A. N. Grover, S. K. Kapur ( 1 ) THE income-tax Appellate Tribunal having declined the application of Messrs Delhi Beopar Mandal, New Delhi (hereafter referred to as the assessee) undersection 66 (1) of the Indian income-tax Act, 1922 this Court by order dated 9th January, 1962 directed the Tribunal under section 66 (2) of the said Act to refer the following three questions :- " (1) Whether on a true construction of the agreement dated the 27th October, 1936, it was rightly held as a partnership agreement ? (2) Whether on a true construction of the agreement dated the 27th October, 1936 and the subsequent resolution which were to be read as a part of the agreement, the land in question was to be held as stock-in-trade by the Beopar Mandel and continued to be so held as stock-in-trade ? (3) If the answer to questions I and 2 is in the affirmative, whether on the facts and in the circumstances of this case the alleged business of the assessee was not sterlised as a result of the passing of the scheme and in view of the relevant mandatory provisions of United Provinces Town Improvement Act (VIII of 1919)?"the assessment relates to the assessment year 1948-49, the relevant accounting year being the financial year ended on 31. 3. 1948. No application having been filed by the assessee for registration of the firm, the assessment was completed by the Income-tax Officer by applying the provisions of section 23 (5) (b) of the said Act. Between 8th April, 1936 and 8th May, 1936, Desh Bandhu Gupta and Vidya Dhar purchased various plots of land totalling in all about 94 big has. Between 8th May, 1936 and 13th May 1936, 44 bighas more were purchased in the joint names of Deshbandu Gupta and Ramkishan Dass. Again between 13th Mayl936 and 5th June, 1936, further plots of land measuring in all 45 bighas were purchased in the joint names of Desh bandhu Gupta and Vidya Dhar. The total purchases made, as mentioned above, were of 189 bighas and 5 bighas by 13 different transactions. On 27th October, 1936, an agreement was entered into between Desh Bandhu Gupta, Vidya Dhar, Ramkishan Dass, Narain Datt and Harish Chandra, which was described as a deed of partnership and the from was given the name- "the Delhi Beopar Mandal". The total purchases made, as mentioned above, were of 189 bighas and 5 bighas by 13 different transactions. On 27th October, 1936, an agreement was entered into between Desh Bandhu Gupta, Vidya Dhar, Ramkishan Dass, Narain Datt and Harish Chandra, which was described as a deed of partnership and the from was given the name- "the Delhi Beopar Mandal". According to the said document, the land belonging to the parties was divided into 45 shares, the said five parties being entitled to 15, 15,5,5, and 5 shares each respectively. The duration of the pertnership was fixed as-" until this plot of land or any other plots of land purchased are not disposed of after development or the partnership is dissived by mutual agreement". Aprovision was made to avoid disslutiou of partnership on the death of a partner and a restriction was placed on the right of a partner to alienate his share to any strange. Clause 4 reads :- "that it would always be open to the parties to this agreement to have such specified shares in all other purchases as are mutually agreed to by the parties". I have quoted this clause because of the emphasis laid by the learned counsel for the assessee on the same. The partners met on various occasions and passed resolutions regarding the affairs and business of the assessee. From the resolution passed on 20th April, 1937, it appears that a plot of land belonging to one Qabul adjoined the lans already purchased and with a view to making a composite unit the partners decided to purchase the same. They borrowed Rs. 30,000. 00 for the purpose inter alia on the security of the said plot of land. By another resolution, being resolution No. 6 of the same date, it was resolved that "a lay-out of the land be got prepared and the land be developed in such a way that it could be converted into a good colony". The resolution further provided that "since the land has been purchased in the name of L. Deshbandhu, L. Vidya Dhar and L. Ram Kishan Dass, should be mutated in the name of Beopar Mandal Society. The resolution further provided that "since the land has been purchased in the name of L. Deshbandhu, L. Vidya Dhar and L. Ram Kishan Dass, should be mutated in the name of Beopar Mandal Society. " Subsequently, another resolution appears to have been passed in August 1937 inter aha suggesting an enquiry to bemade whether the land had come under the Improvement Trust and also deciding "that no other land should be purchased except the piece of land belonging to Qabul since it is laying in the middle of the Beopar Mandal s lands. " On 29th August, 1937, it was decided by another resolution that "a co operative society should be formed with the remaining amount and the friends and relatives should be co-opted so that a good colony should belong to our own men". From the resolution dated 10th February, 1938, which referred to the discussion between the Chairman of the Delhi Improvement Trust and Vidya Dhar and others, it appears that at one stage a proposal was made that the Trust should take over all the sanitary arrangements at the costs of assessee leaving it to develop the land. On 30th April 1938 a notice was issued under section 36 of the United Provinces Town Improvement Act, 1910, as extended to the province of Delhi, notifying the framing of an improvement scheme which covered the land of the assessee as well. There was a long correspondence in respect of the land in question with the Chairman of the Delhi Improvement Trust and by letter dated 2nd May, 1938, Vidya Dhar called for a plan of the land which the Trust proposed to acquire in connection with the Shadipur Town Expansion Scheme. He was informed that there was no proposal to acquire any land and by letter dated 28th July, 1938, Vidya Dhar made a proposal "to build according to the lay-out of the Trust" and wanted further to know what arrangement would be made for the supply of filtered water and electricity etc. The request to drovide facilities for developing the area was repeated by Deshbandhu Gupta by letter dated 10th June 1939. In the meantime, however, the assesse was engaged in disposing of some of its holdings and during the year 1938-39 it sold 15 big has of land for about Rs. 18,000. 00. The request to drovide facilities for developing the area was repeated by Deshbandhu Gupta by letter dated 10th June 1939. In the meantime, however, the assesse was engaged in disposing of some of its holdings and during the year 1938-39 it sold 15 big has of land for about Rs. 18,000. 00. Again in the years 1942-43, 13 bighas of land were sold for Rs. 25,500. 00. Ultimately, it was decided to acquire some of the land belonging to the assessee and by an award dated 4th February 1948, the Special Land Acquisition Collector determined the compensation for the land acquired at Rs 18,536. 00. After allowing a deduction of Rs. 3,867. 00 out of the said amount of Rs. 18,536. 00, the balance of Rs. 14,669. 00 was brought to tax as business income in the hands of the assessee for the said assessment year 1948-49. This assessment was challenged before the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal, but the assessee did notsucceed. Three contentions were raised by the assesse before the Income-tax Appellate Tribunal :- (1) The land was purchased by the three original purchasers with a view to build their own houses and gardens and only such land as was. not required by the said three persons was to be allotted to friends and relations at cost. The excess. . " realised as a result of the compensation awarded was, therefore, accretion to the capital. (2) The compulsory acquisition of land did not amount to sale but was a compensation for the loss of an asset and, therefore not a trading receipt. (3) The assessee did not own any land which continued to be held in the names of the three original purchasers and, there fore, it could not be taxed on the sarplus. The Tribunal decided- (1) The intention of the parties clearly appeared from the deed of partnership and various other circumstances, including the number of transactions of sale and purchase entered into by the assessee, and the purchase of land was in the course of carrying on business. The Tribunal decided- (1) The intention of the parties clearly appeared from the deed of partnership and various other circumstances, including the number of transactions of sale and purchase entered into by the assessee, and the purchase of land was in the course of carrying on business. Or, in other words, the transactions of purchase and sale of land were a part of the trading activity of the assessee : (2) the land was held by the assessee as a stock-in-trade : (3) the acquisition of the plots was made with a view to selling them and realising profits : and (4) the fact that the money was received as a result of a compulsory acquisition did not make any difference. ( 2 ) IT is in the light of the above circumstances and finding that we have been called upon to answer the three questions referred to us. ( 3 ) SO far as the first question is concerned, the perusal of the document dated 27th October, 1936, clearly shows that it was a partnership. partnership is defined by section 4- of the Indian partnership act as ". . . . . . . . . the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The document shows that the partnership was constituted with a view to disposing of the plots of land mentioned therein and, as a matter of fact, the duration of the partnership was fixed as "untill this plot of land or any other plots of land purchased are not disposed of after development. . . . . . . . . "the learned counsel for the assossee laid emphasis on the fact that the share of profits or losses was not fixed, which, according to him, was a necessary condition of a partnership. I regret I am unable to agree because the interests of each partner in the partnership property was fixed, as mentioned already, and that would determine the interest of the partners in profits and losses. The learned counsel then contended that Clause 4 of the document permitted the acquisition of -future properties with different interests therein. I regret I am unable to agree because the interests of each partner in the partnership property was fixed, as mentioned already, and that would determine the interest of the partners in profits and losses. The learned counsel then contended that Clause 4 of the document permitted the acquisition of -future properties with different interests therein. That may, at the most, bean agreement to enter into future partnerships with respect of the properties acquired subsequently, but clause 4 is certainly not destructive of the existence of a partnership with respect to the property in question. This question, therefore, must be answered in the affirmative and against the assessee. ( 4 ) COMING now to the second question the Tribunal has placed reliance on various factors, as mentioned above, leading to the conclusion that the land was a stock-in-trade of the assessee. The facts found by the Tribunal may be summed up as under :- (1) The assessee entered into a regular partnership with and view to realise profit as a part of a scheme of profit making. (2) If the assessee had any idea of building residential houses with large gardens as alleged it would not have submitted a plan which contemplates a numbur of building plots. (3) The assessee sold some plots and purchased a number of other plots and the various transactions entered into were regular business transactions in landed property. (4) The intention of parties to the said partnership deed was to develop the land with a view to making a profit. (5) The partners did not have surplus funds and for the purchase of plots they even borrowed money. 5. From the above facts I think the Tribunal rightly concluded that the land in question was held by the asscssee as a stock-in-trade. The second question, therefore, must also be answered in the affirmative and against the assessee. ( 6 ) THERE then remains the third question. The learned counsel for the assessee referred to the various decisions of the supreme Court and High Courts as also some decisions by English Courts and relying on those decisions contended that the compensa tion was for starilistion of the entire assets left with the asseisee and was, therefore, a capital receipt. The learned counsel for the assessee referred to the various decisions of the supreme Court and High Courts as also some decisions by English Courts and relying on those decisions contended that the compensa tion was for starilistion of the entire assets left with the asseisee and was, therefore, a capital receipt. I have not found it necessary to refer to those decisions in view of the fact that admittedly those cases deal with the compensation for steriliation of the profit-earning apparatus, or for impairment of a trade strcture or destruction of a capital asset. The latest decision-by the Supreme Court on this point is "reported in Commissioner of Income tax, Madras v. Chari and Chari Ltd, Madras In Kettlewel Bullon and Co. Ltd. , v. Cowmissioner of Income-tax, Calcutta* their Lordships of supreme Court observed- "it may be broadly stated, that what is received for loss of capital is a capital receipt : what is received as profit in a trading transaction is taxable income. But the difficulty arises in ascertaining whether what in a given case is compensation for loss- of a source of income, or profit in a trading transaction. "it was further observed : "it cannot be said as a general rule, that what is determinative of the nature of the receipt is extinction or compulosry cessation of an agency or office. Nor can it be said that compensation received for extinction of " an agency may always be equated with price received on sale of goodwill of a business. The test applicable to contracts for termination of agencies is : What has the assessee parted with in lieu of money or money s worth received by him which is sought to be taxed? If compensation is paid for. cancelation of a contract of agency, which does not affect the trading structure of the business of the receipient, or involve loss of an enduring asset, leaving the taxpayer free to carry on his trade released from the contract which is cancelled, the receipt will be a trading receipt where the cancellation of a contract of agency impairs the trading structure, or involves loss of an enduring asset, the amount paid for compensating the loss capital. " ( 7 ) THE broad test in a case like the present is that where profit. . " ( 7 ) THE broad test in a case like the present is that where profit. . accrues from the sale of any capital investment or a capital asset there is an accertion to the capital for the sale proceeds represent capital in another form: where oft the other hand, the sale is in the course of business, the profit is on the revenue account. If it were a sale of land which, as discussed above, was a stock-in-trade in the hands of the assessee; it would, undoubtedly, be revenue income. There are decisions in line with Glenboig Union Fireclay Co. , Ltd. v. 1. R. Comrs. , where the statutory compensation received was held by the House of Lords to be a capital receipt. In the case also the the House of Lords treated the fireclaly as a capital asset. The decision, on the other hand, in Johnson (Inspector) of Taxes v. Try (W. S.), Ltd, and Shadbolt v. Salmon Estate (Kingsbury), Ltd indicate that the result in the case of a company in whose hands the asset sterlised was a trading asset would have been different. In Try s case compensation awarded under the Restriction of Ribbon Development Act, 1935, was held to be a trading receipt in the hands of such a company. In Salmon Estate case a similiar conclusion was arrived at with regard to compensation paid for the withdrawal of building plots from a certain scheme. Different consideration arose in a line of several decisions such as I. R. Comr s, v. Newcastle Breweries, Ltd. The Newcastle Breweries case dealt with a sum awarded by the War Compsnsation Court to the asseasees as compensation for the requisitioning of part of their stock-in-trade, that is, rum. The compensation was held by the House of Lords to be of the nature of circulating capital and a trading recept. The present case docs not deal with the sterilisation of a profit earning machinery or the acquisition of a capital asset but with the acquisition of a stock-in-trade. The stock-in-trade was intended to be sold at some time by the assessee in the carrying on of its business. Its acquisition caused it to be dealt with rather sooner than later ; but along the same channel down which it was always intended that it should pass from the assessee s possession, namely, by sale. The stock-in-trade was intended to be sold at some time by the assessee in the carrying on of its business. Its acquisition caused it to be dealt with rather sooner than later ; but along the same channel down which it was always intended that it should pass from the assessee s possession, namely, by sale. Both the land and the sum paid for its acquisition were, therefore, of the nature of circulating capital and the sum in question a trading receipt. In this view it does not to my mind, make any difference whether the stock-in-trade was acquired or sold by the assessee in the exercise of its voilation. Under section 10 of the Indian Incometax Act, 1922, tax payable is by an assessee under the head profits and gains of business carried on by him. It appears to- me to be futile to suggest that a profit arising as a result of acquisition is not a profit of a business in respect of the profits and gains of any business carried on by the assesiee. The learned counsel for the asseasee placed considerable reliance on the decision of this Court in Commissioner of Income-tax, Punjab v. Sham Lat Narula" and particularly the following observation :- "requisition is the term used where the title in the property remains unaffected, but the title holder is deprived of its use for a time. . If compensation is paid for an act of acquisition , such a sum would be in the nature of capital receipt, and, on the other hand, if compensation is for deprivation of user on account of the act of requisitioning, the compensation , being for loss of profits, becomes a revenue receipt. The compensation paid. for the land would, therefore, constitute a capital asset, but compensation paid on requisitioning would be in the nature of a revenue receipt. Certain compensations may be of composite quality, and in that case, it has to be determined what portion represents a capital receipt and what a revenue receipt. Instances are not wanting where the term interest is employed as a basis of calculation for arriving at a capital sum and, therefore, despite the use of the term interest the sum received is not exigible as tax ; and yet there may be another class of cases where interest represents income, which is taxable. Instances are not wanting where the term interest is employed as a basis of calculation for arriving at a capital sum and, therefore, despite the use of the term interest the sum received is not exigible as tax ; and yet there may be another class of cases where interest represents income, which is taxable. "this decision according to the learned counsel, waters down the Bench decilion of this Court in Rajkishan Prem Chandra Jain v. Commissioner of Income tax. I do not agree, Raj Kishan Prem Chandra Jains case does not appear to have been brought to the notice of the learned Judges dealing with sham Lal Narula s case, and for the obvious reason because in the latter case the learned Judges were dealing with the interest paid to ape person whose land had been acquired under section 34 of the laud Acquisition Act and were not concerned with the problem arsing before us. Rai Kishan Prem Chand Jain s case is a clear authority for the prepositon that excess of compensation in such circumstances as obtain in this case would be a revenue receipt The payment here was in no sense a return of capital. It was a realisation of a portion of the stock-in- trade may be rather at an earlier stage. Mr. Andley said that the acquistion completely exhausted the land in the hands of the assessee. That again would make no difference, for even the last bit of stock-in-trade continue to be the stock. in-trade and consequently the compensation received therefore would be realisation in the revenue account. The answer for the third question must, in the circumstances, be that the sum was rightly brought to tax, and, therefore,, against the assessee. ( 8 ) HAVING regard however to the circumstances of the case there will be no order as to costs.