Fixed capital compensation is a capital receipt, while relevant-year interest remains assessable under the earlier ruling.

Interest relating only to the relevant year was held includible in assessment, following an earlier inter-parties ruling on the same point, and the issue was decided for the Revenue. Compensation received for compulsory acquisition of land used as the assessee's business fixed capital was held to be a capital receipt, because the land was not trading stock and the character of the asset determined the character of the receipt. The reference thus upheld inclusion of the relevant year's interest while treating the acquisition compensation as capital in nature.

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Issues: (i) Whether interest pertaining to the relevant year alone was liable to be included in the assessment. (ii) Whether compensation received on acquisition of land used for the assessee's business was a capital receipt or a revenue receipt.

Issue (i): Whether interest pertaining to the relevant year alone was liable to be included in the assessment.

Analysis: The issue was treated as covered by an earlier inter-parties decision on the same point, which had already determined the question in favour of the Revenue. No fresh distinction was made on the facts before the Court.

Conclusion: The question was answered in favour of the Revenue and against the assessee.

Issue (ii): Whether compensation received on acquisition of land used for the assessee's business was a capital receipt or a revenue receipt.

Analysis: The land acquired formed part of the assessee's fixed capital, since the business was carried on on that land and no trading activity was conducted in the land itself. Applying the principle that the nature of the asset in the business determines whether the receipt is capital or revenue, compensation paid for acquisition of a capital asset retains the character of capital receipt in the hands of the recipient.

Conclusion: The question was answered in favour of the assessee and against the Revenue.

Final Conclusion: The reference was answered by upholding the inclusion of interest for the relevant year alone, while treating the land acquisition compensation as a capital receipt.

Ratio Decidendi: Compensation received for compulsory acquisition of land forming part of the assessee's fixed capital is a capital receipt, not a trading receipt.

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