Taxability of government compensation for requisitioned premises under requisition: held taxable as income not capital receipt

Taxability of compensation for requisitioned premises: the sum paid as compensation for loss of earnings was treated as a revenue receipt because it represented profits the taxpayer would have earned but for temporary requisition. The court contrasted requisition (temporary, lacking permanence) with acquisition (permanent) and held that absence of permanent deprivation meant the payment partook of the character of income. Consequence: the compensation was taxable as income and not a capital receipt.

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Issues: (i) Whether the sum of Rs. 1,05,074 received by the assessee as compensation from the Government for requisition of business godowns is taxable as income of the assessee or is a capital receipt.

Analysis: The Tribunal found that the assessee continued to carry on its timber business from its office during the period of requisition, albeit on a reduced scale, and that the award included a lump sum for loss of earnings. The Court examined whether the payment compensated for loss of profits (revenue) or for injury/sterilisation of capital assets (capital). Authorities distinguishing temporary requisition (which compensates for lost profits) from permanent sterilisation or destruction of capital assets were considered. The Court held that the nature of the receipt is determined by the character of the payment (compensation for loss of earnings) and the factual finding that the business was continued; the method of computing the lump sum did not change its character.

Conclusion: The sum of Rs. 1,05,074 is a revenue receipt taxable as income of the assessee. (Decision in favour of Revenue.)

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