Compensation for requisitioned business premises is taxable revenue when it replaces lost earnings, not capital

Compensation received for requisition of business premises was treated as revenue, not capital, because it was paid to make good loss of earnings during the requisition period. The business continued, albeit on a reduced scale, from the same premises, and the injury was to the volume of rather than to the profit-making apparatus itself. A receipt in lieu of profits that would otherwise have been earned retains its character as income, and the method used to calculate the compensation does not change that essential nature. Authorities concerning permanent deprivation of an income-yielding asset were distinguished.

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Issues: Whether compensation received for requisition of business premises, being compensation for loss of earnings, was a capital receipt or a revenue receipt taxable as income.

Analysis: The payment was made to compensate the assessee for loss of earnings during the period of requisition, not for sterilisation or destruction of its capital assets. The assessee continued to carry on business, though on a reduced scale, from the same office premises, and the Tribunal's finding was that the injury was to the volume of business and not to the profit-making apparatus itself. Compensation in lieu of profits that would have been earned, had the premises not been requisitioned, retains the character of profits and is therefore revenue in nature. The method adopted to compute the amount does not alter the essential character of the receipt. The cases relied upon for treating the amount as capital receipt were distinguished on the ground that they involved permanent deprivation of an income-yielding asset or stoppage of business.

Conclusion: The amount of compensation was a revenue receipt and taxable as income, not a capital receipt; the finding was against the assessee and in favour of the Revenue.

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