Satish Chandra, J.
1. Messrs. M.P. Sugar Mills, Kanpur, the assessee,entered into a contract with Messrs. Krupp India Trading Company Ltd.for the purchase of a complete 450 ton sugar plant of the value of 44,000,Under the contract the plant was to be delivered in India before the endof February, 1932, by two German concerns, that is, Fried KruppGrusonwerk A.G. and Maschinenparbrik Buchau R. Wolf A.G. The plantwas delivered under the contract. The case of the assessee was that themachinery was not only delivered late but was also defective. The assessee instituted a suit against the German firms in the year 1935 fordamages claiming a sum of Rs. 2,05,000 which consisted of the followingitems :
Narration of the claim
Quantum of claim made Rs. P.
Quantum of claim allowed Rs. P.
Cost of replacing, altering and improving theboilers, piping set, steam receivers and pressure gauges, etc.
Damages for the number of days lost due to delayin erection and the defects &troubles; in the boiler, piping set, etc.
Loss of profit from 3.1.1938to 1.6.1933du to unsatisfactory working of the plant
Interest on the above up to 8.11.1935 being date of filing the suit
2. On December 15, 1952, the suit was decreed in toto plus pendente life and future interest. The assessee applied to the Custodian of Enemy Property, Bombay, for execution of the aforesaid decree. The Custodian paid to the assessee a sum of Rs. 2,20,192.51 in satisfaction of the decree. This sum included the entire claim of damages in regard to replacement, alteration and improvement of the boilers, piping set, steam receivers and pressure gauges, etc., in the plant as also the damages for the number of days lost due to delay in erection and the defects and troubles in the boilers and piping set plus interest thereon.
3. For the assessment year 1961-62, in its return the assessee showed receipt of Rs. 2,20,192.51 and claimed that this compensation was on capital account and, therefore, was not taxable. The Income-tax Officer brought these receipts to tax on the footing that they represented revenue receipt. The assessee appealed. The Appellate Assistant Commissioner reversed the finding of the Income-tax Officer. He held that the compensation of Rs. 1,11,466 being compensation for delay in the erection of the plant and for defects in the plant was capital receipt. Aggrieved, the department went up in appeal to the Tribunal. Some items had, however, been held by the Commissioner to be revenue receipt. In regard to them the assessee went up in appeal to the Tribunal. The appeal filed by the assessee came up for hearing on 27th November, 1968. The Tribunal mentioned the dispute with regard to the compensation of Rs. 1,11,466 but observed that it was pertinent to note that the department had come in appeal against the aforesaid order of the Assistant Commissioner and since they were not hearing the department's appeal they would not, adjudicate upon that item. This item was left to be considered at the time of the hearing of the department's appeals as to whether the Appellate Assistant Commissioner was justified in deleting the aforesaid amount or not.
4. The assessee submitted before the Tribunal that the various items disallowed by the Commissioner were in law of capital nature. Alternatively, it was argued that the assessee had been following consistently the mercantile method of accountancy. The decretal amount, if at all a revenue receipt, was a revenue receipt of the year in which the decree was passed by the court in its favour. Dealing with this argument the Tribunal observed that:
' In our opinion the arguments advanced by the counsel for the assessee are well-founded. It is evident from the record that the assessee is following mercantile system of accountancy regularly. Under the circumstances compensation was receivable by the assessee on the date of the decree. The date being December 15, 1952, it cannot be held that the amount was earned during the previous year. Other discussion on this issue is, therefore, not material.'
5. On this ground the assessee's appeal was allowed.
6. The appeal filed by the department came up for hearing later on and was disposed of by the Tribunal by its order dated. 7th April, 1969. The appeal was dismissed. Later on, the department moved an application for rectification under Section 254(2) of the Income-tax Act, 1961. This application was disposed of by the Tribunal by its order dated 14th July, 1970, whereby the following paragraph was added to the original order of the Tribunal dated 7th April, 1969:
' In the view we have taken in the assessee's appeal, namely, that the amount fell due in the year 1952, it is not necessary for us to consider in this appeal whether or not the amount as received was on revenue account.'
7. It is thus evident that the department's appeal in so far as it related to the amount of Rs. 1,14,212 which represented the compensation paid for delayed and defective machinery was not decided on the merits of the question whether it was capital or revenue in nature, but on the ground that since it fell due in December, 1952, it could not be taxed as a revenue receipt in the assessment year 1961-62.
8. None the less, the Tribunal at the instance of the department has referred the following question of law for the opinion of this court:
' Whether, upon the facts and circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the sum of Rs. 1,14,212 received by the assessee as compensation from the Custodian of Enemy Property is a capital receipt '
9. From a perusal of the rectification order dated 14th July, 1970, it is apparent that the Tribunal did not go into the merits of the question whether the receipt of Rs. 1,14,212, which was admittedly a part of the decretal amount, was capital or revenue in nature. It was hence not right to assume, as the question referred to us seems to do, that the sum of Rs. 1,14,212 was held to be a capital receipt. In this view it is not necessary to answer the question as framed and referred to us.
10. We, therefore, return the reference unanswered. We, however, direct that the parties will bear their own costs.