SINHA J. - (1.) THIS is a reference under s. 66(1) of the IT Act. The facts are as follows : The assessee in this case is Pran Jiban Jaitha. He was a partner of the firm of Narottam Jaitha & Co. This firm had five partners and the assessee had a four annas share in the firm. Of the other four partners one was his nephew, two were his sons and there was a stranger holding a three annas share. The firm carried on business as freight-brokers and as such acted as freight brokers of the British India Steam Navigation Co. Ltd. for a very long time. In December, 1941, the Japanese entered World War No. 2 and the assessee had to leave Burma where he had constructed a valuable house which was destroyed by bombing. From about February, 1942, the shipping company also ceased to do business of carrying freight from Burma. The assessee demanded compensation from the steamer company in Calcutta and it appears that rupees one lakh was paid on account of his house in Rangoon although he had claimed about Rs. 2 1/2 lakhs for the same. As long as the war continued, the business of carrying freight from Rangoon was entirely stopped. In 1945, the war came to an end and the assessee again pressed his claim. In fact, he had claimed a sum of rupees ten lakhs altogether, of which a part was for the Rangoon house and the remainder for loss of freight business in Burma. At a result of a remand by this Court and the filing of a supplementary statement of case we are now in receipt of sufficient information and it appears that so far as the firm was concerned, it had no written contract of employment, but functioned as freight brokers for the steamer company for several decades and were paid approximately one per cent. brokerage on the freight booked by them. It is also on record that about rupees one lakh per year was the approximate sum that was earned by the firm. As I said, subsequent to the Japanese occupation of Burma, the business of the company of carrying freight from Rangoon had been completely closed and the assessee put in a claim of about rupees ten lakhs. In 1945, after the war terminated the question was again re-agitated, but the company stated that the Calcutta office could not decide the question of this payment which would have to be decided by the directors in London. It appears that the assessee's son went over to London and there were direct negotiations between him and the directors, who wanted the assessee's firm to resume business as the steamer company had itself resumed business on or about the 1st of August, 1946. This, however, the assessee was not willing to do and the brokerage business of the firm was not resumed. Ultimately, the directors sanctioned the payment of rupees five lakhs. It is common case now that this rupees five lakhs had nothing to do with the house, for which separate compensation has been paid. The question now is as to whether this rupees five lakhs should be assessed as income of the assessee. It will be observed that the payment was made to the assessee who was only one of the partners, and the argument, if it amounts to anything, is naturally directed towards establishing that it was the income of the firm. The position, therefore, is very confusing. But as Mr. Pal has pointed out, we are not concerned with this aspect of the matter, because the point was agitated and given up before this Court and it was more or less agreed before Chakravartti C.J. that the only question to be decided was as to whether this amount was to be treated as income of the assessee or not without going closely into the question as to whether this was income of the assessee himself or the partnership firm. Upon the question as to whether it is income in the hands of the assessee, we find that the ITO as well as the AAC held that it was income in his hands which was liable to be assessed. The Tribunal, however, disagreed with this finding and held that the business had stopped, and no brokerage of any description could have been due to the assessee, nor did he earn any brokerage and had no right to receive the said sum of Rs. 5 lakhs until M/s Mackinnon Mackenzie & Co. made a gift of the said sum to him. It was held that as no freight business could arise because the company's ships ceased to trade in Burma ports during the relevant time, there was no question of the assessee or his firm earning any brokerage or being compensated for the same. In this view of the matter, it was held that no question arose about the company preventing the assessee from earning the freight brokerage during the four years between February, 1942, and June, 1946, and that the payment was motivated purely by feelings of generosity on the part of the steamer company, having regard to the fact that the assessee had been associated with the company for a number of decades prior to 1942. It was, therefore, in the nature of a personal gift and not taxable as income in his hands. As I said, the matter having been referred to Court it came up before Chakravartti C.J. and was referred back for the determination of certain facts which have now been determined. The question that has been referred to us is as follows : "Whether, on the facts and in the circumstances of this case, the receipt of Rs. 5 lakhs by the assessee from the British India Steam Navigation Co. Ltd. was assessable income in his hands?"
(2.) ON behalf of the assessee it is argued that during the relevant years the business had entirely vanished and did not exist, since there could be no freight brokerage where the company itself had stopped plying its ships in Burma ports. There was no question of the shipping company preventing the brokerage business being carried on, because the company itself was prevented from carrying on the business of carriers of freight. Thereore, no question could arise about compensation for freight that could have been earned. It was a payment, purely out of the generosity of the shipping company, and it has not been placed on record by the donors of the gift itself that it was a personal gift. In a letter written by the managing director, being an annexure to the supplementary statement of facts, the following has been said : "No special resolution was passed by the board of directors sanctioning the payment to Pran Jiban Jaitha, but we would confirm that the amount was paid as a personal gift to him in compensation for the loss of business in Burma due to the Japanese invasion." As to the nature of the gift, that certainly is a question of fact, and this is the fact that has emerged at the enquiry before the Tribunal, and I think we are bound by it. Mr. Pal has, however, argued it as a point of law. He says that it cannot be said on the facts that the business had completely stopped or was non-existent during the relevant years. He argues that at best it can be said that it was dormant or in "suspended animation" and he draws our attention to a letter written by the steamer company dt. 17th March, 1952, which is to be found set out in paragraph 5 of the order of the AAC and which says as follows : "At your request we certify that the B.I.S.N. Co. Ltd. ceased trading to and from all Burma ports from the 20th Feb., 1942, and did not recommence operations in Burma until the 1st of August, 1946; therefore, you earned no brokerage for freight trading in that period. You retired from your Burma business in June, 1940." Mr. Pal strenuously argues that if the assessee retired from the Burma business in June, 1946, then it cannot be said that at any point of time prior to it, the business was non-existent and, therefore, the matter should come within the principles laid down in various cases where it has been held that if a business existed, then if the assessee was restrained from earning profit, then any compensation paid therefor would be income.
(3.) I shall presently come to the case-law on the subject. But it seems to me quite clear that one must read the statement of the steamer company in letter of the 17th March, 1952, in the background of all the facts. As I have stated above, it has now been distinctly found that the steamer company ceased to do any freight business from the 20th Feb., 1942, from Burma ports. Therefore, there was no possibility of the assessee earning any freight brokerage. A distinction must be made between cases where income could have been earned by the assessee and cases where, in the facts and circumstances of the case, it could not be earned at all. In support of his argument, Mr. Pal has relied on CIT vs. Shamsher Printing Press (1960) 39 ITR 90 (SC). The facts there were as follows : The respondent firm had for the purposes of its business a printing press. The premises in which the press was housed was requisitioned by the Government and the respondent had to shift its business to another place where some time later they again continued the old business. The Government paid certain sums as compensation on account of the compulsory vacation of the premises, disturbance and loss of business. The question was whether this amount should be treated as a revenue receipt or was liable to tax. It was held that this amount was received as compensation for loss of profits and was, therefore, a revenue receipt. It is argued that the facts of the present case are the same and, therefore, the amount received as compensation was nothing more than compensation for loss of profit and should be considered as a revenue receipt. Now, this case and a number of cases on the subject have been dealt with in another Supreme Court decision, Senairam Doongarmal vs. CIT (1961) 42 ITR 392. In that case the assessees were tea growers and tea manufacturers. They owned a tea estate in which there were factories, labour quarters, etc., and, of course, tea gardens. In 1942, the military authorities requisitioned all the factory buildings, etc., under the Defence of India Rules. The tea garden was, however, left in the possession of the assessees. During possession by the military authorities, though the assessees looked after their tea garden, the manufacture of tea was impossible. Under the Defence of India Rules, the military authorities paid compensation for the asst. yrs. 1945-46 and 1946-47, the measure being the out-turn of tea which would have been manufactured by the assessees during that period. The question was whether the sums paid by way of compensation were received on revenue or on capital account. A number of cases were considered, including the previous decision of the Supreme Court in CIT vs. Shamsher Printing Press (supra) and it was held that, during the relevant time, the assessees were tending their tea gardens merely to preserve the plants, but this could not be described as a continuation of their business which had come to an end for the time being. Therefore, the amount paid as compensation was not a revenue receipt. In the course of the judgment, the English decision of Sutherland vs. IRCs (1918) 12 Tax Cas. 63 was cited, where Rowlatt J. said [In Ensign Shipping Co. Ltd. vs. IRCs (1928) 12 Tax Cas. 1169--Ed as follows (page 400) : "Now it is quite clear that if a source of income is destroyed by the exercise of the paramount right... and compensation is paid for it, that that is not income, although the amount of the compensation is the same sum as the total of the income that has been lost..." ;