B. P. BERI C. J., - At the instance of the Commissioner Income-tax, Rajasthan, Jaipur, this court directed the Income-tax Appellate Tribunal, Delhi Bench 'B', to refer the following question under section 66 (2) of the Indian Income-tax Act, 1922, for answer by this court, namely :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the sum of Rs. 62,204 received by the assessee in 1958 was a capital receipt not liable to tax? '
Because the learned counsel for the parties in the course of their addresses often disagreed on the questions of facts we can do no better than relate the facts as agreed upon between the parties before the Tribunal and extract them from the statement of the case.
The assessee is an individual, a thikanedar of the State of Sikar, now in the State of Rajasthan. He had the paramount right to levy excise duty within the limits of his thikana. After the formation of the States and their integration with the Union of India, it was decided by the Government of Rajasthan to take over the excise administration of all the States including the thikana of the assessee. This decision was taken in order to have an uniform excise policy for all the States. The right to levy excise duty of the assessee was taken over by the State of Jaipur and the State Government decided to pay in lieu, what was called a compensation on a permanent basis. The general basis of calculating such compensation for the first five years was that out of the actual gross income from liquor consumed in the areas in question half the amount of duty and the cost of all preventive and other establishments including proportionate over-charged headquarters charges (sic) were to be deducted and the balance was to be paid for distribution among the thikanedars concerned on the basis of the population. In the case of the assessee, however, it was agreed that for the first year such compensation would be paid on the basis of the last years income subject to certain adjustments. It appears that subsequently in the year 1952, probably as a measure of the general prohibition policy introduced in the Union of India, the Rajasthan Government decided to cancel the manufacture or distribution of liquor or other excisable articles and accordingly also decided to terminate the arrangement to pay compensation or cash grants to the thikanedars of the jagirs. It was, however, clarified by a letter dated the 10th of August, 1956, by His Highness the Rajpramukh of Rajasthan that the compensation payable in respect of the period prior to the issue of the aforesaid termination order will continue to be paid up to the date preceding the date of resumption of his jagir. The assessee accordingly received a sum of Rs. 62,204 for the period from July 18, 1952, to February 16, 1954.
The assessment year concerned is 1958-59, for which the relevant previous year was the financial year ending on the 31st March, 1958. A question arose before the Income-tax Officer whether the sum of Rs. 62,204 was revenue receipt liable to tax or not. The Income-tax Officer by his order dated 30th of October 1958, found that it was a revenue receipt liable to tax. On appeal by the assessee the Appellate Assistant Commissioner by his order dated January 30, 1959, confirmed the conclusion. The assessee took the matter up to the Tribunal which came to the conclusion on the basis of the authority of their Lordships of the Supreme Court in Senairam Doongarmall v. Commissioner of Income-tax that the sum of Rs. 62,204 was of the nature of capital receipt not liable to tax. Request was made by the department for making a reference to the High Court but the Tribunal declined to do so. Thereafter, an application was made to this court by the Commissioner of Income-tax, Rajasthan, and this court directed the Tribunal to refer the question aforesaid.
Mr. S. K. Mal Lodha, learned counsel for the revenue, submitted that the sum of Rs. 62,204 was the amount paid as compensation resulting from the extinction of right to levy excise duty which the assessee might have earned had the right not been so extinguished and he placed reliance on Commissioner of Income-tax v. Manna Ramji & Co., Commissioner of Income-tax v. Kamal Behari Lal Singha, Commissioner of Income-tax v. Prabhu Dayal, Commissioner of Income-tax v. Shamsher Printing Press, Commissioner of Income-tax v. South India Pictures Ltd., Princess Ruby Rajiber Kaur v. Commissioner of Income-tax, Commissioner of Income-tax v. Sardar C. S. Angre, Raj Krishen Prem Chandra Jain v. Commissioner of Income-tax, and Senairam Doongarmall v. Commissioner of Income-tax. He also distinguished the authority relied upon by the Tribunal, namely, Senairam Doongarmall v. Commissioner of Income-tax.
Mr. C. L. Agarwal, appearing for the legal representative of the deceased assessee, Rao Kalyan Singh, urged that this is a case where the source of income was completely wiped out and, therefore, the sum of Rs. 62,204 was a capital receipt and not a revenue receipt. It would have been another matter, added the learned counsel, had the interruption been of a temporary nature without extinguishing the source. He placed reliance on Glenboig Union Fireclay Co. Ltd v. Commissioners of Inland Revenue, Commissioners of Inland Revenue v. New Castle Breweries Ltd., Ensign Shipping Co. Ltd. v. Commissioners of Inland Revenue, Collins v. Firth Brearley Stainless Steel Syndicate Ltd., Rustproof Metal Window Co. Ltd. v. Inland Revenue Commissioners, Van den Berghs Ltd. v. Clark and Commissioner of Income-tax v. Shamsher Printing Press, and he laid particular emphasis on Senairam Doongarmall v. Commissioner of Income-tax and Commissioner of Income-tax v. Braham Dutt Bhargava.
Whether a particular receipt is capital or income is a question which is not always easy to answer. The line of distinction is subtle. Eminent judges have often observed that no infallible single test or criterion could be enunciated which might be decisive of the question. Each case, it has been often observed, will have to be determined upon its facts and circumstances. In a recent case of the Supreme Court, Hegde J. in Commissioner of Income-tax v. Prabhu Dayal, has summed up the situation in his judgment which is worth recalling :
'The question must ultimately depend on the facts of the particular case and the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision. That, however, is not to say that the question is one of fact, for these questions between capital and income, trading profit or no trading profit are questions which, though they may depend to a very great extent on the particular facts of each case, do involve conclusions of law to be drawn from those facts. (See Commissioner of Income-tax v. Rai Bahadur Jairam Valji).'
Similar thoughts find expression in Collins (H. M. Inspector of Taxes) v. Firth Brearley Stainless Steel Syndicate at page 570 :
In these cases it must be, if not entirely, very largely a question of fact, because the line which separates the two classes of cases, as the Lord Justice Clark said in the Californian Copper Syndicate case, is difficult to define and each case must be considered according to its facts.'
There has, however, been one test which has been consistently applied for the purposes of determining whether the receipt falls under the head of capital or revenue. The first case that we might notice in this connection is Glenboig Union Fireclay Co. Ltd. v. Commissioners of Inland Revenue, where Lord Buckmaster made observations that have been repeatedly quoted in subsequent cases. He observed that if the capital asset of the company has been 'sterilised and destroyed and it is in respect of that action that the sum' was paid then the compensation payable in such circumstances would be capital. He allowed the benefit of such receipt as capital notwithstanding the fact that the assessee had erroneously entered the amount in his own balance-sheet as income. Rowlatt J. in Ensign Shipping Co. Ltd. v. Commissioners of Inland Revenue adopted the view of Lord Buckmaster when he observed :
'Now it is quite clear that if a source of income is destroyed by the exercise of the paramount right I have described, and compensation is paid for it, then that is not income, although the amount of the compensation is the same sum as the total of the income that has been lost. As Lord Buck-master pointed out with clearness that could not be surpassed, the nature of the measure of the sum has no relation to the quality of the payment, but in this case I have got to decide the case of a temporary interference, and at first sight I thought that opened up a very wide question.'
In the case of Commissioner of Income-tax v. Prabhu Dayal it has been observed that it is now well-settled that a distinction has to be drawn between a payment made for past services or discharge of past liabilities and that made for compensation for termination of an income producing asset. The former does not lose its revenue nature but the latter being a payment for destruction of a capital asset, must be considered as capital receipt.
In other words, where what has been received was compensation for the revenue yielding asset then the character of the receipt cannot be anything but capital. If we are to employ an age old simile that if the compensation is for the hen that lays the egg and not for the egg itself then it cannot be but capital. The short but interesting question that emerges for our consideration in the light of these tests in the circumstances of the case before us is as to what was the nature of Rs. 62,204 which was paid to the assessee. A recall of the circumstances, even if it amounts to repetition, would be conducive to clarity. It was in 1948 that the superior political power of Jaipur State terminated the right of the assessee to levy excise within the four corners of his own dominion and in lieu of the liquidation of this right certain payments were designed to be made to him. The steps of history thereafter wiped out even Jaipur State when it came to merge in the State of Rajasthan and the payment was continued to be made to the assessee until the very source of the assessees jagir came to dissolve under the Rajasthan Land Reforms and Resumption of Jagirs Act. Thus, the sum of Rs. 62,204 which was paid to the assessee was in compensation of the destruction of a capital asset which consisted in the assessees right to levy excise duty within the jagir of Sikar. The right to levy excise was an income producing asset in the language of their Lordships of the Supreme Court and is clearly of a capital nature. When the source comes to be dissolved and something is paid in lieu thereof by way of compensation for such dissolution in our opinion it cannot be but capital asset of the assessee. The principle enunciated in Senairam Doongarmall v. Commissioner of Income-tax lends considerable support to the view that we have taken. After having noticed the opinions of high authorities that for an answer to the question such as the one before us the facts of each case influence the decision thereof a discussion of the number of cases cited before us is not necessary because we have studied these cases and their facts do not directly assist us. The principle that we have found helpful in resolving the controversy before us has been consistently followed in all the cases cited before us and suffice it to say that when the source is destroyed and compensation is paid on account of such destruction it is capital. In the case before us the right to levy the excise was taken away from the assessee and in lieu thereof he was paid certain compensation and its character therefore cannot be but that of capital.
The answer to the question, therefore, is that on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in holding that the sum of Rs. 62,204 received by the assessee in 1958 was a capital receipt not liable to tax. The reference is answered accordingly. There will be no order as to costs.