The following question was referred under Section 66(1) of the Indian Income-tax Act for our opinion :- "Whether in the circumstances of the case the sum of Rs. 26, 700-0-0 received by the assessee is the assessees income for the purpose of Indian Income-tax Act ?" The assessee is carrying on the business of exhibiting cinema pictures at five theatres in Nagpur. One of them was known as Known as Saroj Talkies. The assessee held a lease of the premises for a period of ten years commencing from October 5, 1937, equipped the premises with machinery and furniture and carried on his business of exhibiting films there. The premises were acquired for the Nagpur Improvement Trust and the assessee handed over possession of the premises on the October 1, 1945. The Land Acquisition officer paid a sum of Rs. 26,700-0-0 as compensation to the assessee for acquiring the of assessees interest in the Saroj Talkies. This amount was received in the account year 1946-47 and was sought to be taxed in the assessment year 1947-48. This amount of compensation was in addition to the sum of Rs. 55,000-0-0 payable to the owner of the premises. The award of the Land Acquisition Officer, giving compensation to the assessee, states that he will be given a sum of Rs. 26,700-0-0 in cash "by way of compensation for requiring the said Rai Bahadur to give up his lease-hold interest in the cinema, viz., the Saroj Talkies, which is a part of the subject-matter of acquisition in these proceedings by terminating his lease of the said Saroj Talkies before the expiry of the said lease which is upto the September 30, 1947." The Appellate Tribunal held that this compensation was a capital receipt as it was a compensation for acquisition by the Nagpur Improvement Trust of the lease-hold interest of the assessee in the Saroj Talkies.
The learned counsel for the Commissioner contends that this is a revenue receipt as it is a compensation for the loss of profits during the period of interruption of the business of exhibition of films at a particular place. Reliance was placed on Commissioner of Income-tax v.Globe Theatres Ltd. Jogendra Chandra Mitter v. Rajendra Nath Mitter, Burma Steamship Co. v. Commissioners of Inland Revenue, Benarsidas Jagannath, In re Ensign Shipping Co. v. Commissioners of Inland Revenue.
In commissioner of Income-tax v. Globe Treatres Ltd. it was held that the amount was not paid as premium or salami for the loss but was an advance payment of rent under the lease which was to come into existence and it was therefore an allowable deduction under Section 10(2)(xii) of the Act. Benarsidas Jagannath, In re was dealing with the claim for expenditure under Section 10(2)(xii). It was held that the main object of the agreements being to procure earth for manufacturing bricks and not the acquisition of an advantage of a permanent nature or of an enduring character, the payments made were the price for raw material and the assessee was therefore entitled to claim them as business expenditure under Section 10(2)(xii) as it then was. The present proviso is Section 10(2)(xv). Their Lordships added that the sums paid for obtaining leases for a substantially long period varying from 10 to 20 years could not be held to be valid deductions if they amounted to acquisition of an asset of an enduring advantage to the lessee. In Mohanlal Hargovind v. Commissioner of Income-tax, C.P. and Berar their Lordships allowed deduction under this provision of sums paid to pick and carry away the bidi leaves. Their Lordships held that under the contracts which granted no interest in the land and no interest in the trees and plants themselves, it was the tendu leaves and nothing but the tendu leaves that were acquired and the sums paid for them was expenditure on revenue account. It will thus be clear that in all these cases the expenditure that was claimed was for the price of raw material acquired by the assessee. To the same effect is the decision in Jagat Bus Service, Saharanpur v. Commissioner of Income-tax, U.P. and Ajmer-Merwara, on which the learned counsel relied.
In Burma Steamship Co. v. Commissioners of Inland Revenue the assessee obtained damages for loss of estimated profits for the period of delay in delivery by the repairer of a repaired ship beyond the agreed time.
The contention that it was a capital gain was negatived on the ground that the assessees assets, viz., the ship, remained unaltered and the assessee received what he would have received as a revenue by letting out the ship for the disputed period. It was not thus a compensation for the loss of any capital asset but a compensation for injury inflicted on the assessees trade. The case in Ensign Shipping Co. v.Commissioner of Inland Revenue is also similarly distinguishable. The amount was obtained as compensation for loss of use of ships and for wages etc. The case in Jogendra Chandra Mitter v. Rajendra Nath Mitter is of little help. There it was held that the measure of damages for compulsory acquisition of leasehold interest would be the yearly profit which the claimant made upon the land multiplied by the number of years which his lease had to run. In our opinion it is not pertinent to the decision of the nature of the receipt what measure was used for the purpose of calculating the amount. See Jairam Valji v. Commissioner of Income-tax, Central Provinces and Berar, What we are concerned with is the nature of the receipt and we have no doubt that in the instant case it is a solatium for the compulsory acquisition of the rights under the lease. That is a compensation for loss of capital assets.
We therefore answer the question referred to us in the negative. The Commissioner will pay the costs of this reference, including the paper book costs. Counsels fee Rs. 100. A copy of this judgment be sent to the Appellate Tribunal under Section 66(5) of the Act.