Capital receipt treatment for lease termination damages linked to loss of the income source, not trading income.

Damages received on termination of a mining lease were treated as capital in nature because they were linked to the loss of the source from which the assessee would have earned the tribute under the lease. The receipt had to be judged by the character of the grant and the lease terms: tribute arose only if tin was actually produced, while other payments were separately provided for use of land and removal of trees. On that basis, the damages were not a substitute for trading income but compensation for disruption of a capital asset or capital source, and were not chargeable to tax.

---

---

Issues: Whether damages received on termination of a mining lease, computed with reference to expected tribute from mining operations, were capital receipt or income chargeable to tax.

Analysis: The receipt had to be examined by reference to the nature of the grant and the terms of the lease. The tribute was payable only if tin was actually produced, and the lease also contemplated separate payments for removal of rubber trees and use of land for tailings and dumping. On those terms, the tribute was not merely consideration for user of a wasting asset but was in substance connected with the grant of rights over the mining subject-matter itself. The damages awarded for breach and termination of the lease were linked to discontinuance of the very source from which the assessee would have derived the tribute. Such damages were therefore not a substitute for trading income but were compensation of capital character.

Conclusion: The sum of dollar 8,540 received as damages was not income chargeable to tax and was capital in nature.

---