1962 (11) TMI 64 - HC - Income Tax

Court rules voluntary gift of Rs. 5 lakhs to assessee not taxable income

COMMISSIONER OF INCOME-TAX, CALCUTTA. Versus PRAN JIBAN JAITHA.

The court held that the payment of Rs. 5 lakhs to the assessee was a voluntary gift and not assessable as income. The court found that the business had ... - Issues Involved:1. Whether the payment of Rs. 5 lakhs to the assessee was assessable as income.2. Nature of the payment: compensation for loss of profit or a personal gift.3. Legal implications of business cessation due to enemy action.Detailed Analysis:1. Assessability of Rs. 5 Lakhs as IncomeThe primary issue was whether the receipt of Rs. 5 lakhs by the assessee from the British India Steam Navigation Co. Ltd. was assessable as income. The Income-tax Officer and the Appellate Assistant Commissioner held that it was income liable to be assessed. However, the Appellate Tribunal disagreed, stating that the payment was a personal gift motivated by the company's generosity and not taxable as income. The Tribunal found that the business had stopped due to the Japanese occupation of Burma, and no brokerage could have been earned during the relevant period, thus classifying the payment as a non-taxable personal gift.2. Nature of the PaymentThe assessee argued that the business had entirely vanished during the relevant years, making it impossible to earn any freight brokerage. The payment was claimed to be a gesture of generosity from the shipping company, not compensation for lost income. The managing director of the shipping company confirmed in a letter that the payment was a personal gift in compensation for the loss of business in Burma due to the Japanese invasion.The court examined whether the business was merely dormant or completely non-existent. It was found that the shipping company ceased trading from Burma ports from February 20, 1942, to August 1, 1946, making it impossible for the assessee to earn any brokerage. The court distinguished between cases where income could have been earned and cases where it could not be earned at all. The court referred to the case of Senairam Doongarmal v. Commissioner of Income-tax, where it was held that compensation for a business that had entirely stopped was not a revenue receipt.3. Legal Implications of Business CessationThe court considered the argument that the assessee's business was in 'suspended animation' and referred to Commissioner of Income-tax v. Shamsher Printing Press, where compensation for loss of profits was held to be taxable. However, the court found that the facts of the present case were different. The shipping company had entirely stopped its freight business from Burma ports, and there was no possibility for the assessee to earn any brokerage.The court also examined the legal effect of the cessation of business due to enemy action. It was concluded that the contract became void and incapable of being performed, resulting in no business and, consequently, no profit. Thus, the payment could not be considered as filling a hole in the profit chain.ConclusionThe court concluded that the amount of Rs. 5 lakhs paid to the assessee was a voluntary gift prompted by the generosity of the shipping company and could not be described as a revenue receipt. Therefore, it was not assessable as income. The question was answered in the negative, and the respondent was entitled to costs. The judgment was agreed upon by both judges, with an additional legal ground provided by one judge, emphasizing that the cessation of business due to enemy action rendered the contract void and incapable of performance, further supporting the conclusion that the payment was not taxable.