A.M. Ahmadi, J.
1. The assessee partnership firm carried on business in trunks and umbrellas in two shops situate in a busy business locality, namely, Pankore Naka, Gandhi Road, Ahmedabad. Both these shops were in the occupation of the assessee as tenants. By virtue of the provisions of the Bombay Rent Act, the assessee was protected from eviction. Out of these two shops, one shop bearing Municipal Census Nos. 2635/4242 and 2636/4243 situate in Jamalpur Ward No. 2 was immediately adjacent to the shop occupied by M/s. Bata Shoe Company Private Limited. As the shop occupied by the said company was not sufficiently commodious, the company entered into negotiations with the assessee firm for acquiring possession of the aforesaid shop for extending the premises in its occupation. The assessee ultimately agreed to vacate and deliver possession of the said shop to the company on the latter paying a sum of Rs. 1,51,000 to the assessee. On the culmination of the negotiations, the company paid an amount of Rs. 1,51,000 to the assessee for which a receipt in the following words came to be executed :
'Received with thanks Rs. 1,51,000 (Rupees one lakh fifty-one thousand only) from M/s. Bata Shoe Company Private Limited, Sales Office, 6-A, S.H. Banerjee Road, Calcutta-13, as compensation for loss of business sustained for winding up the business of the firm which was hithertobefore running its business in the premises bearing Municipal Holding Nos. 2635/4242 and 2636/4243 in Jamalpur, Ward No. 2, Gandhi Road, in the town of Ahmedabad and for arranging a lease in favour of the said M/s. Bata Shoe Company Private Limited from the owners of the premises under whose direction the vacant possession of the said premises has this day been delivered to M/s. Bata Shoe Company Private Limited acting through their representative, Mr. M. C. Mittra, District Controller.'
2. The question which arises for consideration is whether the aforesaid amount of Rs. 1,51,000 received by the assessee in the year of account relevant to the assessment year 1968-69 can be brought to tax as a revenue receipt. The authorities below have taken the view that the said amount was received by way of revenue income and was, therefore, liable to tax. In the backdrop of the above facts the question which has been referred for our opinion is formulated as under :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 1,51,000 received by the assessee from Bata Shoe Company Ltd. was a revenue receipt ?'
3. For reasons which we shall immediately state, we are of the opinion that the aforesaid question must be answered in the negative.
4. The facts which are material may be succinctly stated. The assessee-firm was carrying on business in two shops situate in the same locality, namely, Pankore Naka, Gandhi Road, at a short distance from each other. Both these shops were taken on rent by the assessee-firm. One of the shops was immediately next to the shop occupied by Bata Shoe Company. As the shop occupied by Bata Shoe Company was not sufficiently spacious for carrying on their business, the said company entered into negotiations with the assessee for obtaining possession of the adjacent shop bearing Municipal Census Nos. 2635/4242 and 2636/4243 occupied by the assessee. The negotiations ultimately culminated in an agreement/arrangement whereby the assessee handed over the possession of that shop with the consent of the landlord to Bata Shoe Company for a consideration of Rs. 1,51,000 which came to be termed as 'compensation for loss of business' in the receipt executed as the authorities below have heavily relied on the language thereof. Before we proceed to analyse this receipt, we may state that after this transaction was effected between the assessee on the one hand and Bata Shoe Company on the other, the assessee continued to carry on its business in the same name and style in the other shop situate in the same locality. It may further be stated that even though in the receipt the amount of Rs. 1,51,000 is described as 'compensation for loss of business', in the account books of the assessee the same has been entered as loss of goodwill of the business carried on in the said shop.
5. The question which arose before the authorities below was, whether the amount of Rs. 1,51,000 received by the assessee from the Bata Shoe Company could be taxed as profits or gains of the assessee's business. The Income-tax Officer holding the same to be a trading receipt, brought it to tax. The assessee carried the matter in appeal before the Appellate Assistant Commissioner who held that on the assessee having vacated the shop in question, even though the business in that shop came to be wound up, there was no total cessation of business as the assessee continued to carry on business in the other shop. In other words, the Appellate Assistant Commissioner was of the view that the assessee's business had not come to a standstill but at the most it stood reduced on the transfer of the premises in question to the Bata Shoe Company. There was, therefore, a reduction in the volume of the assessee's business, the profit-making apparatus in the form of the other shop continuing to remain in the possession of the assessee. He held that the compensation received by the assessee was for loss of earnings and, therefore, assumed the character of a revenue receipt. This view of the Appellate Assistant Commissioner was assailed by the assessee before the Income-tax Appellate Tribunal, A Bench, Ahmedabad. The Tribunal also took the view that the payment of Rs. 1,51,000 was by way of compensation for loss of business/earnings and not towards any capital asset. In that view that it took, it dismissed the appeal. The assessee, therefore, sought a reference which was granted on the question reproduced earlier under sub-section (l) of section 256 of the Income-tax Act.
6. Mr. K. C. Patel, the learned advocate for the assessee, submitted that the authorities below had solely gone by the language of the receipt and had not endeavoured to ascertain the exact nature of the transaction entered into by and between the assessee and the Bata Shoe Company. He submitted that the language of the receipt had to be appreciated in the context of section 19 of the Bombay Rent Act. According to him, even though it is mentioned in the receipt that the amount of Rs. 1,51,000 was paid by way of 'compensation for loss of business' it was incumbent on the authorities below to examine the exact nature of the transaction with a view to ascertaining whether the amount in question was paid in the course of business or for transfer of a capital asset. On the facts set out in the Tribunal's order to which we have made a reference hereinabove, Mr. Patel submitted that after the Bata Shoe Company showed interest in the acquisition of the tenancy rights of the assessee-firm in the shop in question, the assessee-firm in turn sought the consent of the landlord and agreed to part with the capital asset in favour of Bata Shoe Company on payment of Rs. 1,51,000. He, therefore, submitted that the payment was for the transfer of a capital asset and, therefore, it could not be taxed as revenue income. Mr. B. R. Shah, the learned advocate for the Revenue, however, submitted that the receipt executed by the assessee-firm in no uncertain terms disclosed that the amount of Rs. 1,51,000 was paid by way of compensation for loss of business sustained by the assessee-firm on its having agreed to part with the possession of the shop in question in favour of Bata Shoe Company. He further submitted that since there was no total cessation of business but merely a reduction in the volume of business, as the assessee continued to carry on the same business in the same name and style in the adjacent shop, the amount received could only be branded as a revenue income and brought to tax under section 28 of the Income-tax Act. He further submitted that the statement made in the receipt by the assessee-firm was an admission that the payment was by way of compensation for loss of business to which the assessee could be held bound; at least a presumption arose against the assessee which could be rebutted if strong facts exist to suggest to the contrary. Since the profit-making apparatus was not totally destroyed by the transfer of the shop to Bata Shoe Company, as the assessee carried on business in the other shop, Mr. Shah submitted that there was merely a reduction in the volume of business for which the assessee was compensated by the payment of Rs. 1,51,000 by Bata Shoe Company and, therefore, the receipt was clearly a revenue receipt.
7. Before we proceed to consider whether the payment was by way of revenue or towards the transfer of a capital asset, it is necessary to state that one must look to the substance of the transaction and not to the mere form. It must also be kept in mind that the provisions of section 19 of the Bombay Rent Act would weigh with the concerned parties while drafting the receipt evidencing the payment of Rs. 1,51,000 for the transfer of possession of the shop in question. Section 19 of the Bombay Rent Act makes it unlawful for a tenant to claim or receive any sum or any consideration as a condition of the relinquishment, transfer or assignment of his tenancy of any premises. Such contravention is made punishable with imprisonment for a term which may extend to six months and fine which shall not be less than the sum or value of the consideration received by the tenant. It was, therefore, submitted by Mr. Patel that although the language of the receipt may be considered relevant, it could not be decisive of the question whether the payment was received by way of trading income or for the transfer of a capital asset.
8. In Godrej & CO. v. CIT : 37ITR381(SC) , a special resolution of the company passed at the meeting held on October 22, 1946, was under consideration. By virtue of the said resolution, the assessee-firm received a sum of RS. 7,50,000 and the question arose whether the same was income or capital in its hands. The Supreme Court held that the language used in the resolution was not decisive and the question. had to be determined by a consideration of all the attendant circumstances, although the language could not be ignored altogether but had to be taken into consideration along with other relevant circumstances. Again in CIT v. Panbari Tea Co. Ltd : 57ITR422(SC) , the amount in question was paid by way of premium to the tenant for parting with the possession of the demised premises. The Supreme Court observed that while trying to ascertain whether the payment in question was towards income or capital, all the circumstances should be evaluated and the real nature of the transaction should be ascertained because the parties may camouflage the same by using clever phraseology. It further observed that the nomenclature used may not be decisive or conclusive but it helps the court, having regard to the other circumstances, to ascertain the intention of the parties. It becomes clear from the aforesaid two decisions of the Supreme Court that while the phraseology used in the receipt may be relevant, an endeavour must be made to ascertain the real nature of the transaction because the possibility of camouflaging the same in the context of section 19 of the Bombay Rent Act cannot be overlooked.
9. Now, a lease creates an interest in immovable property and transfer of leasehold rights which are protected by the provisions of the rent restriction statutes is nothing but a transfer of a capital asset. The price paid to acquire such leasehold rights can only be held to be payment on capital account, there being no revenue quality attributable to the same. Therefore, any payment received, whether by way of compensation or under any other nomenclature, for parting with the capital asset, namely, the demised premises, can only be described as a capital receipt and not a trading receipt. If we turn to the receipt, we find on a reading of the said document as a whole that the assessee agreed to wind up its business in the shop in question and arranged to transfer the possession thereof to Bata Shoe Company with the consent of the landlord The receipt speaks of three things, namely, (i) winding of the business in the shop in question; (ii) arranging of a lease in favour of Bata Shoe Company with the owners; and (iii) delivery of 'acant possession of the said premises to the agent of Bata Shoe Company. The Bata Shoe Company paid an amount of Rs. 1,51,000 directly to the assessee for this transaction whereunder the assessee stopped its business in the shop in question and delivered vacant possession thereof to the representative of the Bata Shoe Company with the consent and under the directions of the landlord. On a plain reading of the receipt, it is evident that there was no sale or transfer of the stock-in-trade of the assessee-firm in the shop in question. All that the assessee-firm did was to transfer the vacant possession of the shop to Bata Shoe Company against payment of Rs. 1,51,000, albeit with the consent of the landlord. It is indeed true that at that relevant point of time the assessee-firm also carried on the same business in the nearby shop. However, so far as the business carried on in the shop in question was concerned, it is clear from the receipt that it was completely wound up and vacant possession of the shop was delivered to Bata Shoe Company. The question then is, whether the mere fact that the assessee retained the other snop for carrying on the same business is decisive of the fact that the amount of Rs. 1,51,000 received by it from Bata Shoe Company was by way of a business income and not for the transfer of a capital asset. The authorities below were considerably influenced by the nomenclature 'compensation for loss of business' employed in the receipt and the fact that the assessee continued to carry on the same business in the other shop occupied by it as a tenant. We are of the view that on a true interpretation of the receipt itself, it is evident that the transaction in question was not a business transaction but was merely a transfer of a capital asset.
10. The expression 'capital asset' is defined in section 2(14) to mean property of any kind held by an assessee, whether or not connected with his business or profession, but does not include stock-in-trade, personal effects, agricultural land in India and Gold Bonds and other bonds. Interest in immovable property would, therefore, be property and hence a capital asset. What can be taxed under section 28 is income derived from the profits and gains of business. It is, therefore, the primary duty of the Revenue to show that the receipt of Rs. 1,51,000 is liable to tax under section 28 of the Act. The recital in the receipt - compensation for loss of business sustained for winding up the business - is not decisive of the real nature of the transaction and it is up to the court to ascertain the true nature of the transaction in each case. This can be gathered from the attendant circumstances. The facts found proved are (i) the assessee was carrying on business in the shop taken on rent; (ii) it was immediately adjacent to the shop occupied by Bata Shoe Company; (iii) the accommodation in the possession of the company was not sufficient; (iv) the company, therefore, negotiated with the assessee-firm to secure possession of the shop to expand its business apparatus; (v) the assessee after securing the consent of the landlord agreed to wind up its business and deliver possession of the shop to the said company; (vi) in consideration of being put in possession as a tenant, the company paid a sum of Rs. 1,51,000 to the assessee; (vii) no part of the stock-in-trade was sold or delivered to the company; and (viii) the assessee continued to carry on the same business in the other shop. On these and the fact that in the subsequent letter of January 21, 1970, the assessee contended that the compensation was received for injury to business, the Revenue contended, relying on CIT v. Manna Ramji & Co. : 86ITR29(SC) , that the receipt of Rs. 1,51,000 had a direct nexus with the assessee's business and was, therefore, a trading receipt. The assessee refuted this argument by pointing out that the real nature of the transaction revealed that the payment was for surrendering the tenancy rights with the landlord's consent to Bata Shoe Company and was, therefore, in the nature of a premium, popularly known as 'pagri' in this part of the country, and was, therefore, a capital receipt. In support, the assessee relied on CIT v. Vazir Sultan and Sons : 36ITR175(SC) and Bawa Shiv Charan Singh v. CIT : 149ITR29(Delhi) .
11. The first in point of time being the decision of the Supreme Court in Vazir Sultan's case : 36ITR175(SC) , we shall first deal with the ratio of that decision. In 1931, the assessee, a registered firm, was appointed the sole selling agents and sole distributors for the Hyderabad State for the cigarettes manufactured by the company and they were allowed a discount of 2% on the gross selling price. In 1939, the arrangement was extended to not only the goods sold in the Hyderabad State but also to goods sold outside Hyderabad State. In 1950, the parties reverted to the old arrangement confining the agency to the area within Hyderabad State. For giving up the agency in respect of the area outside Hyderabad State, the assessee was paid a sum of Rs. 2,19,343 'by way of compensation' for the loss of the agency for that territory. The question which arose for consideration was whether the amount received by the assessee was a revenue receipt or a capital receipt. The majority held that it was a capital receipt and hence not assessable to tax. In taking this view, the majority relied on the observations in Glenboig Union Fireclay Co. Ltd. v. Commissioners of Inland Revenue  12 TC 427 (HL) to the following effect (at p. 465) :
'The matter may be regarded from another point of view : the right to work the area in which the working was to be abandoned was part of the capital asset consisting of the right to work the whole area demised. Had the abandonment extended to the whole area, all subsequent profit by working would, of course, have been impossible, but it would be impossible to contend that the compensation would be other than capital. It was the price paid for sterilising the asset from which otherwise profit might have been obtained. What is true of the while must be equally true of the part.'
12. Relying on the above observations, the Supreme Court in the facts of the case observed that even if a part of the profit-making apparatus is destroyed or sterilised and compensation is paid for the same, the receipt in the hands of the assessee would be a capital receipt. In other words, the Supreme Court was of the view that compensation paid for withdrawing the agency in respect of the area outside Hyderabad State amounted to destruction or sterilisation of part of the capital asset and, therefore, the receipt was a capital receipt and not a revenue receipt. It also pointed out that the compensation paid to the assessee was for the destruction of a part of the capital asset and was not referable to injury inflicted on the stock-in-trade to make it a revenue receipt.
13. In Godrej & Company  31 ITR 381, a sum of Rs. 7,50,000 was paid as compensation for releasing the company from the onerous term as to remuneration. In consideration thereof, the assessee agreed to accept commission at 10 per cent. of the net profits instead of 20 per cent. under the extant agreement. The Supreme Court held thatno matter what was stated in the resolution, the payment was for securing immunity from liability to pay higher remuneration and was, therefore, a capital expenditure. In the case of Panbari Tea Co Ltd. : 57ITR422(SC) , the balance of the premium was to be paid in 16 half-yearly instalments of Rs. 11,250 and the question arose whether it was a revenue receipt. Realising that there may be an attempt to camouflage the real nature of the transaction, it observed that the language of the document is not conclusive or decisive and the decision must rest on the substance of the transaction and not on its form. Holding that the payment was towards premium or 'salami', it rejected the Revenue's contention that it was a revenue receipt.
14. In Bawa Shiv Charan Singh's case : 149ITR29(Delhi) , the Delhi High Court was dealing with the case of an advocate-assessee who had taken certain premises on rent without paying any lump sum but while surrendering the tenancy rights of the first floor thereof, he received a sum of Rs. 30,000. The Tribunal held that tenancy rights being a capital asset, the surrender thereof would tantamount to transfer of a capital asset and any payment received for the transfer thereof could only be termed as capital receipt and not revenue receipt. This decision supports the view that we take.
15. The facts of Manna Ramji's case : 86ITR29(SC) , on which the Revenue heavily relies, may be briefly stated. The assessee carried on business in timber in a premises comprising an office and six sheds constructed by it on a site taken on lease. In 1944, the Collector requisitioned the premises under the Defence of India Act. On the request of the assessee, the Collector allowed him to continue in occupation of the office premises and the requisition order was made effective so far as the six sheds were concerned. The assessee claimed compensation and the learned Civil Judge awarded, in addition to rent for the premises, a lump sum of Rs. 1,25,500 for loss of earnings. After making adjustment for expenditure incurred by the assessee for pursuing the claim for compensation, the balance of Rs. 1,05,074 was sought to be brought to tax under section 10 of the 1922 Act. The Appellate Tribunal found that the business had not come to a standstill altogether, that the respondent continued to carry on the business, though at a reduced scale after the requisition, and 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 amount of compensation was, therefore, held to be a revenue receipt. On a reference, the High Court reversed this finding and held that the compensation was in the nature of a capital receipt. The Supreme Court, reversing the decision of the High Court, held that the amount of compensation was a revenue receipt in the hands of the assessee inasmuch as it was for loss of earnings. In our view, the decision turned on its own facts and has no application to the facts of the present case.
16. The award made by the learned Civil Judge in the sum of Rs. 1,25,500 was for loss of earnings. The compensation was awarded in lieu of the profits which the assessee would have earned had the premises not been requisitioned. In other words, the amount of compensation was determined on the basis of the estimated loss of profits. Besides, since the case was one of requisition, unlike acquisition, the assessee was deprived of the income yielding apparatus for a temporary period only and not permanently. The case is not an authority for the proposition that if only a part of the income yielding apparatus is lost, the compensation paid for the loss thereof would be in the nature of a revenue receipt. Two facts clearly stand out, namely, (i) the assessee was only temporarily deprived of his business apparatus, since the premises were requisitioned and not apropriated; and (ii) the amount of compensation had a direct nexus to the profits since it was calculated on the estimated loss of earnings during the period of requisition. These distinguishing features are not to be found in the present case. Since the facts of the present case are not similar, the conclusion based on the ratio of the said decision cannot be allowed to stand.
17. Before we conclude, we must point out that ordinarily payment made for acquiring a capital asset would be a capital receipt unless shown otherwise. As observed in CIT v. Chari and Chari Ltd. : 57ITR400(SC) , the burden is on the Revenue to prove otherwise. Under section 28, the burden lies on the Revenue to show that the receipt is liable to tax. The real nature of the transaction has to be gathered from the facts and circumstances without clutching at the nomenclature of the receipt. In the instant case, we have come to the conclusion that the capital asset was transferred by the assessee-firm to Bata Shoe Company for Rs. 1,51,000. The quality of payment was nothing but premium or pagri received for transferring the leasehold rights in the premises to Bata Shoe Company with the consent of the landlord. Since the payment was for a capital asset, it can only be said to be a capital receipt and not a revenue receipt. The view that we take finds support from the decision in Bawa Shiv Charan Singh's case : 149ITR29(Delhi) .
18. We, therefore, answer the question raised for our determination in the negative (in favour of the assessee) on the facts of the present case. There will be no order as to costs.