Capital receipt from Jagir compensation retained its character on sale of bonds as long-term capital gain.

Compensation received for resumption of Jagir proprietary rights was treated as a capital receipt because the right to compensation accrued when the Jagir was resumed, even though quantification and issue of bonds occurred later. The surplus realised on sale of the Jagir bonds therefore retained the character of capital receipt and was assessable as long-term capital gain, not as revenue receipt. The analysis turns on the capital nature of the underlying compensation and the continuation of that character on subsequent sale of the bonds.

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Issues: Whether the surplus arising from the sale of Jagir bonds received on resumption of the Jagir was a capital receipt assessable as long-term capital gains.

Analysis: The assessee's Jagir was resumed in 1956, when the right to receive compensation accrued, though the compensation amount was quantified later and bonds were issued in 1968. The amount represented compensation for resumption of proprietary rights and was treated as a capital receipt rather than a revenue receipt. On that basis, the surplus realised on sale of the Jagir bonds retained the character of capital receipt.

Conclusion: The surplus from the sale of the Jagir bonds was rightly treated as capital gain and not as a revenue receipt; the answer is against the Revenue and in favour of the assessee.

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