Compensation for loss of profits is revenue income when tied to business operations, not a casual receipt.

A payment received as compensation for loss of profits or for making good a loss in the profit-making apparatus is a revenue receipt when it is connected with the conduct of the trade. Here, the amount was linked to the company's sugar stock, which formed part of its stock-in-trade, and arose from the assessee's business relationship with the family company. Because the receipt was business-linked, it did not qualify for exemption as a casual or non-recurring receipt under section 4(3)(vii). The amount was therefore taxable as revenue income in the hands of the assessee.

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Issues: Whether the sum of Rs. 26,000 received by the assessee was a capital receipt or a revenue receipt and, if not arising from business, whether it fell within the exemption for casual and non-recurring receipts.

Analysis: The receipt was traced to an agreement describing the payment as one made on account of loss sustained in connection with the release of sugar stock by the Government. The payment was connected with the business of the company, whose sugar stock formed its stock-in-trade, and was made because of the assessee's position as a shareholder and director in the family company. A receipt made good a loss in the profit-making apparatus and in the business structure of the concern, and compensation for loss of profits is of a revenue character. If the receipt arose from business, the exemption for casual and non-recurring receipts under section 4(3)(vii) could not apply.

Conclusion: The amount of Rs. 26,000 was a revenue receipt and was taxable in the hands of the assessee.

Ratio Decidendi: A payment received as compensation for loss of profits, or as make-good of a business loss connected with the conduct of the trade, is a revenue receipt and not exempt merely because it is stated to be casual or non-recurring.

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