Assessee's compensation timing clarified; items reclassified as capital receipts post-abandonment.

The court determined that the assessee's right to compensation arose on the date of the award, not earlier dates claimed. The compensation for certain items was classified as capital receipts, not revenue, due to the change in their character after business abandonment. As a result, the deduction of earlier years' losses was not addressed. The court ruled in favor of the Revenue on the first issue and in favor of the assessee on the second issue, with no costs awarded.

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Issues Involved:
1. Determination of the date when the assessee's right to compensation arose.
2. Classification of compensation received as revenue or capital receipt.
3. Deductibility of earlier years' losses from the revenue receipts.

Summary:

Issue 1: Date of Right to Compensation
The Tribunal held that the assessee's right to compensation arose on March 18, 1951, the date when the award was made. The assessee contended that the right arose either on the date of the agreement (January 1, 1946) or the date of the claim (March 18, 1949). The court upheld the Tribunal's decision, stating that a claim for damages does not give rise to a debt until liability is adjudicated upon and damages are assessed. Therefore, the right to compensation arose on the date of the award.

Issue 2: Classification of Compensation
The Tribunal classified the compensation received for mill and machinery stores, sawn timber, and logs as revenue receipts, arguing these were stock-in-trade. The assessee argued that these items lost their character as stock-in-trade once the business was abandoned and became part of capital assets. The court agreed with the assessee, noting that the business and property were abandoned in 1941, and the items had long since been sterilized and changed their character. The compensation received did not arise from trading operations, and thus, it was not assessable as revenue receipts.

Issue 3: Deductibility of Earlier Years' Losses
Given the court's decision on the second issue, it was unnecessary to address whether the earlier years' losses of Rs. 21,58,867 could be deducted from the revenue receipts.

Conclusion:
1. The first question is answered in the affirmative, in favor of the Revenue.
2. The second question is answered in the negative, in favor of the assessee.
3. The third question is not addressed due to the resolution of the second question.

There shall be no order as to costs.

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