Compensation for business interruption from requisitioned factory buildings treated as capital receipt, not taxable business income.

Compensation for the temporary requisition of tea factory buildings, which brought the assessee's manufacturing business to a standstill, was treated as a capital receipt rather than taxable business income. The fact that the compensation was measured by reference to likely tea out-turn and profits did not change its character, because it was paid for interruption and destruction of the business as such, not to replace profits of a going concern or a capital asset. As no manufacturing business was carried on during the relevant years, section 10 of the Income-tax Act, 1922 and rule 24 of the Indian Income-tax Rules, 1922 did not apply.

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Issues: Whether compensation received for the temporary requisition of tea factory buildings, which stopped the assessee's manufacturing business, was a revenue receipt taxable as business income or a capital receipt not assessable to tax.

Analysis: The assessee's tea-growing activity alone did not amount to the carrying on of the manufacturing business. The requisition of the factory buildings brought the business to a standstill for the relevant years, so the receipts were not profits of a going business. The measure of compensation, though linked to likely tea out-turn and profits, was irrelevant to the character of the payment. The amount was not paid to replace a capital asset or to make good profits of an operating concern, but as compensation for the interruption and destruction of the business as such. Since no business was carried on, section 10 of the Income-tax Act, 1922 could not apply, and rule 24 of the Indian Income-tax Rules, 1922 had no application.

Conclusion: The compensation was not a revenue receipt assessable as business income and was not taxable under section 10 of the Income-tax Act, 1922.

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