SINHA J. - This is a reference under section 66(1) of the Income-tax Act. The facts are as follow :
The assessee in this case is Pran Jiban Jaitha. He was a partner of the firm of Narottam Jaitha & Co. This firm had five partners and the assessee had a four annas share in the firm. Of the other four partners one was his nephew, two were his sons and there was a stranger holding a three annas share. The firm carried on business as freight-brokers and as such acted as freight brokers of the British India Steam Navigation Co. Ltd. for a very long time. In December, 1941, the Japanese entered World War No. 2 and the assessee had to leave Burma where he had constructed a valuable house which was destroyed by bombing. From about February, 1942, the shipping company also ceased to do business of carrying freight from Burma. The assessee demanded compensation from the steamer company in Calcutta and it appears that rupees one lakh was paid on account of his house in Rangoon although he had claimed about Rs. 2 1/2 lakhs for the same. As long as the war continued, the business of carrying freight from Rangoon was entirely stopped. In 1945, the war came to an end and the assessee again pressed his claim. In fact, he had claimed a sum of rupees ten lakhs altogether, of which a part was for the Rangoon house and the remainder for loss of freight business in Burma. At a result of a remand by this court and the filing of a supplementary statement of case we are now in receipt of sufficient information and it appears that so far as the firm was concerned, it had no written contract of employment, but functioned as freight brokers for the steamer company for several decades and were paid approximately one per cent. brokerage on the freight booked by them. It is also on record that about rupees one lakh per year was the approximate sum that was earned by the firm. As I said, subsequent to the Japanese occupation of Burma, the business of the company of carrying freight from Rangoon had been completely closed and the assessee put in a claim of about rupees ten lakhs. In 1945, after the war terminated the question was again re-agitated, but the company stated that the Calcutta office could not decide the question of this payment which would have to be decided by the directors in London. It appears that the assessees son went over to London and there were direct negotiations between him and the directors, who wanted the assessees firm to resume business as the steamer company had itself resumed business on or about the 1st of August, 1946. This, however, the assessee was not willing to do and the brokerage business of the firm was not resumed. Ultimately, the directors sanctioned the payment of rupees five lakhs. It is common case now that this rupees five lakhs had nothing to do with the house, for which separate compensation has been paid. The question now is as to whether this rupees five lakhs should be assessed as income of the assessee. It will be observed that the payment was made to the assessee who was only one of the partners, and the argument, if it amounts to anything, is naturally directed towards establishing that it was the income of the firm. The position, therefore, is very confusing. But as Mr. Pal has pointed out, we are not concerned with this aspect of the matter, because the point was agitated and given up before this court and it was more or less agreed before Chakravartti C.J. that the only question to be decided was as to whether this amount was to be treated as income of the assessee or not without going closely into the question as to whether this was income of the assessee himself or the partnership firm. Upon the question as to whether it is income in the hands of the assessee, we find that the Income-tax Officer as well as the Appellate Assistant Commissioner held that it was income in his hands which was liable to be assessed. The Appellate Tribunal, however, disagreed with this finding and held that the business had stopped, and no brokerage of any description could have been due to the assessee, nor did he earn any brokerage and had no right to receive the said sum of Rs. 5 lakhs until Messrs. Mackinnon Mackenzie & Co. made a gift of the said sum to him. It was held that as no freight business could arise because the companys ships ceased to trade in Burma ports during the relevant time, there was no question of the assessee or his firm earning any brokerage or being compensated for the same. In this view of the matter, it was held that no question arose about the company preventing the assessee from earning the freight brokerage during the four years between February, 1942, and June, 1946, and that the payment was motivated purely by feelings of generosity on the part of the steamer company, having regard to the fact that the assessee had been associated with the company for a number of decades prior to 1942. It was, therefore, in the nature of personal gift and not taxable as income in his hands. As I said, the matter having been referred to court it came up before Chakravartti C.J. and was referred back for the determination of certain facts which have now been determined. The question that has been referred to us is as follow :
'Whether, on the facts and in the circumstances of this case, the receipt of Rs. 5 lakhs by the assessee from the British India Steam Navigation Co. Ltd. was assessable income in his hands?'
On behalf of the assessee it is argued that during the relevant years the business had entirely vanished and did not exist, since there could be no freight brokerage where the company itself had stopped plying its ships in Burma ports. There was no question of the shipping company preventing the brokerage business being carried on, because the company itself was prevented from carrying on the business of carriers of freight. Therefore, no question could arise about compensation for freight that could have been earned. It was a payment, purely out of the generosity of the shipping company, and it has not been placed on record by the donors of the gift itself that it was a personal gift. In a letter written by the managing director, being an annexure to the supplementary statement of facts, the following has been sai :
'No special resolution was passed by the board of directors sanctioning the payment to Pran Jiban Jaitha, but we would confirm that the amount was paid as a personal gift to him in compensation for the loss of business in Burma due to the Japanese invasion.' As to the nature of the gift, that certainly is a question of fact, and this is the fact that has emerged at the enquiry before the Appellate Tribunal, and I think we are bound by it.
Mr. Pal has, however, argued it as a point of law. He says that it cannot be said on the facts that the business had completely stopped or was non-existent during the relevant years. He argues that at best it can be said that it was dormant or in 'suspended animation' and he draws our attention to a letter written by the steamer company dated the 17th March, 1952, which is to be found set out in paragraph 5 of the order of the Appellate Assistant Commissioner and which says as follow :
'At your request we certify that the B.I.S.N. Co. Ltd. ceased trading to and from all Burma ports from the 20th February, 1942, and did not recommence operations in Burma until the 1st of August, 1946; therefore, you earned no brokerage for freight trading in that period. You retired from your Burma business in June, 1940.'
Mr. Pal strenuously argues that if the assessee retired from the Burma business in June, 1946, then it cannot be said that at any point of time prior to it, the business was non-existent and, therefore, the matter should come within the principles laid down in various cases where it has been held that if a business existed, then if the assessee was restrained from earning profit, then any compensation paid therefore would be income.
I shall presently come to the case-law on the subject. But it seems to me quite clear that one must read the statement of the steamer company in letter of the 17th March, 1952, in the background of all the facts. As I have stated above, it has now been distinctly found that the steamer company ceased to do any freight business from the 20th of February, 1942, from Burma ports. Therefore, there was no possibility of the assessee earning any freight brokerage. A distinction must be made between cases where income could have been earned by the assessee and cases where, in the facts and circumstances of the case, it could not be earned at all. In support of his argument, Mr. Pal has relied on Commissioner of Income-tax v. Shamsher Printing Press. The facts there were as follow : The respondent firm had for the purposes of its business a printing press. The premises in which the press was housed was requisitioned by the Government and the respondent had to shift its business to another place where some time later they again continued the old business. The Government paid certain sums as compensation on account of the compulsory vacation of the premises, disturbance and loss of business. The question was whether this amount should be treated as a revenue receipt or was liable to tax. It was held that this amount was received as compensation for loss of profits and was, therefore, a revenue receipt. It is argued that the facts of the present case are the same and, therefore, the amount received as compensation was nothing more than compensation for loss of profit and should be considered as a revenue receipt. Now, this case and a number of cases on the subject have been dealt with in another Supreme Court decision, Senairam Doongarmal v. Commissioner of Income-tax. In that case the assessee were tea growers and tea manufacturers. They owned a tea estate in which there were factories, labour quarters, etc., and, of course, tea gardens. In 1942, the military authorities requisitioned all the factory buildings, etc., under the Defence of India Rules. The tea garden was, however, left in the possession of the assessees. During possession by the military authorities, though the assessee looked after their tea garden, the manufacture of tea was impossible. Under the Defence of India Rules, the military authorities paid compensation for the assessment years 1945-46 and 1946-47, the measure being the out-turn of tea which would have been manufactured by the assessees during that period. The question was whether the sums paid by way of compensation were received on revenue or on capital account. A number of cases were considered, including the previous decision of the Supreme Court in Commissioner of Income-tax v. Shamsher Printing Press and it was held that, during the relevant time, the assessees were tending their tea gardens merely to preserve the plants, but this could not be described as a continuation of their business which had come to an end for the time being. Therefore, the amount paid as compensation was not a revenue receipt. In the course of the judgment, the English decision of Sutherland v. Commissioners of Inland Revenue was cited, where Rowlatt J. said as follows (page 400 :
'Now it is quite clear that if a source of income is destroyed by the exercise of the paramount right... and compensation is paid for it, that that is not income, although the amount of the compensation is the same sum as the total of the income that has been lost...'
In that case, however, it was held that the requisitioning of certain ships merely resulted in their not being able to sail for a certain number of days, and the compensation was paid in lieu of the value or the use which they would have been to their owners in their profit earning capacity during those days. In lieu of that receipt, the money was paid to the owners. It was pointed out that the payment in that case was made towards loss of profits of a going business, which business had not been destroyed as a source of income. This is what Hidayatullah J. said (page 401 :
'This ruling was strongly relied upon by the department as one which laid down a principle applicable here. We do not agree. The payment there was made towards loss of profits of a going business, which business was not destroyed. As a source of income, the business was intact and the business instead of being worked for the whole period, was worked for a period less by a few days and the profit of that period was made up. That may be true if one is going to determine standard profits of a particular period, because what is paid goes to profits in the period but is of no significance in a case like the present, where during the whole of the year no business at all was done nor profits made.'
The learned judge has referred to the case of Shamsher Printing Press and has pointed out that it had very 'special circumstances'. The premises of the press in that case were requisitioned by the Government, but the press was allowed to set up its business elsewhere and the Government paid a sum which included loss of profits which was expected to bring up the profits of the press to the level of profits which the business would have earned if it continued business at its old location. The learned judge pointed out that in these cases we must rest our decision on the facts of each case. In other words, each case was to be decided on its own facts. One of the tests which the learned judge laid down was as follow (page 407 :
'From this case, it follows that the first consideration before holding a receipt to be profits or gains of business within section 10 of the Indian Income-tax Act is to see if there was a business at all of which it could be said to be income.'
Coming to the facts of the present case, I am convinced that during the time in question there was no business at all in which the assessee could have made an income. As I have stated above, the shipping company itself stopped running freight to and from Burma ports and, therefore, there was no scope for the assessee to earn any brokerage. The learned Chief Justice had asked for a determination of the fact as to whether the assessee or his firm was entitled to remuneration even without the procuration of freight. It has, however, now been found as a fact that there was no such agreement and that the company did not guarantee any income to the assessee or his firm and such income could only be earned if the shipping company was running its freight line to and from the Burma ports and if the assessee or his firm procured freight therefor. It has been argued that the assessee had a number of businesses, and it cannot be said that his business as whole had stopped. In my opinion, this has been negatived, but in any event, it is not essential. In the Supreme Court decision mentioned above, reference was made to the case of Commissioner of Income-tax v. Shaw Wallace & Co. In that case, Shaw Wallace & Co. were agents for certain oil companies and earned a commission. These oil companies terminated the agency and paid a large sum as compensation. It was held that this was not a revenue receipt. It was nobodys case there that Messrs. Shaw Wallace & Co. had entirely stopped their business. They had always been doing a variety of business and are still doing so. It is sufficient if a particular business had been totally stopped, and in this particular case the freight brokerage business of the assessee and/or his firm had been completely stopped during the relevant period. It was not stopped by any act on behalf of the shipping company which itself was compelled to stop its business of carrying freight from the Burma ports. In my opinion, therefore, the amount paid cannot be said to have been compensation for the loss of profit but was, at the highest, a voluntary gift which was paid owing to the generosity of the shipping company. In my opinion, therefore, it can not be described as a revenue receipt.
The second branch of the argument of Mr. Pal was based on certain insurance cases. It was argued that where the assessee had effected an insurance against loss of profit, then the amount received from the insurer was held to be a revenue receipt. Upon an analogy, it has been argued that the same should be held in the present case. The first case cited is a decision of the Privy Council, King v. B.C. Fir and Cedar Lumber Co. Ltd. In that case, the assessee-company which was incorporated in British Columbia were carrying on business in the City of Vancouver as manufacturers of, and dealers in, lumber and lumber products. They had insured against loss and damage by fire, part of which was in respect of 'net profits'. The company suffered loss under a devastating fire and received a large amount as compensation. The question was whether the loss payable under the fire policies was renvenue receipt and taxable as such. It was held that it was a revenue receipt. It was held there that provision for such losses are made in the usual course of business and the event that occurred, and the money that was received as compensation may not strictly be profit, but it certainly was income which was taxable. This class of cases has been dealt with by the Supreme Court in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax . There, the assessee company had insured its mills with certain companies and taken out policies of the type known as 'consequential loss policy' which insured against loss of profit, standing, charges and agency commission. The mills were completely destroyed as a result of a fire and a certain amount was paid as compensation by the insurance companies. The question was whether the amount paid on account of loss of profit was assessable to income-tax. It was held that it was not assessable Bose J. said as follow :
'It was argued on behalf of the assessee that it cannot be called profits because the money is only payable if and when there is a loss or partial loss and that something received from an outside source in circumstances like these is not money which is earned in the business and if there are no earnings and no profits there cannot be any income. But that only concentrates on the word profits. This may not be a profit but it is something which represents the profits and was intended to take the place of them and is, therefore, just as much income as profits or gains received in the ordinary way.'
It will thus be seen that the basic reason for bringing such compensation into the net of taxation is that the parties had expressly agreed that the money that would be received would represent profits. It was inherent in such policies that the assessee expected to earn profit but was prevented from doing so by some overriding reason and, therefore, an amount was paid in lieu of profits. It is comparable to the class of cases I have mentioned above where the business continues but by some overriding reason profit cannot be earned. The situation in the present case is, however, entirely different. Even if there was any doubt as to what exactly the payment of Rs. 5 lakhs represented, it is now laid at rest by the findings of fact that have been placed before us upon remand. The company itself has admitted that the payment was made as a personal gift to the assessee. It may have been calculated on the possible loss that had been suffered, but it is obvious that there was no question of any legal liability on the part of the company to pay or any legal right on behalf of the assessee to receive payment. It was paid as a personal gift in consideration of the long association of the assessee and his firm with the shipping company for a number of decades. It was entirely prompted by generosity, and there is no reason to equate the payment with the payment that the assessee could have received from an insurance company if it had a 'consequential loss policy' of the nature described above. That being so, I think that the Appellate Tribunal had come to the correct conclusion that this amount of Rs. 5,00,000 was not a revenue receipt and could not be assessed for taxation.
The result is that the question asked should be answered in the negative. The respondent is entitled to his costs. Certified for two counsel.
DATTA J. - I agree both with the reasons and the conclusions arrived at by my learned brother.
The matter, in my opinion, is also capable of being approached from a different angle, resulting in the same conclusion. There is, however, this additional ground of law in this case. This point was not canvassed before us or in any of the earlier stages of the hearing of this matter. It has not been touched in the cases cited before us. But none the less I am of opinion that a broad fact found in the records and embodied in the statement of case permits me to deal with this aspect of the matter. There is this much on the record and in the statement of the case that there was cessation of the business by reason of enemy action. The legal effect, in my opinion, is beyond doubt. The contract became void and was incapable of being performed. Therefore, in law, there could not be any business which could be carried on after February, 1942. Hence, the payment cannot partake the nature of a profit or cannot fill up the hole in the profit chain because, in law, there could not be any business and, consequently, no profit. Hence, in my opinion, on this ground also the answer should be to the same effect.
Question answered in the negative.