Case: Commissioner of Income Tax, Poona Vs. M/s. Manna Ramji &amp; Company

2. The reference arose out of the assessment made upon the respondent firm for the assessment year 1951-52, the account year for which is the Samvat year 2006 (that is, October 22, 1949 to November 9, 1950). The respondent was carrying on business for several years in the past in timber under the name and style of Manna Ramji and Co. in Bhavani Peth Poona City. The business premises consisted of an office and six sheds used for storing wood and timber of all kinds. The respondent firm constructed the six sheds for the purpose of its business after taking the site threof on a long lease. On May 19, 1944 the Collector of Poona requisitioned the premises of the respondent under the Defence of India Act as from May 19, 1944 for the purpose of using them as store houses for food grains. Initially the requisition order covered the six sheds as well as the office of the respondent, but at the request of the respondent firm the Collector agreed to allow it to remain in possession of the office premises. In October, 1944 the respondent made a claim for Rs. 1,85,200 on account of compensation for the requisitioned premises. In June, 1946 the Collector offered to pay compensation at the rate of Rs. 310 per month. The respondent feeling dissatisfied with the offer of the Collector, moved the Government for a reference to arbitration under the provisions of the Defence of India Act. The Civil Judge, Senior Division, Poona was thereafter appointed arbitrator on November 10, 1947. The Government appointed its Consulting Supervisor as an assessr to help the arbitrator in determining the amount or compensation. As against that the respondent appointed an architect as its assessor. There was considerable difference in the estimates of the two assessors regarding the amount of compensation payable to the respondent. The Civil Judge, who had been appointed arbitrator, gave his award on April 15, 1948. The operative part of the award of the arbitrator was as under :"The Government do pay compensation to the claimants as follows :(1) Rs. 210/- per month for rent of the premises from the 15th May 1944 till the date of restoring the premises to the claimants(2) A lump sum of Rs. 1,25,500/- for loss of earnings(3) A sum of Rs. 100/- in respect of the wooden frames(4) Interest at 3% on Rs. 1,25,500/- from the 15th November, 1944 till the date of actual payment."The Government was also ordered to pay Rs. 2,000/- as costs to the respondent. The Government filed an appeal against the award of the arbitrator, but the same was dismissed by the High Court on August 7, 1949. The respondent was thereafter paid the amount of Rs. 1,70,330/10/- in the Samvat year 2006. The above amount included Rs. 1,25,500 on account of lump sum for loss of earning and Rs. 2,000 on account of costs of arbitration3. In computing the respondents total income the Income Tax Officer brought to tax the two sums of Rs. 22,180/- on account of rent receipts and Rs. 20,551 on account of interest. Besides that, the Income Tax Officer brought to tax the sum of Rs. 1,05,074/- under Section 10 of the Act by attributing it to the respondents business in timber. This figure of Rs. 1,05,074/- was arrived at by deducting out of Rs. 1,25,500 a sum of Rs. 20,426/- which, according to the Income Tax Officer, had been spent by the respondent in the claim proceedings against the Government over and above the amount of Rs. 2,000/- which had been awarded as costs by the arbitrator. The respondent feeling aggrieved by the finding of the Income Tax Officer that the sum of Rs. 1,05,074 was business and taxable receipt filed appeal against the order of the Income-Tax Officer. The Appellate Assistant Commissioner accepted the respondents appeal and held that the above amount was capital receipt. On further appeal by the department, the Income Tax Appellate Tribunal held that the sum of Rs. 1,25,500 was a revenue receipt as it had been received on account of the loss of earnings of the timber business. The respondent was, however, allowed to set off the losses of Rs. 4,572 and Rs. 498, which had been brought forward from the assessment years 1949-50 and 1950-51, against the sum of Rs. 1,05,074. On being moved by the respondent, the Tribunal referred the following question to the High Court :"Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,05,074/- received by the applicant as compensation from the Government is taxable as income of the applicant or is a capital receipt in its hands?"The High Court held that the amount received by the respondent for the requisitioning of the six sheds or godowns was in the nature of capital receipt in the hands of the respondent firm for the damage sustained in the profit making apparatus. It was, in the opinion of the High Court, not a revenue receipt and as such, not taxable.

Court's reasoning:
10. Reference has also been made by Mr. Hajarnavis to the cases of S. R. Y. Sivaram Prasad Bahadur v. Commr. of Income Tax, Andhra Pradesh, 82 ITR 527   = (AIR 1972 SC 260  ) and Commr. of Income Tax, Punjab, Haryana, Jammu and Kashmir and Himachal Pradesh v. Prabhu Dayal, 82 ITR 804   = (AIR 1972 SC 386  ). Sivaram Prasad Bahadurs case related to interim payments made under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948; of a former holder of an estate which had been abolished during the period between the taking over of the estate and the final determination and deposit of compensation under that Act. It was held to be a capital receipt and not liable to tax. Prabhu Dayals case related to an assessee who had discovered by chance the existence of Kankar in the Jind State. The assessee brought about an agreement between the State and one Shanti Prasad Jain for the acquisition of sole and exclusive monopoly rights for manufacturing cement. Shanti Prasad Jain transferred his rights under the agreement to a company of which the assessee was one of the promoters. For the services rendered by him, the company agreed to pay the assessee a commission of 1 per cent. on the yearly net profits earned by the company. The agreement was acted upon till 1950 whereafter the company did not pay the commission to the assessee. The assessee filed a suit which ended in a compromise. In terms of the compromise, the assessee was paid certain amounts as commission for the years 1951, 1952 and 1953   further sum of Rupees 70,000 by way of compensation for the determination of the agreement between him and the company as from January 1, 1954. Question which arose for determination was whether the sum of Rupees 70,000 was capital receipt in the hand of the assessee. The assessee, it was found, had not engaged either in the business of discovering kankar or any minerals or in the business of bringing about agreement between the parties. There was indeed, no evidence that he was a business man. It was held that none of the activities of the assessee could be considered to be business activity. The compromise, in the opinion of this Court, destroyed an income yielding asset of the assessee and in its place he was given Rupees 70,000 as compensation. The sum of Rupees 70,000 was accordingly held to be capital receipt. It is manifest from the narration of the facts of Sivaram Prasad Bahadur and Prabhu Dayals case that there is no similarity between those cases and the present case. As such, these two decisions cannot be of any avail to the respondent11.It may also be mentioned that Mr. Hajarnavis has assailed the findings of fact of the Tribunal. In this respect we are of the view that the Tribunal is the final fact finding authority. It is for the Tribunal to find facts and it is for the High Court and this Court to lay down the law applicable to the facts found. Neither the High Court nor this Court has jurisdiction to go behind or to question the statement of facts made by the Tribunal. The statement of case is binding on the parties and they are not entitled to go behind the facts of the Tribunal in the statement. When the question referred to the Hitgh Court speaks of "on the facts and circumstances of the case", it means on the facts and circumstances found by the Tribunal and not on the facts and circumstances as may be found by the High Court (see Karnani Properties Ltd. v. Commissioner of Income Tax, West Bengal, 82 ITR 547   = (AIR 1972 SC 2315  ).