Revenue receipt from contractual work remains taxable income; arbitration award and settlement deed did not change its character.

A receipt arising from contractual work carried out in the course of business retains its revenue character even if quantified through an arbitration award. The award merely fixed the amount payable for work already executed and did not transform the sum into a capital receipt. A transfer of the receipt under a settlement deed likewise did not make it a mere application of income, because the underlying source remained business work completed under the contract. The amount was therefore taxable as income in the assessee's hands.

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Issues: (i) Whether the amount received under the arbitration award for work done in connection with the feeder canals project was a capital receipt or a revenue receipt in the hands of the assessee. (ii) Whether the amount, having arisen from work executed by the firm and passed on to the assessee under the settlement deed, amounted only to an application of income.

Issue (i): Whether the amount received under the arbitration award for work done in connection with the feeder canals project was a capital receipt or a revenue receipt in the hands of the assessee.

Analysis: The amount represented consideration for work executed under the contract and was linked to the business activity continued by the assessee after dissolution of the firm. The arbitration award merely quantified a receipt arising from the contractual work and did not alter its character into capital.

Conclusion: The amount was a revenue receipt and not a capital receipt.

Issue (ii): Whether the amount, having arisen from work executed by the firm and passed on to the assessee under the settlement deed, amounted only to an application of income.

Analysis: The source of the receipt remained the business work executed under the contract, and the transfer under the settlement deed did not convert the receipt into a mere application of income. The assessee, having continued the same business and completed the work, remained taxable on the amount as income.

Conclusion: The amount did not represent only an application of income and was taxable as income in the assessee's hands.

Final Conclusion: The references were answered in favour of the Revenue and against the assessee, holding the disputed amount to be taxable income.

Ratio Decidendi: A receipt arising from contractual work carried out in the course of business retains its revenue character, and its transfer under a settlement arrangement does not by itself convert it into capital or a mere application of income.

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