1. By this reference under Section 236(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), the I.T. Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the sum of Rs. 37,048 received by the assessee as compensation was not liable to tax as a revenue receipt during the assessment year 1975-76 ?'
2. The material facts giving rise to this reference, as set out in the statement of the case, briefly are as follows:
The assessee is a registered firm carrying on business in tyres. During the assessment year 1975-76, the assessee received compensation of Rs. 37,048 from the State Govt. on account of the acquisition of the assessee's business premises. Before the ITO, the assessee claimed that the aforesaid amount of compensation was exempt from tax, as that amount was paid on account of the cessation of the business of the assessee, as its business premises were acquired. That contention was not upheld by the ITO, who held that the amount was a business receipt and hence chargeable to tax. On appeal, the Commissioner (Appeals) accepted the contention of the assessee and the appeal preferred by the assessee was allowed. Aggrieved by this order, the Department preferred an appeal before the Tribunal. The Tribunal upheld the decision of the Commissioner (Appeals) holding that the assessee was permanently dispossessed of business and hence was paid a solatium. The Tribunal, therefore, dismissed the appeal. Hence, at the instance of the Department, the Tribunal has referred the aforesaid question of law to this court for its opinion.
3. A similar question was referred to this court in CIT v. M.B. Tyres : 137ITR295(MP) . A Division Bench of this court held that a profit arising out of a business could be charged to income-tax only if the business was carried on during the previous year and that compensation paid on account of the cessation of a business was not chargeable as it was not the product of the business. The learned counsel for the parties conceded that in view of the finding of the Tribunal in this case, it was not possible to distinguish this case from the case reported in : 137ITR295(MP) . We see no reason to take a view different from that taken in : 137ITR295(MP) . Our answer to the question referred to this court is, therefore, in the affirmative and against the Department. In the circumstances, parties shall bear their own costs of this reference.