K.K.DESAI, J. -
(1.) IN this reference under S. 66(1) of the Indian INCOME TAX ACT, 1922, the question of law referred to this Court reads as follows :
"Whether, on the facts and circumstances of this case, the sum of Rs. 82,460 is liable to be taxed in the hands of the assessee ?"
The question relates to the asst. year 1948 -49, .the relevant previous year being the calendar year ending 31st December, 1947. The facts which require to be noticed are as follows : Under an agreement of lease dated 21st July, 1942, the assessee agreed to become a tenant of certain premises situated at plots Nos. 7 and 12, Marine Drive, for using the premises as a boarding and lodging hotel. The lease was to commence from the date the building was ready and completely constructed and possession was delivered to the assessee. The assessee was to provide crockery, cutlery, silverware, glassware, napkins and such other things for running the business of the hotel. The lease was to be for a period of five years from the date of delivery of possession of the building for running the hotel.
(2.) BY a requisition order dated 25th April, 1942, the Government of India requisitioned and directed delivery of possession of the property to the army authorities. The requisition was to
continue for the period of the war and six months thereafter. The assessee, thereupon, made
certain representations and the army authorities then made a catering contract with the assessee.
He carried on the business of this catering contract and served the army authorities thereunder
from 1st January, 1943, to 31st October, 1943. That contract was then terminated and from 1st
November, 1943, the premises continued in the possession of the army authorities. The catering
contract was from that date given to the landlords of the premises. In this connection another
order dated 13th November, 1942, was passed and under that order the entire premises along with
the equipment for catering was taken over by the Government. Having regard to the above
situation on 31st October, 1943, the assessee sold away some equipment that he had purchased
for running the catering business also to the landlords of the premises. The assessee, thereafter,
by his letter dated 19th October, 1945, lodged a claim for Rs. 6 lakhs. The particulars of the claim
were that the assessee would make profit of Rs. 15,000 per month and Rs. 1,80,000 per year ; he
would have to bear income -tax at the rate of 65per cent and would after deduction of the income -
tax earn Rs. 60,000 per year. The lease was to be for a period of 5 years and with option to extend
it for another period of 5 years. For the period of 5 years of the lease he was entitled to Rs. 3 lakhs
for disturbance and Rs. 3 lakhs for goodwill making Rs. 6 lakhs in all.
On or about 6th May, 1946, the assessee was paid a sum of Rs. 40,000. By the letter of the Collector dated 6th May, 1946, the assessee was informed that this was the agreed compensation
and that upon the de -requisition of the property possession would be given to the assessee. He
stated ". . . I am requesting the military authorities to release the property as early as possible".
The parties had then expected that possession would be delivered to the assessee in July, 1946,
and that thereupon the assessee would be able to carry on his business. In September, 1946, the
assessee addressed correspondence to the authorities in respect of their having not delivered
possession of the premises to him in July, 1946, and that the agreement to accept Rs. 40,000 was
not binding. He revived his claim for payment of Rs. 6 lakhs. Ultimately, the premises were
restored to the assessee on 1st December, 1946. He was able to renovate the premises for
carrying on business of a hotel by 31st March, 1947. In April, 1947, there were negotiations
between the parties in connection with the claim of the assessee for payment of larger
compensation and this claim was ultimately settled at Rs. 1,15,610. The assessee by his letter
dated 20th January, 1948, stated that he was willing to accept the above sum in full and final
settlement of his claim for loss of profit which he had made against the Government of India in
respect of requisition of the premises by the army authorities during the war and thereafter. The
assessee was paid the respective sums of Rs. 25,000, Rs. 25,000 and Rs. 65,610 respectively on
September 1, 1947, November 25, 1947, and March 4, 1948. The particulars of the claim settled
as above shows that out of the above sum of Rs. 1,15,610, Rs. 33,150 were paid in respect of the
rent that the assessee had to pay to the landlords. The question raised in the present reference
accordingly relates to the balance of Rs. 82,460 paid in the above manner by the army authorities
to the assessee.
(3.) IN connection with the sum of Rs. 40,000 which had already been paid to the assessee on 6th May, 1946, on behalf of the Revenue, it was contended that it was trading receipt and liable to tax.
The Tribunal negatived that claim by its order dated 13th February, 1953, by holding that the
business which the assessee had carried on after the requisition order was served as up to 31st
October, 1943, was not the hotel business. It was a catering business carried on under the
directions and on behalf of the military authorities. That business was not the same business as the
assessee had intended to start, namely, running of an upto date hotel. The Tribunal also found that
as a result of the requisition the assessee had not remained a tenant of the building. The assessee
had in fact sold away about November, 1943, some equipment he had purchased as a caterer to
the landlords and the assessee had no assets of his own in use in the business at any time. The
Tribunal accordingly held that the sum of Rs. 40,000 was not trading receipt and liable to tax.;