Compensation for blocked commencement of business held non-taxable as capital solatium, not trading receipt.

Compensation received for requisition of premises was held not to be taxable trading income where the assessee never commenced the intended hotel business. The court found that the later catering activity was only under military directions and not the proposed business under the lease, so the business apparatus was not interrupted in a going concern but prevented from starting at all. As the payment was not for loss of profits of an existing business, it fell as a solatium for disturbance and delay and remained a capital or non-revenue receipt. The amount was therefore not taxable as business profits.

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Issues: Whether the compensation of Rs. 82,460 received in settlement of the assessee's claim for requisition of the premises was a taxable trading receipt or a non-taxable capital/solatium receipt.

Analysis: The assessee never commenced the intended hotel business before the requisition orders intervened. On the findings of fact, the assessee's later activity was only a catering arrangement under military directions and not the hotel business proposed under the lease. The business apparatus was not merely interrupted in a going concern; rather, the assessee was prevented from starting the intended business at all. The compensation therefore was not for loss of profits of an existing business and could not be brought to tax under the head of business profits. It was in substance compensation in settlement of the claim for disturbance and delay, falling within the principle that a payment made as solatium for not carrying on business is not revenue receipt.

Conclusion: The amount of Rs. 82,460 was not taxable as trading income and the answer to the question referred was in the negative, in favour of the assessee.

Ratio Decidendi: Where compensation is paid for preventing the commencement of a proposed business and the assessee never carries on the business in question, the payment is not a profit arising from business under section 10 but a non-revenue solatium.

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