D.M. Chandrasekhar, J. - (1.) THE Income-tax Appellate Tribunal, Allahabad Bench (hereinafter referred to as the " Tribunal "), has referred the following two questions of law to this court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "). " (1) Whether, on the facts and in the circumstances of the case, the assessment as made by the Income-tax Officer is valid in law ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the whole of the sum of Rs. 2,20,192.51 being the amount of compensation received and entered in the books of the previous year had, according to the mercantile system of accountancy, become receivable prior to the previous year so that it was not necessary for the Tribunal to consider whether or not it represented partly or wholly revenue receipt, and whether the capital cost of the plant should have been reduced by the amount of Rs. 1,11,466 ? "
(2.) THE relevant facts, briefly stated, are these : THE assessment year in question is 1961-62. THE assessee is a private limited company, which owns and runs amongst others a sugar factory at Majhalia, District Champaran (Bihar). THE assessee purchased its mill engine from a German firm in the year 1932, but it was actually delivered late. In the year 1935, the assessee filed a suit against the German firm for a sum of Rs. 2,05,000 on the ground that the machinery was delivered late and in a defective condition. THE claim of the assessee consisted of the following items : JUDGEMENT_825_ITR118_1979Html1.htm The suit was decreed in favour of the assessee in December, 1953, for a sum of Rs. 2,05,000 together with costs and interest from the date of the suit till the date of realisation. After protracted negotiations with the Government and the Custodian of Evacuee Property, the assessee was ultimately able to realise Rs. 2,20,192 during the previous year relevant to the assessment year 1961-62, The amount realised consisted of the following items : JUDGEMENT_825_ITR118_1979Html2.htm The assessee filed its return for the assessment year 1961-62 on September 31, 1961. Subsequently, it filed a revised return on March 10, 1964, and a further revised return on March 24, 1964.
(3.) THE assessee claimed the whole of the aforesaid amount of Rs. 2,20,192 as not being assessable to tax on the ground that it was a capital receipt and not a revenue receipt. In the order of assessment the provision of law under which the assessment was made was mentioned as Section 143(3) of the Act. THE ITO treated only a sum of Rs. 20,433 (the cost of replacing, altering and improving boilers, pumping sets, steam receivers and pressure gauges, etc.) as a capital receipt, and the balance as a revenue receipt and, hence, the income of the assessee for the assessment year 1961-62, The assessee appealed from the order of the ITO. Therein the order of assessment was impugned on the ground that it could be made only under Section 23(3) of the Indian I.T. Act, 1922 (hereinafter referred to as the "old Act"), and not under Section 143(3) of the present Act. But this contention was negatived by the AAC, who held that the assessment under the present Act was valid as the assessee had filed its revised return on March 24, 1964. As regards the damages received by the assessee, he held that the second item of its claim against the German firm, i.e., Rs. 1,11,466, could not be said to be a revenue receipt.;