisition orders. These orders were a temporary interruption to the assessee carrying on the business. By these orders the capital assets of the assessee had not been permanently sterilised. By the requisition orders the assessee was not permanently deprived of any source of income. The amount was paid as compensation for temporary interruption of his business activities and was accordingly profits and/or revenue receipts. Now, these submission are not justified having regard to the findings of facts made by the Appellate Assistant Commissioner as confirmed by the Income-tax Tribunal. It is abundantly clear that the hotel business which the assessee desired to start by occupying the leased premises could never be started by the assessee because of the first requisitioning order dated 25th April, 1942. Even before he had completed equipped of the premises of the building (structure) to use them for carrying on the hotel business he was deprived of the possession of the premises. Under those circumstances under a catering contract he acted as caterer under the directions of the army authorities up to 31st October, 1943. The business that he intended to start was not that of a catering contracotr. Even some small equipments that he had purchased he sold away to the landlords of the building and for the benefit of the army authorities to rum a hotel for accommodating and for the benefit of the army authorities to rum a hotel for accommodating and for the benefit of the army authorities from 1st November, 1943, These findings of facts as made by the Appellate Assistant Commissioner and confirmed by the Income-tax Tribunal are binding on the revenue in this reference. It is clear that the assessee's activities of a catering contractor came to a stop as from october 31, 1943, and that about that date he sold away some equipment he owned to the landlords who were employed for running a hotel for the army. The second requisition order dated 13th November. 1943, shows that certain assets were actually requisition but these assets were requisitioned after they were sold by the assessee to the landlords so that the assessee never carried on and had not commenced to carry on the intended hotel business at any time period to his doing the same after he had renovated the building structure, equipped if and commenced the business of the Ambassador Hotel on and from April, 1947. The above facts indicate that the compensation of Rs. 82,460 and Rs. 2,31,563, in respect whereof the claims of revenue that these were revenue receipts and liable to tax were negatived in Senairam Doongarmall v. Commissioner of Income tax : [1961]42ITR392(SC) . In that case the Supreme Court was considering the facts of an assessee who owned a tea estate consisting of tea gardens, factories and other buildings and had been carrying on business of growing and manufacturing tea. The factories and other buildings on the estate were requisitioned for defiance purpose by the military authorities. Though the assessee had continued to be in possession of the tea gardens and tended them to preserve the plants, the manufacture of tea was stopped completely. The assessee was paid compensation for the year 1944 and 1945 under the Defence of India Rules calculated on the basis of the outturn of tea that would have been manufactured by the assessee during the opriod. On the contention of the revenue that these payments were revenue receipts the Supreme Court examined several decisions of different courts. The court noticed that in the case of Commissioner of Income-tax v. Shaw Wallace & co. , their Lordships of the Privy Council had observed that, 'income meant a periodical monetary return coming in with some sor tof regularity or expected regularity from a definite source and in business was the produce of something loosely spoken of as capital. In business, income is profit earned by a process of production, or, in other words, by the continuous exercise of an activity' and they have held for that reason that 'the sum sought to be charged could not be regarded as income'. The observation was that the compensation paid in that case 'was not the product of business, or in, other words, profits, but some kind of solatium for not carrying on business and, thus, not revenue.'

9. Dealing with the facts before it, the Supreme Court noticed that 'the tea was grown or that the plaints were tended did not mean tht the business was being continued. It only meant that the source of the raw material was intact but the business was gone.' That the compensation was necessarily measured by reference to the outturn of tea which would have been manifested (sic) and observed as follows : [1961]42ITR392(SC) .

'...... but tht has tittle relevance. The assessee was not compensated for loss or destruction of or injury to a capital asset. The buildings were taken for the time being, but the injury was not so much to the fixed capital as to the business as a whole. The entire structure of business was affected to such an extent that no business was left or was done in the two years.... It was not even a case in which the business continued, and what was paid was to bring up the profits to normal level.'

10. The court then referred to the observations of Rowlatt. J in Commissioners of Inland Revenue v. Newcastle Breweries Ltd. [1925] 12 T. C. 927 and quoted the same with approval.

11. Reference as then made to the scheme of the Act relating to the division of sources of income, profits and gains under various heads in section 6 and that the income under the heading 'business' was dealt with under section 10. The court then observed :

'Business is dealt with under section 10, and the primary condition of the application of the section is tht tax is payable by a assessee under the head 'profits and gains of a business in respect of a business carried on by him. Where an assessee doe snot carry on business at all, the section cannot be made applicable, and the compe nsation that he receives cna not bear the character of profits of a business. it is for this reason that the Judicial Committee in Shaw Wallabce's case observed that the compensation paid in that case was not the product of business, or, in other words, profit, but some kind of solatium for not carrying on business and, thus, not reveue.'

12. As regards the case of Shamsher Printing Press ([1960] 39 Comp. Cas 90 (S. C.) now relied upon by Mr. Joshi, the observation o the court was : [1961]42ITR392(SC) :

'Though the payment in question was not made to file a hotel in the capital of the assessee, as in the Glenboig case [1922] 12 T. C. 427 nor was it made to fill a bole int he profits of a going business as in the Shamsher Printing Press case [1960] 39 Comp. Cas 90 (S. C.), it cannot be treated as partaking the character of profits because business not having been doen, no question of profits taxable under section 10 arose. The Privy Council described such a payment as a solatium. It is not necessary to give it a name; it is sufficient to say that it was not profit of a business.'

13. We are unable to accept Mr. Joshi's submission that the facts of the case in Senairam Doongarmall v. Commissioner of Income-tax : [1961]42ITR392(SC) . and the observations made in that case by the Supreme Court can be distinguished in their application to the facts the present case. Each and all observations of the Supreme Court in the case of Senairam Doongarmall : [1961]42ITR392(SC) are wholly applicable to the facts of the present case. The sum of Rs. 82,460 could in not event be treated as partaking the character of profits, because business never existed and the question of profits taxable under section 10 could not arise. This amount was 'slatium for not carrying on business and thus not revenue' as mentioned by the Privy Council in Shaw Wallace's case ( [1932] 2 Comp. Cas. 276

14. Having regard to our above finding it is not necessary to refer ingrate detail to the two cases on which reliance has been placed by Mr. Joshi. It is sufficient to state that in the cas eof Shamsher Printing Press case : [1960]39ITR90(SC) , the assessee had continuously carried on his business during the relevant assessment year. A part of his business premises was requisitioned. On the facts and circumstances of that case, the court held that the compensation paid to the circumstances of tht case, the court held that the compensation paid to the assessee was in fact towards loss of business and accordingly held that compensation as trading receipt. Similarly in the case of Manna Ramji and Cop., the assessee had continued to carry on this business in spite of the order of requisition that was passed. The finding of the court, on the facts and circumstances of the cases, was that 'if any injury was caused to the respondent's business, it was to the volume of the business and not to the profit-making apparatus.' The court also found that that was not a case where the assessee was permanently deprived of a source of income.' Having regard to all the facts and circumstances of the case, compensation paid was held to be trading receipts. These cases are not directly applicable to the facts in the present case. These cases are not directly applicable to the fact in the present case. The assessee was completely prevented from commencing his business of a hotel as a result of the two requisition orders referred to above. He never carried on that business until the commenced the same in April, 1947. That he received compensation amounts it September and November, 1947, and March, 1948, does not make any difference to the findings made above.

15. In the result, our answer to the question is in the negative. The revenue will pay the costs of the assessee.

16. Question answered in the negative.


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