Compulsory acquisition of stock-in-trade can yield taxable business profit when compensation exceeds cost.

Excess compensation received on compulsory acquisition of land held as stock-in-trade was treated as a revenue receipt chargeable as business profits. The court reasoned that "profits" means the excess of receipts over cost in the course of business, and that a receipt assumes a revenue character when it realises trading stock rather than capital. The compulsory nature of the acquisition did not change the substance of the transaction, because the amount represented realisation of stock-in-trade and not return of capital. The question was answered in favour of the Revenue, and the assessee's challenge to taxability failed.

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Issues: Whether the excess compensation received on compulsory acquisition of land held as stock-in-trade constituted a revenue receipt chargeable as profits and gains of business.

Analysis: The expression "profits" was held to denote the arithmetical excess of receipts over costs in the course of business. A receipt takes the character of revenue when it replaces an item that would itself have been a trading receipt if realised in the ordinary course. The compulsory character of the transfer did not alter its substance, for the amount received represented realisation of trading stock and not return of capital. The authority relied on the principle that a compulsory sale, judged by substance, is none the less a sale for income purposes when it realises stock-in-trade of a business.

Conclusion: The excess compensation was a revenue receipt and formed part of the assessee's profits and gains of business.

Final Conclusion: The referred question was answered in favour of the Revenue, and the assessee's challenge to taxability of the excess amount failed.

Ratio Decidendi: Where business stock-in-trade is compulsorily acquired and the amount received exceeds the trader's cost, the excess is taxable as a trading receipt because the compulsory nature of the acquisition does not prevent the receipt from being business profit.

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