- (1.) This is an appeal against the judgment of the High Court of Nagpur in a reference under S. 66 (1) of the Indian Income-tax Act (XI of 1922), hereinafter referred to as the Act, and the point that is raised for our determination is whether a sum of Rs. 2,50,000 received by the respondent on August 2, 1941, is chargeable to income-tax. While, according to the Department, the amount in question is a revenue receipt liable to be included in the chargeable income, according to the respondent it is capital receipt not liable to tax. The Appellate Tribunal held, affirming the decisions of the Income-tax Officer and the Appellate Assistant Commissioner, that the amount in question was a trading receipt, and was income liable to be assessed. On the application of the respondent, it referred the following question for the decision of the High Court : "Whether in the circumstances of the case the sum of Rs. 2,50,000 received by the assessee as damages or compensation for the premature termination of the contract of 9th May 1940 is income assessable within the meaning of the Indian Income-tax Act." The reference was heard by Sen and Deo JJ. who held, disagreeing with the Tribunal, that the sum of Rs. 2,50,000 was a capital receipt in the hands of the respondent, and that it was not liable to be taxed. The appellant then filed an application under S. 66 (A) (2) of the Act for a certificate to appeal to this Court, but that was dismissed, the learned Judges holding that the law on the subject was well settled. The appellant thereafter applied to this Court for special leave under Art. 136, and the same was granted, and hence this appeal.
(2.) The question whether a receipt is capital or income has frequently come up for determination before the Courts. Various rules have been enunciated as furnishing a key to the solution of the question, but as often observed by the highest authorities, it is not possible to lay down any single test as infallible or any single criterion as decisive in the determination of the question which must ultimately depend on the facts of the particular case, and the authorities bearing on the question are valuable only a indicating the matters that have to be taken into account in reaching a decision. Vide Van Den Berghs Ltd. v. Clark,1935 AC 431. That, however, is not to say that the question is one of fact, for, as observed in Davies (H. M. Inspector of Taxes) v. Shell Co. of China Ltd. 1951-32 Tax Cas 133 at p. 151 "these questions between capital and income, trading profit or no trading profit, are questions which though they may depend no doubt to a very great extent on the particular facts of each case, do involve a conclusion of law to be drawn from those facts." Vide also the observations of Lord Greene, M. R. in Rustproof Metal Window Co., Ltd. v. Commissioners of Inland Revenue, 1947-29 Tax Cas 243 at p. 266. That being so, we must first examine the facts of the present case, and then consider whether on those facts and in the light of the applicable principles, the sum of Rs. 2,50,000 received by the respondent is a capital or a revenue receipt.
(3.) The respondent is a businessman whose trading activities run in several channels. He is a railway contractor; he runs a rice mill and a sugar factory; he is a supplier of limestone and dolomite. It is with the last of these businesses that we are concerned in these proceedings. The respondent had acquire a quarry at Paraghat and had been himself working it and selling limestone quarried out of it to, among others, a Company called the Bengal Iron Company, Ltd. On January 5, 1935, the said Company entered into an agreement with the respondent for the purchase of all its requirements of limestone and dolomite from the latter at rates specified therein, and these rates were subsequently modified by another agreement between the parties dated December 21, 1935. In 1936 the Company went into liquidation, and its assets and liabilities were taken over by another Company called the Indian Iron and Steel Company, Ltd. under a scheme of amalgamation dated September 8, 1936. This Company continued to purchase limestone and dolomite from the respondent for some time, but later on, finding that the rates were uneconomic owing to increase in the railway freight, it decided to purchase its requirements from other sources, and by notice dated May 29, 1939 informed the respondent accordingly. Thereupon, the respondent filed Suit No. 211 of 1940 in the High Court of Calcutta for specific performance of the contract dated January 5, 1935, as modified on December 21, 1935, and for an injunction restraining the Indian Iron and Steel Company, Ltd. from purchasing limestone or dolomite from any person other than the plaintiff, and on March 13, 1940, an injunction in those terms was actually issued against the Company.;