Mukerjee, J. - (1.) THIS is a reference under Section 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as "the Act", The material facts are as follows : The assessee, who is the applicant in the case, went to Thailand in 1913 and was employed there as watchman on a salary of Rs. 25 per mensem. He gave up that job and started a timber business in 1936 and set up a saw mill in 1937. Following the invasion of Thailand by the Japanese in World War II the applicant and his wife were arrested as enemy nationals in 1941, but were released after detention for sixteen days. The appellant thereafter continued to carry on his timber business up to the year 1943. Subsequently, however, restrictions were imposed regarding the booking of railway wagons for transporting timber and the applicant had to close down his business and sell away the assets and stock-in-trade for nominal amounts in 1943. The applicant was again arrested in 1944 but he was released after a period of 120 days. He returned to India in June, 1948.
(2.) THE assessee had claimed compensation from the Government of Thailand as follows : JUDGEMENT_704_ITR75_1970Html1.htm The applicant was allowed an amount of 27, 257 towards his claim under items Nos. (a) and (b) above and a sum of 113 under item No. (c). On the 25th October, 1952, the applicant received a sum of Rs. 3,28,449 from the Custodian of Enemy Property, Government of India as compensation for damage to property and for personal prejudice. On receipt of this information, the Income-tax Officer initiated proceedings under Section 34 of the Act after obtaining the sanction of the Commissioner of Income-tax, U.P. The Income-tax Officer held that out of Rs. 3,28,449 received by the applicant, the sum of Rs. 92,873 was liable to tax under Section 4(1)(b)(iii) of the Act. This amount was worked out by the Income-tax Officer as below : (1) Amount received on account of loss of income due to arrest and restraint on liberty for 142 days--80 (2) Compensation for loss on forced sale of stock-in-trade of the business--7,651
(3.) THE Income-tax Officer allowed a deduction of ten per cent. for legal charges and held that the balance amounting to 6,958, equivalent to Rs. 92,873, was taxable under Sections 4(1)(b)(iii) of the Act. The applicant preferred an appeal against the assessment before the Appellate Assistant Commissioner and contended that no part of the compensation given to the assessee by the Government was taxable under Section 4(1)(b)(iii). It was also contended that the proceedings under Section 34(1) were illegal and void. The Appellate Assistant Commissioner, rejected the applicant's contentions and confirmed the assessments.;