Appeal No 535 of 1958
Appeal from the judgment and order dated March 291955 of the Assam High Court in ITR No 1 of 1954
AV Viswanatha Sastri and D N Mukherjee for the appellants
Hardayal Hardy and D Gupta for the respondent
March 13
The Judgment of the Court was delivered by HIDAYATULLAH J
This appeal which has been filed with a certificate under section 66A2 granted by the High Court of Assam against its judgment and order dated March 29 1955 concerns the assessment of the appellants a Hindu undivided family for the assessment years 1945 1946 and 1946 1947
The appellants owned a tea garden called the Sewpur Tea Estate in Assam
They had on the Estate factories labour quarters staff quarters etc
On February 27 1942 the Military authorities requisitioned all the factory buildings etc under R 79 of the Defence of India Rules
Possession was taken sometime between March land March 8 1942
The tea garden was however left in the possession of the appellants
The possession of the military continued till the year 1945 and though the appellants looked after their tea garden the manufacture of tea was completely stopped
Under the Defence of India Rules the Military authorities paid compensation
For the year 1944 corresponding to the assessment year 1945 1946 they paid a total sum of Rs 222080 as compensation including a sum of Rs 10000 for repairs to quarters for labourers and Rs 144 which represented the assessor s fee
For the year 1945 corresponding to the assessment year 1946 1947 the Military authorities paid a sum of Rs 246794 which included a sum of Rs 15231 for other repairs
The sums paid for repairs appear to have been admitted as paid on capital account and rightly so
The question was whether the two Sums paid in the two 259 years minus these admitted sums or any portion thereof were received on revenue or capital account
The assessments for the two years were made by different Income tax Officers
For the assessment year 1945 1946 the Income tax Officer deducted from Rs 222080 a sum of Rs 105000 on account of admissible expenses
He then applied to the balance Rs 117080 R 24 of the Indian Income tax Rules 1922 and brought to tax 40 per cent of that sum amounting to Rs 46832
The assessment was made under section 234
For the assessment year 1946 1947 the assessment was made under section 233 of the Incometax Act
The Income tax Officer excluded the sum paid on account of repairs and treated the whole of the amount as income taxable under the provisions of the Income tax Act after deduction of admissible expenditure
The appeals filed by the appellants to the Appellate Assistant Commissioner against both the assessments were unsuccessful
On further appeal the Income tax Appellate Tribunal Calcutta Bench was divided in its opinion
The Judicial Member held that the receipts represented revenue but on account of use and occupation of the premises requisitioned
He therefore computed the not compensation attributable to such use and occupation at 20 per cent of the total receipts in both the years
He however observed that if the receipts included income from the tea estate he would have been inclined to apply R 24 in the same way as the first Income tax Officer
The Accountant Member was of the opinion that the appellants were liable to pay tax on 40 per cent of their receipts in both the years after deduction of the sums paid for repairs of buildings and the admissible expenditure
He accepted the estimate of expenditure for the account year 1944
at RE 105000 and directed that the admissible expenditure for the succeeding year be determined and deducted before the application of R 24
It appears that through some inadvertence these two orders which were not unanimous were sent to the appellants and the Department
The Commissioner of Income tax filed an application under section 661 for a 260 reference while the appellants filed an application under section 35 for rectification of the orders since many other matters in appeal were not considered at all
When these two applications came before the Tribunal it was realised that the matter had to go to a third Member for settling the difference
The President then heard the appeal and agreed with the Accountant Member
Though he expressed a doubt whether the appellants were entitled to the benefit of rr 23 and 24 he did not give an opinion because this point was not referred to him
The Tribunal then referred the case to the High Court of Assam on the following two questions 1
Whether the sums of Rs 212080 and RE 2 31563 paid by the Government to the assessee in 1945 and 1946 respectively exclusive of the sums paid specifically for building repairs were revenue receipts in the hands of the assessee comprising any element of income 2
If so whether the whole of the said sums less the expenses incurred by the assessee in tending the tea bushes constituted agricultural income in his hands exempt from tax under the Indian Income tax Act 1922 The reference was heard by Sarjoo Prasad CJ and Ram Labhaya J along with two writ petitions which had also been filed
They delivered separate judgments but concurred in their answers
The High Court answered both the questions against the appellants
The writ petitions were also dismissed
Before we deal with this appeal we consider it necessary to state at this stage the method of calculation of compensation adopted by the Military authorities
It is not necessary to refer to both the years because what was done in the first year was also done in the following year except for the change in the amounts
This method of calculation is taken from the order of the Judicial Member and is as follows 261 Rs A P Crop 211120 1bs
at 1785d half and at 1835d half 212292 14 0 15480 1bs
at Rs 0 11 10 11 449 12 0 52600 1bs
at Rs 0 15 6 50956 4 0 274 698 14 0 Less Saving of plucking and manufacturing Rs a Expenses at annas 3 per lb
49209 b Sale of export rights 132935 1bs
4924 c Purchase of export rights 78185 lbs
at annas 4
1629 d Food and clothing concessions 7000 62762 0 0 2119360 0 Add For fees of assessors Rs 144 Coolie lines repairs Rs 10000 101440 0 Rs 22208000 From the admitted facts which have been summarised above it is clear that the business of the appellants as tea growers and tea manufacturers had come to a stop
The word business is not defined exhaustively in the Income tax Act but it has been held both by this Court and the Judicial Committee to denote an activity with the object of earning profit
To say that a business is being carried on means no more than that profit is to be earned by a process of production
The business of a tea grower and manu facturer is not merely to grow tea plants but to collect tea leaves and render them fit for sale
During the years in question the appellants were tending their tea garden to preserve the plants but this activity cannot be described as a continuation of the business 262 which had come to an end for the time being
It would have hardly made any difference to the carrying on of business if instead of the factories and buildings the tea garden was requisitioned and occupied because in that event also the business Would have come to a standstill
The compensation which was paid in the two years was no doubt paid as an equivalent of the likely profits in those years but as pointed out by Lord Buckmaster in The Glenboig Union Fireclay Co Ltd vs The Commissioners of Inland Revenue 1 and affirmed by Lord Macmillan in Van Den Berghs Ltd vs Clark 2 there is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test
This proposition is as sound as it is well expressed and has been followed in numerous cases under the Indian Income tax Act and also by this Court
It is the quality of the payment that is decisive 1 of the character of the payment and not the method of the payment or its measure 
and makes it fall within capital or revenue
We are thus required to determine what was it that was paid for or in other words what did the two payments replace if they replaced anything
The arguments at the Bar followed the pattern which has by now become quite familiar to Courts
We were taken to the 12th Volume of the Tax Cases series where are collected case dealing with Excess Profits Duty and Corporation Profits Tax in England follow ing the First World War and to other English case  reported since
These cases have been considered and applied on more than one occasion by this Court and we were referred to those cases as well
Now it is necessary to point out that the English cases were decided under a different system of taxation and must be read with care
A case can only be decided on its own facts and the desire to base one s decision on another case in which the facts appear to be near enough sometimes leads to error
It is well to 1 2  263 remember the wholesome advice given by Lord Dunedin in Green vs Gliksten  Son Ltd 1 that in these Income Tax Act cases one has to try as far as possible to tread a narrow path because there are quagmires on either side into which one can easily be led   The English cases to which we were referred were used even in England by Lord Macmillan in Van Den Berghs  case 2 as mere illustrations and when cited before the Judicial Committee in Income Tax Commissioner vs Shaw Wallace  Co3 were put aside by Sir George Lowndes with this observation their Lordships would discard altogether the case law which has been so painfully evolved in the construction of the English income tax statutes both the cases upon which the High Court relied and the flood of other decisions which has been let loose in this Board
Most of the cases cited before us deal with Excess Profits Duty and Corporation Profits Tax
In the former group pre war profits had to be determined so that they might be Compared with post war business for the purpose of arriving at the excess profits if any
In dealing with the pre war profits diverse receipts were considered from the angle whether they formed capital or revenue items
The observations which have been made are sometimes appropriate to the nature of the business to which the case related and the quality of the payment in relation to that business
Similarly the Corporation Profits Tax was a tax intended to be imposed upon the profits of British Companies which included some other corporate bodies  carrying on trade or business including the  business of investments
The profits which were taxed under section 52 of the English Finance Act were required to be determind according to the principles laid down in that Act
It is thus obvious that though the English cases may be of some help in an indirect way by focussing one s attention on what is to be regarded as relevant 1 384 2  3 1932 LR 59 JA 206
264 and what rejected they cannot be regarded in any sense as precedents to follow
Since this Court on other occasions used these cases as an aid we shall refer to them briefly but we have found it necessary to sound a warning because the citation of these authorities has occasionally outrun their immediate utility
We begin with the oft cited case of The Glenboig Union Fireclay Co Ltd 1
That was a case under the Excess Profits Duty
The facts are so well known that we need not linger over them
A seam of fireclay could not be worked and compensation was paid for it
That the clay was capital asset was indisputable and the portion lost was a slice of capital
The hole made in the capital was filled up by the compensation paid
It was said that a portion of the capital asset was sterilized and destroyed and even though the business went on the payment was treated as on capital account
The case cannot be used as precedent because here no doubt the factories and buildings were apart of fixed capital but the payment was not so much to replace them in the hands of the appellants as to compensate them for the stoppage of business
The Glenboig case 1 does not apply
The case of Short Bros Ltd vs The Commissioners of Inland Revenue 2 another case under the Excess Profits Duty illustrates a contrary principle
The Company had agreed to build two ship but the contracts were cancelled and E 100000 were paid for cancellation of the contracts
This was held to be a receipt in the ordinary course of the Company s trade
Rowlatt J said that it was simply a receipt in the course of a going business from that going business nothing else
In the Court of Appeal Lord Hanworth MR affirmed the decision observing Looked at from this business point of view it appears clear that the sum received was received in ordinary course of business and that there was not in fact any burden cast upon the company not to carry on their trade
It was not truly compensation 1 2 265 for not carrying on their business it was a sum paid in ordinary course in order to adjust the relation between the shipyard and their customers
 The payment was by a customer to the shipyard
Whether the amount was paid for ships built or because the contract was cancelled it was a business receipt and in the course of the business
In the present case the payment is not of this character and Short Bros case 1 does not apply
The next case also of Excess Profits Duty is The Commissioners of Inland Revenue vs Newcastle Breweries Ltd 2
In that case the admiralty took over one third stock of rum of the Brewery and paid to the Company the cost plus 1 section per proof gallon
Later the compensation was increased by an amount of E 5309 and was brought to tax in the earlier year when the original compensation was paid
The observations of Rowlatt J though made to distinguish the case from one in which the compensation is paid for destruction of business are instructive
We shall refer to them later
The learned Judge held that this was a case of compulsory sale of rum and that a compulsory sale was also a sale
The receipt was held to be a profit
The decision was affirmed by the Court of Appeal
This case also so far as its facts go was very different and the actual decision has no relevance
The Commissioners of Inland Revenue vs The Northfleet Coal and Ballast Co Ltd 3 was a case like Short Bros case 1
E 3000 in a lump sum were paid to be relieved from a contract and as the business was a going business it was held to be profit
In fact Short Bros case 1 was applied
Ensign Shipping Co Ltd V The Commissioners of Inland Revenue 4 a case of Excess Profits Duty is interesting
During the Coal Strike of 1920 two ships of the Company were ready to sail with cargoes of coal
They were detained for 15 and 19 days respectively by orders of Government
In April 1924pound 1078were paid as compensation and were held to be 1 3 34 2 4 266 trading receipts
Rowlatt J laid down that if there was an operation which produced income it was none the less taxable because it was a compulsory operation
The learned Judge then observed that he could not hold that this was a case of hire like Sutherland vs The Commissioners of Inland Revenue 1 because the ships lay idle and their use was interrupted
The learned Judge then concluded Now it is quite dear 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 but in this case I have got to decide the case of a temporary interference
Here these ships remained as ships of the concern they merely could not sail for a certain number of days and in lieu of the value of the use which they would have been to their owners in their profit earning capacity during those days in lieu of that receipt this money was paid to the owners although they were not requisitioned as if requisitioned
I think I ought to regard this sum as the Commissioners have obviously regarded it as a sum paid which to the shipowners stands in lieu of the receipts of the ship during the time of the interruption
 This decision was approved by the Court of Appeal
Now the case was one of loss of time during which the ships would have been usefully and profitably employed
It was argued in the Court of Appeal with the assistance of the Glenboig case 2 and it was suggested that the vessels were sterilised  for the period of detention
Lord Hanworth said that that was rather a metaphorical word to use and that the correct way was to look at the matter differently
The Master of the Rolls observed But in the present case it seems to me that looked at from a business point of view all that has happened is that the two vessels arrived much later at the ports to which they were consigned than they would have done with the consequent result 1 2 267 that for the certain number of days which they were late they could not possibly make any earnings and it is in respect of that direct loss by reason of the interference with the rights exercised on behalf of His Majesty that they made a claim and have been paid compensations 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
This case also does not help to solve the problem
Charles Brown  Co vs The Commissioners of Inland Revenue 1 is yet another case of Excess Profits Duty
In that case the business of the taxpayer was carried on under the control of the Food Controller from 1917 to 1921 and he was compelled to bay and sell at prices fixed by the Controller 
By agreement a mill standard  was fixed and the tax
payer was allowed to retain profits up to that standard and if there was a shortfall it was to be made up by the Controller
This amount which the taxpayer retained together
with the amount paid towards shortfall was regarded as profits
The principle applicable is easily discernible
There can be little doubt that the trade was being carried on and what was received was rightly treated as profits
Howlatt J observed that this was a clearer case than the Ensign case 2
The matter was covered by section 38 of the Finance No 2 Act of 1915 Fourth Schedule Part 11 where the words were The profits shall be taken to be the actual profits arising in the accounting period
1 1 268 In Barr Crombie  Co Ltd vs The Commissioners of Inland Revenue 1 the Company s business consisted almost entirely of managing shipping for another Company
When the shipping Company went into liquidation a sum was paid as compensation to the managing Company
It was held that this was a capital receipt
The reason for holding thus was that the structure if the managing Company s whole business was affected and destroyed and this was not profit but compensation for loss of capital
Kelsall Parsons  Co vs The Commissioners of Inland Revenue 2 to which we shall refer presently was distinguished on the ground that though in that case the agency was cancelled the payment was for one year and that too the final year
This case is important in one respect and it is that if the entire business structure is affected and destroyed the payment may be regarded as replacing capital which is lost
These are cases of Excess Profits Duty where profits for a particular period had to be determined and also the character of the payments in relation to the kind of business to determine whether to treat them as excess profits or not
In the Glenboig case 1 the payment was not regarded as profit because it replaced lost capital and so also in Barr Crombie case1
These form the first group
Short Bros case Northfleet case 5 and Ensign Shipping CO s case were of a going business and what was paid was towards lost profits in a going concern
These form the second group
Newcastle Breweries case 7 and Charles Brown and 60 s case 3 were of business actually done and profits therefrom
None of these rulings is directly in point
In the case with which we are concerned the payment was not towards any capital asset to attract the first group there was no going business so as to attract the second and nothing was bought nor any business done with the taxpayer to make the third group applicable
1 2  3 4 5 6 7 8 269 We shall next see some cases which involved Corporation Profits Tax
In The Gloucester Railway Carriage and Wagon Co Ltd vs The Commissioners of Inland Revenue1 the Company was doing business of selling wagons and of hiring them out
The Company then sold all the wagons which it was using for purposes of hiring
The receipt was treated as profit of trade there being but one business and the wagons being the stock in trade of that business
In Green vs Gliksten  Son Ltd2 stocks of timber were destroyed
Their written down value was pound 160824 but the Insurance Company paid E 477838
The Company credited E 160824 in its trading account but not the balance
The House of Lords held that the timber though burnt was realised and that the excess of the sum over the written down book value must be brought into account
These two cases throw no light upon the problem with which we are faced and any observations in them are so removed from the facts of this case as to be of no assistance
The cases under Sch
D of the Income tax Act like Burmah Steam Ship Co Ltd vs The Commissioners of Inland Revenue3 a case of late delivery of ships sent for overhaul Greyhound Racing Association Liverpool Ltd vs Cooper4 which was a case of surrender of an agreement in which the amounts were treated as trading receipts are not cases of stoppage of a business and are not relevant
Kelsall Parsons case5 where one of the agreements of a commission agency which was to run for 3 years was terminated at the end of the second year and compensation of pound 1500 was paid for the last and final year was held on its special facts to involve taxable profits of trading
Though the business came prematurely to an end the struc ture of the business was not affected because the payment was in lieu of profits in the final year of the business as if business had been done
The payment was held to be within the structure of the business in the same way as in Shove vs Dura Manufacturing Co Ltd 6
The converse of these cases is the well known 1 3 5  270 Van Den Berghs Ltd vs Clark 1 where mutual trade agreements were rescinded between two Companies and pound 450000 were paid to the assessee Company as damages
This was treated as capital receipt and not as income receipt to be included in computing the profits of trade under Sch
D Case 1 of the Income tax Act of 1918
Lord Macmillan observed On the contrary the cancelled agreements related to the whole structure of the appellants  profitmaking apparatus
They regulated the appellant s activities defined what they might and what they might not do and affected the whole conduct of their business
I have difficulty in seeing how money laid out to secure or money received for the cancellation of so fundamental an Organisation of a trader s activities can be regarded as an income disbursement or an income receipt
We have referred to these cases to show that none of them quite covers the problem before us
The facts are very dissimilar and the observations though attractive cannot always be used with profit and often not without some danger of error
We shall now turn to the cases of this Court which were referred to at the hearing
The first case of this Court is The Commissioner Income Tax and Excess Profits Tax Madras vs The South India Pidures Ltd Karaikudi 2
The South India Pictures Ltd held distribution rights for 5 years of three films towards the completion of which they had advanced money to a film producing Company called the Jupiter Pictures
When the term had partially run out the agreement for distribution was cancelled and the South India Pictures Ltd received Rs 26000 as commission
The question was whether this sum was on capital or revenue account
Das C J and Venkatarama Aiyar J held that it was the latter while Bhagwati J held that it was the former
The learned Chief Justice came to his conclusion on four grounds i that the payment was towards commission which would have been earned ii that it was not the price of any capital 1  2  271 asset sold surrendered or destroyed iii that the structure of the business which was a going business was not affected and iv that the payment was merely an adjustment of the relation between the South India Pictures Ltd and the Jupiter Pictures
The learned Chief Justice thus rested his decision on Short Bros 1 and Kelsall Parsons 2 cases and not upon Van den Berghs 3 or Barr Crombie s case 4
Bhagwati J who dissented judged the matter from the angle of business accountancy
He observed that money advanced to produce the cinema pictures if returned would have been credited on the capital side as a return of capital just as expenditure for distribution work was revenue expenditure and the commission a revenue receipt
On a parity of reasoning the learned Judge held that money spent in acquiring distribution rights was a capital outlay and that when distribution rights were surrendered it was capital which was returned since the agreement was a composite one the films were a capital asset and the payment for their release was a return of capital
With due respect it is difficult to see how the payment could be regarded as capital in that case
The fact which seems to have been overlooked in the minority view was that the entire capital outlay had in fact been previously recouped and even the security held by the South India Pictures had been extinguished
It was a portion of the running business which ceased to be productive of commission and by the payment the commission which would have been earned and would have constituted a revenue receipt when so earned was put in the pockets of the South India Pictures
The business of the South India Pictures
was still  going business one portion of which instead of being fruitful by stages became fruitful all at once
What was received was still the fruit of business and thus revenue
The case though interesting is difficult to apply 
in the present context of facts where no business at all was done and what was received was not the fruit of any business
1 3  2  4 272 The next case of this Court Commissioner of Income Tax vs Jairam Valji 1 may be seen
The assessee there was a contractor and received Rs 250000 as compensation for premature termination of a contract
This was held to be a revenue receipt
The assessee had many businesses including many contracts and the receipt was considered as one in the ordinary course of business
All the English decisions to which we have referred were examined in search for principles but the principle on which the decision was rested was that the payment wag an adjustment of the rights under the contract and must be referred to the profits which could be made if the contract had instead been carried out
The payment not being on account of capital outlay and the assessee not being prevented from carrying on his business the receipt was held to be revenue that is to say related to income from a contract terminated prematurely
In a sense the case is analogous to The South India Pictures Ltd case which it follows
In The Commissioner of Income tax Hyderabad Deccan vs Messrs Vazir Sultan  Sons 3 the assessee held the sole selling agency and distribution rights of a particular brand of cigarette in the Hyderabad State on foot of a 2 per cent discount on all business done
Subsequently the area outside Hyderabad State was also included on the same terms
Later still the area was again reduced to the Hyderabad State
Rs 219343 were paid by way of compensation for loss of territory outside Hyderabad
Bhagwati J and Sinha J as he then was held that the compensation was on capital account while Kapur J held otherwise
The reason given by the majority was that the agency agreement was a capital asset and the payment was in lieu of the loss of a portion of the capital asset
Kapur J on the other Wand held that the loss which was replaced was the loss of agency commission and bore its character
The case furnishes a difficult test to apply
If what was adjusted was the relationship between the parties and if 1 1959 Supp 1 SCR 110
2  3 1959 SUPP
2 SCR 375
273 there was a going business as in fact there was the case comes within the dicta in The South India Pictures Ltd case 1 and Jairam Valji s case 2
The case can only be a decision on the narrow ground that a portion of the fixed capital was lost and paid for
In Godrej  Co vs Commissioner of Income tax3 the assessee firm which held a managing agency released the managed Company from an onerous agreement and inconsideration was paid Rs 750000
It was held that the payment was not made to make up the difference in the remuneration of the managing agency firm bat to compensate it for the deterioration or injury of an enduring kind to the managing agency itself
The injury being thus to a capital asset the compensation paid was held to be on capital account
The last case of this Court to which reference may be made is Commissioner of Income tax vs Shamshere Printing Press 4
That was a very special case
There the premises of the Press were requisitioned by Government but the Press was allowed to set up its business elsewhere the charges for shifting the machines etc being paid by Government
In addition Government paid a sum claimed as loss of profits which was expected to bring up the profits to the level of profits while the business was in its old place
The  assessee claimed that this sum was paid as compensation for loss of goodwill arising from its old locality
There was however nothing to show that the payment was goodwill and it was held that the compensation paid must be regarded as money arising as profits in the course of business
It was like putting money in the till to bring the profits actually made by the level of normal profits
All these cases were decided again on their special facts
Though they involved examination of other decisions in search for the true principles it cannot be said that they resulted in the discovery of any principle of universal application
To summarise them South India Pictures  case 1 was so decided because 1  2 1959 SUPP
1 SCR 110
3 1960 1 SCR 5274 1960 39 ITR go
35 274 the money received was held to be in lieu of commission which would have been earned by the business which was still going and the receipt was treated as the fruit of the business
The same reason was given in Jairam Valji s case 1 and Shamshere Printing Press case 2
In Vazir Sultan s case 3 the compensation was held to replace loss of capital and in Godrej s case 4 the compensation was said not to have any relation to the likely income or profits but to loss of capital
Each case was thus decided on its facts
We have so far shown the true ratio of each case cited before us and have tried to demonstrate that these cases do no more than stimulate the mind but none can serve as a precedent without advertence to its facts
The nature of the business or the nature of the outlay or the nature of the receipt in each case was the decisive factor or there was a combination of these factors
Each is thus an authority in the setting of its own facts
Before we deal with the facts of this case and attempt to answer the question on which there is so much to guide but nothing to bind we will refer to two cases of the Judicial Committee one of which is Income Tax Commissioner vs Shaw Wallace  Co 5 to which we have referred in another connection
In that case all the authorities prior to 1935 to which we have referred and some more were used in aid of arguments but the Judicial Committee for reasons which are now illustrated by this judgment declined to comment on them
Shaw Wallace and Co did many businesses and included in them was the managing agency of two oil producing Companies
This agency wag terminated and compensation was paid for it
The usual question arose about capital or revenue
The Full Bench of the Calcutta High Court related the payment to goodwill but the Judicial Committee rejected that ground because no goodwill seemed to have been transferred
The Judicial Committee also rejected the contention that it was compensation in lieu of notice under section 206 Indian 1 1959 SUPP
1 SCR 110
3 1959 SUPP
2 SCR 375
2 4 1960 1 SCR 527
5 1932 LR 59 IA 206
275 Contract Act as there was no basis for it either
The Judicial Committee held that income meant a periodical monetary return coming in with some sort of regularity or expected regularity from a definite source and in business was the produce of something loosely spoken of as capital
In business income is profit earned by a process of production or in other words by the continuous exercise of an activity
In this sense the sum sought to be charged could not be regarded as income
It was not the product of business but some kind of solatium for not carrying on business and thus not revenue
The case is important inasmuch as this analysis of income  has been accepted by this Court and has been cited with the further remark made in Gopal Saran Narain Singh vs Income Tax Commissioner 1 that the words profits and gains used in the Indian Income tax Act do not restrict the meaning of the word income and the whole expression is income  writ large
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
We shall now take up for consideration the facts of our case and see how far any principle out of the several which have governed earlier cases can be usefully applied
The assessee was a tea grower and tea
manufacturer
His work consisted in growing tea and in preparing leaves by a manufacturing process into a commercial commodity
The growing of tea plants only furnished the raw material for the business
Without the factory and the premises the tea leaves could not be dried smoked and cured to become tea as is known commercially and it could not be packed or sold
The direct and immediate result of the requisition of the factories was to stop the business
That the tea was grown or that the plants were tended did not mean that the business was being continued
It only meant that the source of the raw material was intact but the business was gone
1 1935 LR 62 IA 207
276 Now when the payment was made to compensate the assessee no doubt the measure was the out turn of tea which would have been manufactured but that has little relevance
The assesee was not compensated for loss or destruction of or injury to a capital asset
the buildings were taken for the time being but the injury was not So much to the fixed capital as to the business as a whole
The entire structure of business was affected to such an extent that no business was left or was done in the two years  This was not a case where the interruption was caused by the act of a contracting party so that the payment could be regarded as an adjustment of a contract by payment
It was a case of compulsory requisition but the requisition did not involve the buying of tea either as raw material or even as a finished product
If that had been the case it might have been possible to say that since business was done though compulsorily profits had resulted
It  was not even a case in which the business continued and what was paid was to bring up the profits to normal level
The observations of Rowlatt J in Newcastle Breweries case 1 distinguish a case where business is carried on and one in which business comes to an end
The learned Judge observes Now I have no doubt that a Government re quisition such as took place during the war could destroy a trade and anything which was paid would be compensation for such destruction
I can understand for instance if they had requisitioned in this case the people s building and stopped them either brewing and selling or doing anything else and paid a sum that could not be taken as a profit they would have destroyed the trade pro tempore and paid compensation for that destruction and in fact I daresay if they take the whole of the raw materials of a man s trade and prevent him carrying it on and pay a sum of money that is to be taken not as profit on the sale of raw materials which he never would have sold but as compensation for interfering with the trade altogether These observations though made under a different 1 277 statute are in general true of a business as such and can be usefully employed under the Indian Income tax Act
Our Act divides the sources of income profits and gains under various heads in section 6
Business is dealt with under section 10 and the primary condition of the application of the section is that tax is payable by an assessee under the head profits and gains of a business  in respect of a business carried on by him
Where an assessee does not carry on business at all the section cannot be made applicable and the compensation that he receives cannot bear the character of profits of a business
It is for this reason that the Judicial Committee in Shaw Wallace s case 1 observed that the compensation paid in that case was not the product of business or in other words profit but some kind of solatium for not carrying on business and thus not revenue
It is to be noted that Das CJ in South India Pictures  case 2 in distinguishing Shaw Wallace s case 1 made the following observation In Shaw Wallace s case the entire distributing agency work was completely closed whereas the termination of the agreements in question did not have that drastic effect on the assessee s business at all 
In Shaw Wallace s case therefore it could possibly be said that the amount paid there represented a capital receipt
 The observation is guarded but it recognises the difference made in the Privy Council case and others between payment to compensate interference with a going business and compensation paid for stoppage of a business altogether
This distinction was emphasised in the dissenting opinion in Vazir Sutltan s case 3
Though the payment in question was not made to fill a hole in the capital of the assessee as in the Glenboig case 4 nor was it made to fill a hole in the profits of a going business as in Shamshere Printing Press case 5 it cannot be treated as partaking the character of profits because a business not having 1 1932 LR 59 I A 206
3 1959 Supp 2 SCR 375
2  4 5 278 been done no question of profits taxable under section 10 arose
The Privy Council described such a payment as a solatium
It is not necessary to give it a name it is sufficient to say that it was not profit of a business
Once it is held that this was not profit at all it is clear that Rules 23 and 24 of the Indian Income tax Rules could not apply and there was no question of apportioning the amount as laid down in R 24
The whole of the amount received by the assessee was not assessable
It remains to consider whether the payment could be treated as income from property under section 9 of the Income tax Act
That this was never the case of the Department is clear from the fact that the income was not processed under that section and even the Judicial Member of the Tribunal who entertained this opinion did not express it as his decision in the case
This aspect of the matter not having been considered in the case before we cannot express any opinion upon it
In our opinion the answers to the two questions ought to have been Question 1 no Question 2 does not arise
In the result the appeal is allowed with costs here and in the High Court
Appeal allowed


Summary:
There were certain charges of immorality corruption and gross dereliction of duty against the appellant who was a police officer
After an enquiry the Governor of U P referred the case under section 4 Of the U P Disciplinary Proceedings Administrative Tribunal Rules 1947 to a Tribunal
The Tribunal recommended on February 4 1950 that the appellant be dismissed from service
The Governor then served a notice on the appellant to show cause why he should not be dismissed from service and after considering the explanation submitted by him dismissed him with effect from December 5 1950
The appellant challenged the order of dismissal inter alia on the grounds i that the Governor had no power under section 7 of the Police Act and the U P Police Regulations framed thereunder to dismiss a police officer and ii that the enquiry held by the Tribunal violated 152 article 14 Of the Constitution as of the two parallel procedures available under the Tribunal Rules and under the U P Police Regulations the mode prejudicial to the appellant under the Tribunal Rules was adopted
Held per Das Hidayatullah Shah and Ayyangar JJ that the enquiry by the Tribunal and the order of dismissal passed by the Governor were legal and valid
Under para
479a of the U P Police Regulations framed under section 7 Of the Police Act the Governor bad the power to dismiss a police officer
Under the Tribunal Rules also which were framed in exercise of the various powers vested in the Governor including the power under section 7 Of the Police Act the Governor was authorised to dismiss a police officer
By virtue of article 313 Of the Constitution these provisions remained in operation even after the coming into force of the Constitution
The authority vested in the Inspector General of Police and his subordinates by section 7 of the Police Act was not exclusive it was controlled by the Government of India Act 1935 and the Constitution which made the tenure of all civil servants of a province or state during the pleasure of the Governor
The procedure adopted did not violate article 14 Of the Con stitution
Though at the time when proceedings were started against the appellant two distinct procedures for holding the enquiry were open for selection by the authorities the order by the Governor referring the case under the Tribunal Rules having been passed before the Constitution article 14 could have no application to it even if it was discriminatory
The procedure ire scribed in the Police Regulations is substantially the same as the procedure prescribed by the Tribunal Rules and by continuing the enquiry after the Constitution under the Tribunal Rules and not under the Police Regulations a more onerous procedure prejudicial to the appellant was not adopted
The fact that an order made by a police authority under the Police Regulations is made appealable whereas an order passed by the Governor under the Tribunal Rules is not made appealable does not amount to discrimination within the meaning of article 14
The Tribunal Rules provide for the giving of reasonable opportunity to a public servant in ill its aspects viz opportunity to deny his guilt opportunity to defend himself and opportunity to make his representation against the proposed punishment
The mere existence of two sets of parallel procedures is not discriminatory unless it was shown that one set is more onerous than the other
Syed Qasim Rozvi vs The State of Hyderabad and Lackhmandas Kewalram
Abuja vs The State of Bombay   applied
Khem Chand vs The Union of India and others 1954 SC R 1080 and Sardar Kapur Singh V Union of India 1960 2 SC R 569 referred to
153 State Of Orissa vs Dhirendranath Das AIR 1961 SC 1715 distinguished
Per Das Gupta J The UP Disciplinary Proceedings Administrative Tribunal Rules 1947 are hit by article 14 Of the Constitution
The absence of the right of appeal under the Tribunal Rules while a right of appeal is given to a police officer under the Police Regulations results in unequal treatment in a substantial matter between police officers proceeded against under the two procedures
Further there is no principle
to guide the Government in selecting which of the two procedures is to be applied in a particular case