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Issues: Whether the sums received by the assessee by way of salami, premium and compensation from granting sub-leases and from compulsory acquisition of parts of the leasehold were capital receipts or trading receipts assessable as business income.
Analysis: The assessee-company's memorandum and articles showed commercial objects, including trafficking in land, sub-leasing, and carrying on the business of colliery proprietors. The company had in fact granted several sub-leases, earned profits, declared dividends, and maintained a reserve fund, all of which pointed to an organised profit-making activity rather than mere preservation of family assets. The decisive consideration was the substance of the company's operations, not its origin or family character. Applying the principle that ownership of property may be held either as landowner or as trader, the Court held that the leasehold and sub-leasehold rights were being employed as trading assets or circulating capital. On that basis, the amounts received as salami and premium were not capital accretions but receipts arising in the course of business. As to compensation, once the underlying rights were trading assets, compensation for their acquisition also retained a revenue character.
Conclusion: The receipts were assessable as business income and the exclusion of those sums from total income was not justified. The answer was against the assessee and in favour of the revenue.
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