V.S. Sirpurkar, J.
1. This judgment shall govern two tax cases, they being T. C. Nos. 587 and 588 of 1984.
2. In T. C. No. 587 of 1984, the questions referred are at the instance of the Revenue. They are :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding the sum of Rs. 97,94,949 being the amount received under the arbitration award for the work done in connection with the feeder canals for the Farakka Barrage Project during the period from January 1, 1967 to September 30, 1969, was not a revenue receipt but only a capital receipt in the hands of the assessee, Shri J. H. Tarapore, and, therefore, exempt from tax ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the source being the work executed by the firm, the income accrued to the firm and that as it passed on to the asses-see Shri J. H. Tarapore, in terms of settlement deed it can be only in application of income ?'
3. In T. C. No. 588, the questions referred are at the instance of the assessee. They being :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that a sum of Rs. 28,99,484 represents the income of the assessee ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the above receipts are revenue in nature and cannot be characterised as a windfall or casual receipt falling under Section 10(3) of the Income-tax Act, 1961 ?'
4. In this judgment, we shall consider the two sets of questions referred at the instance of the Revenue and the assessee separately.
T. C. No. 587 of 1984 :
5. The assessee was assessed as an 'individual' and the relevant year of assessment was 1974-75. The assessee was carrying on the business of executing the contract/engineering works along with one Loganatha Mudaliar as a partner and the firm was named as 'Tarapore and Co.' since 1935. The firm bagged a contract from the Government of India and entered into an agreement with the Government on August 16, 1966, for excavation of a feeder canal under the Farakka Barrage Project. The firm was handed over the letter of intent on May 15, 1965. The firm was to carry out the excavation work at various points of the canal. For various reasons, the cost of the operations increased enormously and an upward revision of rates of payments was awarded vide the order passed by the Government of India dated March 17, 1971. issued by the General Manager, Farakka Barrage Project. These rates were applicable only for the working seasons between 1969-70 and 1970-71.
6. The sole partner, Loganatha Mudaliar, died on May 11, 1971. After his death, naturally the firm got dissolved as it had only two partners. It seems that a deed of dissolution was drawn between the assessee and the legal representatives of the deceased partner, Loganatha Mudaliar on October 19, 1972. Under this deed, the assessee agreed to accept all the liabilities of the firm and the legal representatives of the deceased partner were agreed to be released of all such liabilities arising out of this contract. The business was to continue solely by the assessee and he took over the business of the firm.
7. The assessee, who had continued the business after the death of Loganatha Mudaliar, pursued the execution of the unfinished part of the contract and completed the unfinished reaches at points RD 10 to RD 68. The assessee had also commenced and completed the work in respect of reaches RD 97 to RD 103. The assessee pursued the matter of payment at the higher rates as the Government had rejected the claim of the assessee for compensation towards the work done up to September, 1969. At the instance of the assessee, in pursuance of clause 25 of the General Terms and Conditions of the Contract, the matter was referred to arbitration on the issue regarding the payment of higher rates for the work executed between January 1, 1967 and September 30, 1969. A gross amount of Rs. 1,21,87,559.45 was awarded by the arbitrator. The arbitrator, however, decreed that a sum of Rs. 23,92,610 was already paid from time to time to the firm, Tarapore and Co., towards increase in cost of petrol, HSD oil and lubricants was liable for deduction and thus awarded a net sum of Rs. 97,94,949.
8. This amount which was received by the assessee during the relevant accounting year was claimed as exempted from tax by the assessee on the ground that this was in pursuance of a contract carried out by the firm, Tarapore and Co., in respect of which the matter was referred to arbitration out of which this amount came into the hands of the assessee after the dissolution ofthe firm. The assessee pleaded that thus the claim of the firm was prosecuted by the assessee as successor to the partnership firm and since the said firm stood dissolved and there was distribution of assets of the firm, this claim came to him only by way of 'capital receipt' and not as 'revenue receipt'. In short, the contention of the assessee was that on the dissolution of the firm, all the claims which fell to the share of the assessee were converted into capital and, therefore, it came in his hands as the capital and thereby the same was exempt from the tax.
9. The Income-tax Officer rejected the claim of the assessee on the ground that after the death of Loganatha Mudaliar, the same contract was continued by the assessee as the proprietor and the amount covered by the arbitration award was only in respect of the piece of work which was continued and executed by the assessee subsequent to the dissolution of the firm on the death of Loganatha Mudaliar and that since the dissolution deed was drawn up after the demise of Loganatha Mudaliar under which the legal representatives of Loganatha Mudaliar agreed to allow all the assets and liabilities of the firm to be taken over by the assessee in lieu of their release from all the liabilities of the firm, the assessee had continued the business as proprietary concern and, therefore, the amount awarded by way of arbitration could only partake of 'business receipt' of the firm and, therefore, taxable.
10. On appeal, the Appellate Assistant Commissioner, however, came to the conclusion that this amount was not a 'business receipt'. He also held that these receipts were only 'capital receipts'. He, therefore, deleted the above two sums.
11. The Revenue, however, filed an appeal against the decision of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal (in short 'the Tribunal') and the Tribunal has confirmed the order in so far as the amount of Rs. 97,94,949 is concerned. The Tribunal held the said amount to be 'capital receipt' in the hands of the assessee. Therefore, the only question that falls for consideration in this case is as to whether the said amount of Rs. 97,94,949 could be treated as 'capital receipt' and thereby exempted from being taxed.
12. Learned senior standing counsel for the Department, Mr. T.C.A. Ramanujam, in the first place contended that the amount of Rs. 97,94,949 which came to the assessee through the award passed in the arbitration proceedings was nothing but the profits earned by the erstwhile partnership firm Tarapore and Co. He pointed out that this amount was paid for the work done from January 1, 1967 to September 30, 1969, when the contract was being executed by the firm which was then very much in existence. Learned counsel further argues that the sum became payable only after the arbitration which was being pursued by the assessee. According to learned counsel, the assessee had taken over the entire business of the firm under the dissolution deed October19, 1972 with all its claims and liabilities and he was continuing to execute the same contract right till 1973. He contends that the sum became payable to the assessee and only accrued to him during the accounting year. The resultant argument is that the amount received by the assessee through the arbitration award which had the character of a profit of the firm could not overnight change its character merely because there was an intervening event of the death of one of the partners and, therefore, the resultant dissolution of the firm. Learned counsel very strenuously argues that even from the clauses in the dissolution deed, it could be seen that the assessee was to continue the business of the firm, which included the execution of the present contract also. What he got by way of award was merely in the nature of the profit earned by the firm because of its business activity during the period from January, 1967 to September, 1969, and, therefore, this profit which came in pursuance of the award passed in the arbitration proceedings could not overnight change its character and become capital asset at the hands of the assessee. Learned counsel very heavily relied on the decisions reported in CIT v. P.R.A.L. Muthu Karuppan Chettiyar [1935] 3 ITR 208 and CIT v. M. Uttama Reddy : [1984]148ITR580(Mad) --the latter being a Division Bench decision of this court.
13. As against this, learned senior counsel, Mr. V. Ramachandran, appearing for the assessee pointed out that in the first place it was not the firm which was being assessed. It was only the assessee--as an 'individual'--who was under the assessment. Learned senior counsel pleads that at the date of dissolution, the claim for this amount was not an ascertained profit. According to learned counsel, it cannot be forgotten that all the unascertained claims of the firm came to the share of the assessee under the deed of dissolution dated October 19, 1972, wherein the assessee had taken up on his hand all the liabilities of the firm also and thereby completely immunising the legal representatives of the deceased partner Loganatha Mudaliar. Learned counsel, therefore, asks that all the assets which were also in the nature of claims in favour of the firm retained the character of 'capital assets'. Learned counsel particularly invited our attention to Section 176 of the Income-tax Act, as it stood then, and pointed out that an amendment to that section, more particularly vide Sub-section (3A), came to be introduced only from April 1, 1976, which was later to the assessment year. He pointed out that there was no provision under which the profits of the dissolved firm, received after the dissolution of the firm but before April 1, 1976, could be assessed at the hands of the erstwhile individual partner. Learned counsel pointed out that this was an assessment of an 'individual' who was a partner of the dissolved firm, who had taken over the whole assets of the firm after its dissolution. According to him, the amount in question was included in those assets and all those assets came to the assessee only by way of capital assets though the said amount materialised after the dissolution. Learned counsel relied on the ratiolaid down in CIT v. Ashokbhai Chimanbhai : [1965]56ITR42(SC) ; E. D. Sassoon and Co. Ltd. v. CIT : [1954]26ITR27(SC) and O.M.S. PL. A. Alagappa Chettiar v. CIT : [1966]59ITR440(Mad) .
14. On these rival submissions, it will be for us to decide whether the said accrual could be in the nature of 'capital asset' as held by the Tribunal.
15. The Tribunal mainly went on the rationale that admittedly the amount awarded was for the work done by the firm and not by the assessee and as such, the work for which the payment was made was by a firm which was a different entity. It held that as per the settlement deed, the amount payable in respect of the work executed by the erstwhile firm was to go to the assessee and, therefore, such a receipt in the hands of the assessee would constitute 'capital asset'. The Tribunal held that the source for this income was the work executed by the firm and as such that income which passed on to the assessee in terms of the settlement deed was only an application of income. The Tribunal also heavily relied upon the judgment of this court in AR. N. Ramaswami Chettiar v. CIT : [1963]48ITR771(Mad) . In short, the Tribunal presumed that after the dissolution of the firm the assets which came to the erstwhile partner are only in the nature of capital assets and more particularly in this case since the amount received was for the work done when the firm was in existence, the said amount was in the nature of 'capital asset' and, therefore, exempted. It will be, therefore, proper firstly to see and consider the ruling which the Tribunal has relied upon.
16. Ramaswami Chettiar's case : [1963]48ITR771(Mad) was a case of partition which took place in the Hindu undivided family whereby the joint family business came to be divided along with the stock-in-trade. Subsequently, some amounts were received as compensation for war damage in respect of the said stock-in-trade for which the joint family had made a claim before partition. The court held that on partition the stock-in-trade of the business and all claims in respect thereof became capital asset in the hands of the divided members and the amount of compensation for war damage received by the divided members of the family was a capital receipt and was not assessable to income-tax. There is a clear reference to the fact that the amount which came after the partition had a definite nexus with the stock-in-trade--nay it was the amount emanated only out of the war damage suffered by the stock-in-trade. In that case, after the partition the partners took their respective shares of the money-lending outstandings as also the properties belonging to business at the book value and opened separate books of account in their individual names. After the dissolution, there was no fresh money-lending business done in the erstwhile name of the pre-existing firms. A sum of $ 27,136 was received as ex-gratia compensation or award from the War Damages Commission before whom the claim was laid by the joint family in respect of the stock-in-trade which was acquired in the course of the money-lending business. It was this property which suffered damage due to enemy action and the claims were precisely in respect of the damage to that property. While holding that the amount received by each one of the assessees amounted to capital asset, the court found that at the time when the partition took place, the claim before the War Compensation Tribunal was already pending. Relying on the ruling in AL. VR. PV. VR Veerappa Chettiar v. CIT : [1950]18ITR396(Mad) the learned judges quoted the following from that judgment (page 778); 'What is divided at a partition is the entire family estate consisting of the original family estate with all subsequent accretions to that estate in the shape of income or profits, the whole thing constituting one composite property without allocation to capital or profits. On a partition, the sole right of a member of the family is to get an allotment of his share in the assets available after discharging the family debts. For the purpose of ascertaining the assets existing at the date of the partition it is quite immaterial whether the family possessed them by way of capital or by way of subsequent accretions in the shape of profits... What is distributed amongst the sharers at the partition is the net residue of the estate after payment of family debts ... There is no justification for this artificial attribution of profit to the assessee either in law or under the terms of the partition deed now in question.'
17. The learned judges also took stock of the another decision in Mettur Sandalwood Oil Co. v. C/T : [1963]47ITR781(Mad) which was relied upon by the Revenue Department and recorded a finding as under (page 779) :
'In the present case, indisputably there was a partition and the effect of the partition was that the share allotted to the members of the family even in respect of the business asset became a capital of the allottee. At that point of time, the stock-in-trade of the business or any claim in respect of such stock-in-trade assumed the character of capital in the hands of the divided members. No doubt it is open to them to treat such capital as a stock-in-trade by employing it in the business and dealing with it as a stock-in-trade. But such treatment must be borne out by evidence of overt acts or by a systematic course of conduct.'
18. In our opinion, the Tribunal has erred in relying upon this decision. In the first place, this was a case of a partition of the joint family where the joint family business was divided along with the stock-in-trade and the members then continued with the business. In our opinion, what applied to a partition in the joint family estate shall not mutatis mutandis apply to a firm particularly the one in question which got dissolved on account of the demise of the only other partner. We have deliberately quoted the excerpts from Veerappa Chettiar's case : [1950]18ITR396(Mad) , on which the learned Judges had relied heavily only to show that the observations were limited to the joint family estate and its partition. The emphasised portion in the said paragraph would not apply to a partnership firm as in the case of the dissolution of afirm, the situation would be quite different. In the present case, it was after the dissolution when the assessee succeeded to all the assets of the firm as also the running business, that he chose to approach the arbitrator. It will be seen that the application for arbitration was made only on June 7, 1971, while Loganatha Mudaliar had already expired on May 11, 1971, which resulted in the dissolution of the firm. We will have to take notice of the fact that unlike in the reported decision, the whole business went into the hands of the assessee and it was only a continuation of the earlier business. In fact, in our opinion, the facts in Mettur Sandalwood Oil Co.'s case : [1963]47ITR781(Mad) , and the law laid down therein would more aptly apply to the present set of facts because after the dissolution the whole business came into the hands of the present assessee. In that case, the court had held that in truth there was only a succession of business and, therefore, the original bad debt of business which was written off by the successor fell within Section 10(2)(xi) of the Act. In our opinion, the facts in Mettur Sandalwood Oil Co.'s case : [1963]47ITR781(Mad) , and the principles enunciated therein would more aptly apply to the present case than those of Ramaswamy Chettiar's case : [1963]48ITR771(Mad) . We are, therefore, unable to subscribe to the Tribunal's view that the principle laid down in the aforementioned ruling in Ramaswamy Chettiar's case : [1963]48ITR771(Mad) is applicable to the present case.
19. A paragraph from the decision of C. J, Sheth v. CIT : [1962]46ITR1052(Mad) was relied upon in Mettur Sanddwood Oil Co.'s case : [1963]47ITR781(Mad) . It will be worthwhile to quote it here (page 787) :
'It is well established that where a partnership is dissolved and one partner takes over and continues the business of the partnership it is a case of succession to the business. And in this case the assessee continued the firm's business with the same stock-in-trade and with all its assets and liabilities. It must, therefore, be held that the assessee was entitled to write off the debts which had become barred during the year of account, albeit such debts originally belonged to the firm to which the assessee succeeded.'
20. In our opinion, this paragraph clinches the issue against the assessee in this case.
21. This question as to what happens after the dissolution of the firm had fallen for consideration in CIT v. P.R.A.L. Muthu Karuppan Chettyar [1935] 3 ITR 208 before the Privy Council. The Privy Council observed that the only question as to whether the effect of the dissolution was to make payment of all sums on dissolution payments by way of capital and not payments of income or profits. This case was relied upon by our High Court in CIT v. M. Uttama Reddy : [1984]148ITR580(Mad) . The Division Bench of this court quoted a passage from Muthu Karuppan Chettyar's case [1935] 3 ITR 208 to the following effect (page 585) :
'On the dissolution of a partnership an outgoing partner has the right to receive not as in the case of a shareholder in the winding up of a company only a share of the assets, but to receive payment of his profits, profits which were his before dissolution and which do not cease to be his on dissolution.'
22. In the aforementioned M. Uttama Reddy's case : [1984]148ITR580(Mad) , the outgoing partner Uttama Reddy had claimed that the payments for the work done by him in his capacity of a partner of the undissolved firm which were received by him after the dissolution in terms of the agreement of dissolution could not be said to be revenue receipts but the capital receipts. This court specifically held that such was not the case. The learned judges examined the view of the Tribunal to the effect that where there is a dissolution of a firm or a retirement of a partner from the firm following a settlement of accounts, any payment made to an outgoing partner must be regarded as receipts of a capital nature in his hands. The learned judges observed (page 585) :
'It is precisely this notion of the quality of the receipt in the outgoing partners' hands which has been condemned in no uncertain terms by Lord Atkin in the passage we have quoted earlier. The idea that whatever is paid to a partner on a dissolution is only a capital receipt, overlooks the fundamental position of partnership law and practice that a partner is entitled to his share of the profits and also to his share of the capital, and when he gets out of the partnership he is entitled to demand his share in each and if they are paid to him, they partake of the same character as that from out of which the amount in each case is paid. Lord Atkin reminded us that if a partner is entitled to a share of profits, but has not withdrawn the amount, the fact that the amounts are paid to him on dissolution will not make any difference to the revenue character of that payment in his hands.'
23. In our opinion, the law laid down in M. Uttama Reddy's case : [1984]148ITR580(Mad) , would be another reason why the amount received by way of arbitration award would not amount to a capital receipt and would be termed as a revenue receipt.
24. It must not be forgotten that firstly the whole business continued in the hands of the assessee as a result of the dissolution of the firm. The clauses of the dissolution deed bear testimony to that. It is also found by some authorities below that the business of construction and more particularly the contract under the Farakka Project continued as if nothing had happened. It also cannot be forgotten that the profits were directly relatable to the work done by the firm in pursuance of the contract much earlier to its dissolution. They only accrued later on as having been crystallised because of the arbitration award. Therefore, the earnings from the contract, which was the business of the firm, can certainly be termed as the profits of the firm. The said business continued in the hands of the assessee and in the dissolution deed all theclaims of the partnership firm came into the hands of the assessee who on the basis of that lodged a claim by way of reference to arbitration and it was in pursuance of that that this awarded amount came into the hands of the asses-see. Therefore, there can be no escape from the proposition that what came to the hands of the assessee was the profit earned by the erstwhile firm to which the assessee had become entitled on account of the dissolution of the firm. A sum which could be related back to the pre-dissolution period and which had the nature of the profits of the firm could not have changed its character as profit merely because the firm got dissolved. The collective reading of the law laid down in Mettur Sandalwood Oil Co.'s case : [1963]47ITR781(Mad) ; C. J. Sheth's case : [1962]46ITR1052(Mad) ; Muthu Karuppan Chettyar's case [1935] 3 ITR 208 and ultimately M. Uttama Reddy's case : [1984]148ITR580(Mad) would completely put an end to the claim of the assessee that the awarded amount was a capital asset and not a revenue asset.
25. Learned senior counsel tried to get out of the difficult situation by suggesting that in M. Uttama Reddy's case : [1984]148ITR580(Mad) , the factual panorama was different and that the learned judges took the view that they did because of the fact that the earnings were not in the strict sense out of the capital of the firm but were out of the legal profession. We are quite aware of this factual situation. However, the principle laid down in Muthu Karuppan Chettyar's case [1935] 3 ITR 208, which was relied upon by the learned judges in M. Uttama Reddy's case : [1984]148ITR580(Mad) would clinch the issue. There could be no distinction made for this principle of the distribution of the assets on the basis that the income earned in M. Uttama Reddy's case : [1984]148ITR580(Mad) was professional income and not emanating out of the capital. That was only an additional angle which the learned judges considered in that case to support their view. The basic principle, however, remained the same as having been enshrined in Muthu Karuppan Chettyar's case [1935] 3 ITR 208 ; C. ]. Sheth's case : [1962]46ITR1052(Mad) and M. Uttama Reddy's case : [1984]148ITR580(Mad) .
26. In support of our holding that the amount awarded was business income, there is a decision of the Supreme Court in CIT v. Govinda Choudhury and Sons : [1993]203ITR881(SC) where, under an identical situation, the income earned, was held to be business income. We must point out in this behalf that the award was given to compensate the loss of profits and, therefore, it must be remembered that it was not for compensating the loss of capital.
27. We now must take stock of the other novel argument raised by learned senior counsel for the assessee. The contention raised was that the law which has to be taken into account would have to be necessarily in relation to the assessment year 1974-75. Learned counsel pointed out that because of the amendment made to Section 176 by adding Sub-section (3A) had the income come after the amendment it could certainly have been assessed in the handsof the firm. However, prior to the advent of Section 176(3A), there cannot be an assessment of such income more particularly in the hands of the present assessee. Learned counsel very heavily relied on the decision of the Delhi High Court in CIT v. Bhagat and Co. : [1990]182ITR212(Delhi) and pointed out that there also the assessment year was 1971-72 and a partnership firm which was formed in the year 1963 was dissolved in the year 1967. The assets and liabilities of the firm were taken over by the private limited company. There being certain outstanding bills and claims of the erstwhile firm, they were received by the receiver of the dissolved firm in November, 1969 and December, 1971, in two instalments. This income was disclosed by the receiver as the income for the year 1971-72. However, the partner of the firm filed 'nil' return. The Tribunal had held that this sum was not taxable as the income of the firm under Section 28(1), 48(1) or 189 or even under Section 176(3A) as Section 176(3A) was added to the statute book with effect from April 1, 1976. The learned judges of the High Court pointed out that because of the fact that Section 176(3A) was not retrospective, this income could not have been held to be income in the hands of the firm which was sought to be done by the Department. The learned judges also observed that there was a lacuna in the Act which was rectified with the insertion of Sub-section (3A) in Section 176 of the Act and, therefore, there was no provision which provided that the firm could be assessed in respect of profits arising after its dissolution. Learned counsel relying on this reasoning urges that what applies to the firm would apply to the assessee also who was an erstwhile partner. He points out that there is no provision under which the assessee could be assessed for the income of the firm. According to learned counsel for this reason, the whole amount received could not be assessed in the business of any provision in the Act. We fail to see as to how this decision applies to the present case.
28. In the first place, in Bhagat and Co. : [1990]182ITR212(Delhi) , the assessee was the old firm. That is not the case here. The assessee here is an individual assessee who has received his share of the profits earned by the erstwhile firm. There can be no dispute that he has earned the income. The only question here is as to what is the nature of that receipt--whether it is a capital receipt or a revenue receipt Such question is not considered in the aforementioned judgment. In our opinion, therefore, the judgment would be of no help to the assessee. As for the provision for assessment of such an assessee who was an erstwhile partner in a firm, it cannot be gainsaid that an individual assessee, would certainly be liable to be assessed for the income which he earns under the general principles of the Act in Chapter II.
29. In that view, we are of the clear opinion that the Tribunal clearly went wrong in holding that the sum of Rs. 97,94,949 amounted to capital asset and was not liable to be taxed. In that view, we answer the question against the assessee and in favour of the Revenue.
T.C. No. 588 of 1984:
30. The facts need not be repeated regarding the formation of the partnership firm between the assessee and the late Loganatha Mudaliar; the dissolution of that firm because of the death of Loganatha Mudaliar in the year 1971 and the whole business of the firm coming into the hands of the assessee as a result of the dissolution deed dated October 19, 1972. Those facts have been elaborately stated in paragraphs 4 and 5 (pages 309) of the earlier part of this judgment.
31. The assessee, who continued the business of the firm after the death of the sole partner Loganatha Mudaliar and also continued to perform the contract which was awarded to the firm and carried out the further works in the year 1972-73 for which he was paid the total sum of Rs. 1,43,77,973. Out of this amount, the assessee calculated the amount of Rs. 28,99,484 to be a sum emanating by way of ex gratia payment, perhaps, because that is how the amount was referred to. When the details were called as to how this amount was arrived at, the assessee gave the details of the work done by him in respect of reaches at RD 10 to RD 68. The work details are as follows :
32. The sum thus arrived at was because of the difference of rates awarded by the Government of India for the work done. The assessee, therefore, claimed the same as exempt from income-tax. The Assessing Officer did not accept the contention and assessed the same at the hands of the assessee. In the appeal also, the Appellate Assistant Commissioner found that the work done by the assessee was in respect of reaches RD 10 to RD 68 which was the unfinished portion of the work. In addition to this unfinished work which the assessee completed, he also undertook the work of RD 97 to RD 103 and he alone completed it and it was because of his completing the work that the enhancement of rates was given in respect of the said reaches. He also came to the conclusion that the work was carried out in the course of the assessee's business. He also noted that the assessee had not contested the rejection of the similar claim made by the assessee for the earlier assessment year 1972-73. He maintained the order and dismissed the appeal. The Tribunal also did not accept the contention of the assessee and did not view this amount to be a 'windfall' or a 'casual receipt' falling under Section 10(3) of the Act. Hence the questions as mentioned above in paragraph 3 (page 308) of this judgment came to be referred to this court. It is, therefore, to be seen as to whether the authorities below were right in holding this amount to be taxable income and not covered by Section 10(3) of the Act.
33. There can be no dispute that this amount earned by the assessee was integrally connected with the business and it emanated out of his business activity. It must be remembered that after the death of Loganatha Mudaliar, the whole business of the firm came into the hands of the assessee and he continued the contract awarded to the firm under Farakka Barrage Project. It is established on the basis of the facts proved that this work pertained to the unfinished work in respect of reaches RD 10 to RD 68 and subsequently to RD 97 to RD 103. The real test would be as to whether the assessee would have been able to earn this income had he not done the work that he did in respect of the contract which was already awarded to the firm and which continued to be the business after the dissolution of the firm at the hands of the assessee. An emphatic answer to this question would be 'no' and there would lie the nemesis for the assessee who claimed this amount to be a casual payment of the nature of a 'windfall'. It may be that the amount was paid to him perhaps in appreciation of the fact that he completed the unfinished work left in reaches RD 10 to RD 68. However, the fact remains that had he not done that work which was his business activity, he would not have been able to earn this money. It has also come in the orders of the Tribunal and the other authorities that the increased rates were specifically claimed by the assessee and it was in pursuance of those claims that the increased rates were granted and the amounts came to be paid from time to time. It is not as if a consolidated amount of Rs. 28,99,484 came to be paid to him separately by way of a reward. In our opinion, even if such a reward had been paid to him, it would have been still integrally connected with the business and could have been viewed as a business income. The claim made by the assessee that this amount was given to the assessee by the Government of India is not wholly correct in the sense that the amount was only calculated from time to time and was on the basis of the increased rates. The contention raised by the assessee was that this was not a claim made in the usual course of the business. In our opinion, the Tribunal as well as the other authorities are absolutely correct in holding that this amount emanated from the usual business alone. This amount has been tried to be claimed as an income of a casual and non-recurring nature. We fail to understand such a claim because obviously the amount was calculated from time to time and the payments were calculated at the increased rates. Learned counsel specifically relied on the reported decisions in CIT v. M. Balamuralikrishna : [1988]171ITR447(Mad) and Mehboob Productions P. Ltd. v. CIT : [1977]106ITR758(Bom) . It will be interesting to see those cases.
34. In M. Balamuralikrishna's case : [1988]171ITR447(Mad) , the famous musician M. Balamuralikrishna was an assessee. The question there was whether the amount gifted by the admirers and fans of this carnaric musician on completion of thirty years' of his service to the cause of music could be held to be the income. The learned judges came to the conclusion that the amount of Rs. 30,000 which was given to him in appreciation of his service to carnatic music could not be viewed as an income as it would be exempt under Section 10(3) of the Act. We do not find any similarity on the facts with this decision. Learned senior counsel tried to get support by saying that even in the present case, the amount was paid in appreciation of the work done by the assessee. We do not think so. That is clearly not the finding of fact by the authorities below. The amount was given only on account of the fact that he completed the unfinished work perhaps within time and that he undertook the fresh work and also completed it to the satisfaction of the authorities. The very fact that he was paid at the enhanced rate would suggest that the amount would be integrally connected with his business activity. We do not think that this decision is of any assistance to the assessee.
35. The other decision relied upon by the assessee is Mehboob Productions P. Ltd.'s case : [1977]106ITR758(Bom) . There also the assessee had produced a classic movie called 'Mother India', which was awarded a certificate of merit perhaps by the Government of India. The assessee-company preferred a claim before the State Government that the picture should be declared as 'exempt from entertainment tax' and that the producer was entitled to that portion of the proceeds of the exhibition of the film which represented the entertainment tax. The claim of the assessee was accepted by the State Government and the assessee-company recovered from the various exhibitors and theatres the aggregate amount of Rs. 10,67,212 being the amount which the exhibitors had collected by way of entertainment tax in the year of accounting. This amount was added as income. On a question referred to the Bombay High Court, the court, however, came to the conclusion that this amount could not be viewed as an income at all. Desai ]. in a separate judgment, referred to the judgment of the Privy Council in CIT v. Shaw Wallace and Co. and came to the conclusion that as per this decision, the term 'income' in the Act connotes a periodical monetary return, coming in with some sort of regularity or expected regularity from a definite source. The said source need not be one which was expected to be continuously productive, but it must be one whose object is the production of a definite return and anything in the nature of a windfall must be excluded from what may be properly regarded as income. The learned judge did take note of the subsequent decision in Raghuvanshi Mills Ltd. v. CIT : [1952]22ITR484(SC) and observed as follows (page 771) :
'It is true that subsequent decisions of the Privy Council and of the Supreme Court have, to a certain extent, restricted the applicability of the discussion to be found in the above case ; but, in my opinion, it must remain the starting point of all discussions on the question and it will be found referred to in all subsequent decisions both of the Supreme Court and other High Courts on this aspect of the matter.'
36. What was meant by the learned judge was probably that the receipt should first be 'income' and then alone its exemptability could be considered. According to the learned judge, the amount received by the assesses in that case could not be income at all. In fact, the learned judge also made a reference to the subsequent decision of the Supreme Court in Raghuvanshi Mills Ltd.'s case : [1952]22ITR484(SC) , where the Supreme Court has clearly held that the observations in Shaw Wallace and Co.'s case , must be read with reference to the particular facts of that case.
37. In Raghuvanshi Mills Ltd.'s case : [1952]22ITR484(SC) , the aspect of nonrecurring nature of the receipt was given a complete go-by as the amount received by the assessee from the insurance company on account of the accident which had taken place in the mill was held to be- an income though it could hardly be called a receipt of a recurring nature. However, the learned judge has again reverted back to the law laid down in Shaw Wallace and Co.'s case [1932] 2 Comp Cas 276. The learned judge then referred to the Full Bench ruling of the Allahabad High Court in Rani Amrit Kunwar v. CIT : [1946]14ITR561(All) and some other decisions and concluded that in order to constitute an income the receipt must be one which comes--
(a) as a periodical return ; and
(b) from a definite source.
38. It must also be of a nature which is of the character of income according to ordinary meaning of the casual nature and must not be one of the nature of the windfall. The learned judge then went on to elaborate the term 'windfall' and held that the receipt can be termed a 'windfall' if the unexpectedness of that receipt pertains to the facrum of the receipt and not to the quantum of the receipt. The following observations are extremely interesting to note which have been relied upon by learned senior counsel for the assessee (779 ITR 106) :
'By reason of the exigencies of the economic situation or political or international situation a trader or a businessman or an industry may make unduly large profits which are often loosely expressed as windfall profits. But this is not the nature of the windfall we are contemplating. Where the element of windfall or unexpectedness pertains only to the quantum of receipt, such element will not have any bearing on the question we are considering and such receipt will be profit or income of the assessee although unusually large.What we are considering as 'windfall' is some unexpected receipt not in the contemplation of the assessee and not directly attributable to or occurring by way of its business profits.'
39. The learned judge then went on to hold that the concerned income earned by the producers of 'Mother India' could never have been contemplated by them and as such it amounted to 'windfall'. This is how the learned judge again explained (page 779) :
'Where the obtaining of a particular advantage or receipt could not be said to be within the ordinary contemplation of the party obtaining or receiving it, then only would it be proper to characterise the advantage or receipt as a windfall.'
40. Ultimately, the learned judge held that this receipt was in the nature of a windfall as to mere quantum and hence proceeded to answer the question against the Revenue.
41. We have deliberately quoted the judgment in Mehboob Productions P. Ltd.'s case : [1977]106ITR758(Bom) in extenso because even if we choose to accept this judgment and agree with the propositions laid down therein, it will be not helpful to the assessee in the present case. Learned senior counsel argues on unduly broad outlines and suggests that though in Mother India's case, : [1977]106ITR758(Bom) , the receipt was out of the business activity yet it was viewed as a windfall and was held exempted from income-tax. In our opinion, such a broad reading of this decision would not be correct because even if we tend to agree with the decision, the quoted portions would suggest that the so-called windfall of our case was not relating to the 'factum' of the receipt but to its 'quantum'. Going back to the facts of our case, the additional amount of Rs. 28,99,484 came to the hands of the assessee only because the assessee claimed the enhanced rates for the works done. It is not as if the amount came to his hands unclaimed. Again, the relation of that amount with the higher rates awarded by the Government would suggest that the assessee, on his representation to the Government of India for higher rates for the works executed by him, expected or anticipated and tried for this sum. Therefore, even if we hold that the windfall cannot be covered in the definition of 'income' and has to be necessarily exempted under Section 10(3) of the Act, the facts of the present case would clearly shut the doors of exemption for the assessee. It could not be said that the assessee never expected or anticipated the increased rates and that the increased rates were not in terms of the ordinary business. We, however, must make it clear that we have our own reservations about the view expressed by the learned judges of the Bombay High Court in Mother India's case : [1977]106ITR758(Bom) , as regards the concept of 'income' particularly in view of the subsequent Supreme Court's decision in Raghuvanshi Mills Ltd.'s case : [1952]22ITR484(SC) . However, it is not our task here to decide upon the correctness of that decision. All that we wouldexpress is that even if the decision in Mother India's case : [1977]106ITR758(Bom) is held applicable to this case in respect of the 'windfall' aspect, the present receipt earned by the assessee cannot be covered within the parameters of that decision and, therefore, the decision would be of no consequence.
42. No other point was argued before us.
43. In the result, we are of the clear view that all the authorities below were right in treating the sum of Rs. 28,99,484 as 'income' of the assessee. In that view, we answer the questions referred to us against the assessee and in favour of the Revenue.