Compensation for requisitioned business premises is capital, not business income, and may also be a casual receipt.

Compensation paid for requisition of business premises was treated as damages for injury to the business asset, not as business income, because the method used to quantify the amount by reference to lost profits did not change its true character. The receipt was therefore a capital receipt and not taxable as revenue. Independently, because the payment arose outside the ordinary course of business and was an isolated amount, it also qualified as a casual and non-recurring receipt. On that basis, the compensation was outside the scope of taxable income.

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Issues: (i) Whether compensation received for requisition of business premises was a capital receipt or a revenue receipt chargeable as business income. (ii) Whether, in any event, the amount was a casual and non-recurring receipt exempt from tax.

Issue (i): Whether compensation received for requisition of business premises was a capital receipt or a revenue receipt chargeable as business income.

Analysis: The compensation was awarded for injury caused to the assessee's business by compulsory requisition of its premises. The measure adopted for quantifying damages did not determine the character of the payment. Although compensation may be assessed by reference to loss of profits, the true nature of the receipt remains decisive. A sum paid as damages for sterilisation or injury to the business asset is not income from business or profits arising in the course of business. The case of temporary deprivation was distinguished from one where the Government actually hired and used the business asset in the ordinary course of trade.

Conclusion: The receipt was not a revenue receipt chargeable as business income and was, in substance, a capital receipt.

Issue (ii): Whether, in any event, the amount was a casual and non-recurring receipt exempt from tax.

Analysis: Since the payment did not arise from the ordinary operations of the business and was an isolated compensation amount, it answered the character of a casual and non-recurring receipt. On that basis also, the amount fell outside taxable income.

Conclusion: The receipt was of a casual and non-recurring nature and was exempt from taxation.

Final Conclusion: The compensation amount was not taxable as business income and, alternatively, was exempt as a casual and non-recurring receipt.

Ratio Decidendi: Compensation paid for injury to a business caused by requisition of premises is not business income merely because it is quantified by reference to lost profits; its true character is that of damages, and if it is an isolated payment unconnected with ordinary business receipts, it may also be non-taxable as a casual and non-recurring receipt.

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