1. The assessee in the accounting year shipped 236 bales of cloth to a consignee in Mauritius. The consignment was made contrary to the directions of the government here that export to Durban was prohibited, at which port these goods were landed, and the result of this action on the part of the assessee was that the assessee's licence for exporting goods was suspended. The assessee contended that it was due to the negligence of the consignee that the goods were illegally taken to Durban and unloaded there and therefore he claimed damages from him and the matter was referred to arbitration and the assessee received Rs. 39,292-4-3 as damages. The taxing department contended that this was a revenue receipt liable to be taxed and the Tribunal held that it was not, and the Commissioner has now come on this reference.
2. In our opinion, the facts of this case are not distinguishable on principle from our decision in Commissioner of Income-tax v. Shamsher Printing Press. That was a case where under the Defence of India Rules the assessee's paid business was requisitioned by Government and Government paid compensation for the damage caused to the assessee by such requisition, and we held that the payment constituted a capital receipt or a casual and non-recurring receipt and was not liable to tax, and we there pointed out that damages recovered as compensation for loss or damage caused to a capital asset can never be a revenue receipt, and we also pointed out that the real question that has got to be considered in such cases is what is the quality of the payment irrespective of what measure might be adopted in order to ascertain the loss caused to the assessee. The mere fact that the measure adopted is the loss of profit caused to the assessee by reson of the loss or destruction of the capital asset does not make the payment a trading receipt and not a capital receipt. In this case the position seems to us to us to be identical. The licence which alone enabled the assessee to carry on the business which would yield income was undoubtedly a capital asset and that capital asset was either destroyed or sterilized and what was paid to the assessee was compensation for the destruction or sterilization of this capital asset. It was not possible for the assessee to trade or to earn any profits, and therefore it is futile to suggest that what was paid to the assessee was damages for not being in a position to earn profits with the assistance of the licence. If the licence was not in existence and if the assessee was incapacitated from earning profits, then the damages paid could only be for the destruction or sterilization of the capital asset and not as a solatium for the profits which the assessee might have earned. In the case just referred to we also laid down that in payment should be a revenue receipt it must be earned in the course of the business. It is impossible to suggest that the amount received by the assessee in this case was in the course of the business. Far from the amount being in the course of the business, his business was brought to a standstill and because the business was brought to a standstill he proceeded against his consignee and recovered damages.
3. The Advocate-General has suggested that when we decided Shamsher's case a very relevant and important decision was not brought to our attention, and the decision on which the Advocate-General relies is an English decision reported in Burmah Steamship Co. Ltd. v. Commissioners of Inland Revenue. In that the assessee brought a motor vessel second hand and placed it immediately in the hands of repairers for over-haul. The contract stipulated a particular time by which the ship was to be overhauled. That time was exceeded and the assessee company claimed from the repairers damages. The damages were calculated by reference to the estimated profit which would have been earned by the vessel had she been trading during the excess time taken for overhaul. The assessee received a certain sum from the repairers by way of damages, and the question that arose was whether this was a trading receipt or a capital receipt, and the English Court held that it was trading receipt. It will be apparent that the facts of the case on which the Advocate-General relies are entirely different from the facts we are called upon to consider. The capital asset there was the ship which would have enabled the assessee to earn profits. The capital asset was never destroyed or sterilised. The capital asset existed and the assessee was deprived of the opportunity of earning profits through that capital asset, and because he was deprived of these profits he claimed damages and the damages were given to him on the basis of the profits which he would have earned. But as we have already pointed out, in the case before us the capital asset which would have enabled the assessee to earn profits did not exist and therefore no question can arise of the assessee being deprived of the opportunity of earning profits when in law he could not have carried on the business which would have given him the profits. The Lords President in his judgment points out the distinction between an injury on trading and a hole made in the profits in the profits of the assessee and a hole made in the capital assets, and he says that in the case which he was considering it was an injury on the trading of the assessee and there was a hole in the profit of the there was any injury on the trading of the assessee. Injury on the trading assumes that it is possible to carry on the trade and that some injury is caused to that trade. But when an event takes place which incapacitates the trader from carring on his trade at all, it is not an injury on trading but it is the destruction or sterilisation of the trade. Nor can it be said that what happened to the assessee was a hole in his profits. It was really a hole in his capital asset and not merely in a capital asset but the capital asset and the only capital asset which would have enable him to earn profits. The Lord President at page 72 considers the case of Glenboig Fireclay Co. v. Inland Revenue Commissioners which we ourselves had considered in Shamsher's case, and the principle that the Lord President deduces from that case is :
'It is very relevant to enquire whether the thing in respect of which the taxpayer has recovered damages or compensation is deprivation of one of the capital assets of his trading enterprise, or short of that - a mere restriction of his trading opportunities.'
4. Can it possibly be said that the damages recovered by the assessee was in respect of a mere restriction on his trading opportunitie He had no trading opportunities at all because he could not carry on any trade. Lord Blackburn in his judgment at page 76 makes it clear that on the facts of the case he could reach no other conclusion than that the money was paid to reimburse the assessee for the trading profits which they would have earned had the vessel had the been timeously delivered. One can understand if the assessee had given the licence to someone else. The licence would have been in existence and for some reason he was prevented from earning the profits on that licence. But when the licence itself is not in existence the money could not be paid to reimburse the assessee for trading profits which he could have earned. Having heard the Advocate-General we do not think that the case he relies on in any way militates against the principle laid down in Commissioner of Income tax v. Shamsher Printing Press.
5. The result is that we must answer the question referred to us in the negative. The Commissioner to pay the costs.
6. Reference answered in the negative.