Compensation for business interruption is a revenue receipt when it reflects loss of profits, not injury to capital assets.

Compensation paid for compulsory vacation of business premises was treated as a revenue receipt because it was linked to disturbance of trading activity and loss of profits during the period the business remained stopped. No loss of goodwill or injury to a capital asset was claimed or proved, so the payment was not referable to diminution of the profit-making apparatus. The receipt was therefore taxable as business income and was not exempt under section 4(3)(vii) of the Income-tax Act, with the questions answered in favour of the Revenue.

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Issues: Whether the compensation received for compulsory vacation of business premises was a capital receipt or a revenue receipt, and whether it was exempt under section 4(3)(vii) of the Income-tax Act.

Analysis: The receipt was examined in the context of the claim made and the accompanying letter, which showed that the amount was sought and paid for disturbance and loss of business during the period the business remained stopped and could not be restarted at a new place. No claim for loss of goodwill or injury to any capital asset was made or proved. The payment was therefore linked to loss of profits and not to any diminution of the profit-making apparatus or other capital asset. A sum received as compensation for temporary interruption of trading activity is a trading receipt and not a capital receipt.

Conclusion: The receipt was held to be a revenue receipt and not exempt under section 4(3)(vii) of the Income-tax Act; the questions were answered in the negative, in favour of the Revenue.

Final Conclusion: The compensation was taxable as business income because it represented loss of profits arising from interruption of trade and not compensation for injury to capital.

Ratio Decidendi: Compensation received for interruption of business activity is a revenue receipt where it is referable to loss of profits rather than injury to capital assets or goodwill.

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