Capital receipt treatment for liquidation proceeds of project investments, not taxable revenue income, where assets were acquired for a capital undertaking.

Amounts realised on liquidation of investments acquired for a capital project were treated as capital profits because the shares and related assets were purchased to establish a diesel engine factory in India, not as trading stock. The character of the receipt was determined by the nature of the underlying investment and transaction; the later sale and remittance did not convert it into revenue income. As the investments were part of a capital undertaking and were liquidated only after the project was abandoned, the receipts were held not chargeable as income.

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Issues: Whether the sums realised on liquidation of the assessee's investment in the foreign companies and remitted to India were capital profits or taxable revenue income.

Analysis: The assessee's object was to establish a factory for manufacture of diesel engines in India and, for that capital project, to acquire the entire shareholding and related assets necessary for the proposed undertaking. The shares purchased were not part of any trading operation and were not stock-in-trade. The transaction was directed to acquisition of a capital asset and the later realisation arose only because the project was abandoned and the investments were liquidated. The nature of the receipt had therefore to be determined by reference to the character of the underlying asset and transaction, not by the mere fact that money was ultimately realised on sale or remittance.

Conclusion: The receipts were capital profits and not taxable revenue income.

Final Conclusion: The reference was answered in favour of the assessee, and the amounts in question were held not chargeable as income.

Ratio Decidendi: A receipt arising from the realisation of investments acquired as part of a capital project, and not held as trading assets, is a capital receipt and not revenue income.

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