# COMMISSIONER OF INCOME·TAX POONA v. MJS. MANNA RAMii & CO

- **Citation:** [1973] 1 S.C.R. 1068
- **Court:** Supreme Court of India
- **Decided:** 1972-08-29
- **Case number:** Civil Appeal No. 156 of 1969
- **Bench:** K. S. Hegde, P. Jaganmohan Reddy, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-poona-v-mjs-manna-ramii-co-5728
- **Pages:** 9

## Headnote

· Indian Income Tax, 1911-Capltal Receipt/I and Revenue ReceiptsCompensation paid by .Govt. for lolls of earning where the business premises ate fequisitioned-Whether Revenue Receiptr.
The respondent 'Yas carrying on timber business in premises consisting
Jf oflk~ r<Jl)m ·and six sheds.
In 1944, the premises were requisitioned
mder the ~fence of India Act for storing food grains. On request of
the respondent, however, the office roon was relea5ed wherein the apJ>eilant contimied to carry on the timber business. The respondent claimed
compensation of Rs. 1,25,500 for loss of earnings which was awarded. The
Income Tax Officer brought to tax the said amounf attributing the earning
to business of timber, as rev.enue receipts.
On responderit's motion, the
following questlion was referred to the High Court by t,he Income Tax AppellAte Tribunal : "whether, on facts and circumstances of the case, the
sum of Rs. 1,05,074 received by the applicant as compensation from the
Government is taxable as income of the applicant or is a capital receipt
in its hands:' The High Court answc.ced the questlion against the Re\•enue.
On appeal by the revenue,
HELD : On ihe facts found by the Trlbun•'.. namely, that the cOOil.•
pensation was cla.;med and awarded for loss oi profits the respondent
continued the said business in its usual name and style in the same office
premises, and the profit making apparatus itself was not destroyed, the
compensation amount partakes the character of profits
and therefore
"Revenue receipts. !I 072EJ
Held further, the present is not a case wherein the respondent filll'.
was permanen1ly deprived of a source of income. On the contrary, the
present is a case arising out of requisition of the premise...
Requisition
unlike· acquisition, is of a temporary nature. The compensation paid to
the respondent represents the supposed profit which the respondent would
have earned during the years the premises remained under requisition,
[1072GJ
but which profit ~he respondent could not earn because of the requisition.
Commissioner of Income Tax/Excess .Profits Tax; Bombay City v.
Shamsher Printing Press, [19601 39 I.T.R. 90. referred to.
Also held, the method of computing the compen9ation payable for Joss
of earnings does not alter the real charac~r of essential nature of the
receipt of the compensation in the hands of the respondent. The Arbi•
trator awarding ihe compensaticn on the basis of two )rears' purchases
cannot be assailed. (1073EJ
The Glembo/d Union Fireclay Co. Ltl. v. The Commissioner of Inland Revenue, 12 T.C. 427 and Senaircm Doongarma/I v. Commissioner
of Income Tax, (1961J 42 J.T.R. 392 (on p, 397), relied upon.
Commissioner of Income Tax, Nagpur v. Rai Bahadur Jairam Vahl
and Others (1959) 35 l.T.R. 14F, S.R.Y. Sivaram Prasad Bahadur v. Com·
missioner of Income Tax, Andhra Pradesh, [1971) 82 I.L.R. 527 anti
Commissioner of Income Tax, Punjab Haryana, Jammu and Kashmir
and Himachal Pradesh v. Pmbhu Dayal [1971] 82 1.T.R. 804, hel<f not
appiidable.
·Karnani Properties Ltd, v. Commissioner oj Jncome Tax, West Bengal
(1971] 82 I.T.R. 547, referred to.
The appeal was allowed,
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C.I.T. v. M. RAMJI & co. (Khanna, J.)
!069

## Text

1068
COMMISSIONER OF INCOME·TAX POONA
v.
MJS. MANNA RAMii & CO.
August 29, 1972
(K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.]
· Indian Income Tax, 1911-Capltal Receipt/I and Revenue ReceiptsCompensation paid by .Govt. for lolls of earning where the business premises ate fequisitioned-Whether Revenue Receiptr.
The respondent 'Yas carrying on timber business in premises consisting
Jf oflk~ r<Jl)m ·and six sheds.
In 1944, the premises were requisitioned
mder the ~fence of India Act for storing food grains. On request of
the respondent, however, the office roon was relea5ed wherein the apJ>eilant contimied to carry on the timber business. The respondent claimed
compensation of Rs. 1,25,500 for loss of earnings which was awarded. The
Income Tax Officer brought to tax the said amounf attributing the earning
to business of timber, as rev.enue receipts.
On responderit's motion, the
following questlion was referred to the High Court by t,he Income Tax AppellAte Tribunal : "whether, on facts and circumstances of the case, the
sum of Rs. 1,05,074 received by the applicant as compensation from the
Government is taxable as income of the applicant or is a capital receipt
in its hands:' The High Court answc.ced the questlion against the Re\•enue.
On appeal by the revenue,
HELD : On ihe facts found by the Trlbun•'.. namely, that the cOOil.•
pensation was cla.;med and awarded for loss oi profits the respondent
continued the said business in its usual name and style in the same office
premises, and the profit making apparatus itself was not destroyed, the
compensation amount partakes the character of profits
and therefore
"Revenue receipts. !I 072EJ
Held further, the present is not a case wherein the respondent filll'.
was permanen1ly deprived of a source of income. On the contrary, the
present is a case arising out of requisition of the premise...
Requisition
unlike· acquisition, is of a temporary nature. The compensation paid to
the respondent represents the supposed profit which the respondent would
have earned during the years the premises remained under requisition,
[1072GJ
but which profit ~he respondent could not earn because of the requisition.
Commissioner of Income Tax/Excess .Profits Tax; Bombay City v.
Shamsher Printing Press, [19601 39 I.T.R. 90. referred to.
Also held, the method of computing the compen9ation payable for Joss
of earnings does not alter the real charac~r of essential nature of the
receipt of the compensation in the hands of the respondent. The Arbi•
trator awarding ihe compensaticn on the basis of two )rears' purchases
cannot be assailed. (1073EJ
The Glembo/d Union Fireclay Co. Ltl. v. The Commissioner of Inland Revenue, 12 T.C. 427 and Senaircm Doongarma/I v. Commissioner
of Income Tax, (1961J 42 J.T.R. 392 (on p, 397), relied upon.
Commissioner of Income Tax, Nagpur v. Rai Bahadur Jairam Vahl
and Others (1959) 35 l.T.R. 14F, S.R.Y. Sivaram Prasad Bahadur v. Com·
missioner of Income Tax, Andhra Pradesh, [1971) 82 I.L.R. 527 anti
Commissioner of Income Tax, Punjab Haryana, Jammu and Kashmir
and Himachal Pradesh v. Pmbhu Dayal [1971] 82 1.T.R. 804, hel<f not
appiidable.
·Karnani Properties Ltd, v. Commissioner oj Jncome Tax, West Bengal
(1971] 82 I.T.R. 547, referred to.
The appeal was allowed,
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C.I.T. v. M. RAMJI & co. (Khanna, J.)
!069
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 156 of
1969.
Appeal by certificate from the judgment and order dated the
10th and 11th February, 1967 of the Bombay High Court in
Income-tax Reference No. 35 of 1962.
B. B. Ahuja, R. N. Sachthey and S. P. Nayar, for the appel~
!ant.
R. M. Hajarnevis, S. Balakrishnan, G. P. Sahasrabhudhe and
N. M. Ghatate, for the respondent.
The ! udgment of the Court was delivered by
Khanna, J,
This appeal on certificate granted by the Bombay High Court is dir!!"ted against the judgment of that court
whereby it answered th~ question referred to it under section 66 ( 1)
of the Indian Income Tax Act, 1922 (hereinafter referred to as
the Act) in favour of the respondent assessee.
The reference arose out of the assessment made upon the respondent firm for the assessment year 1951-52, the account year
for which is the Samvat year 2006 (that is, October 22, 1949 to
November 9, 1950). The respondent was carrying on business
for several years in the past in timber unaer the name and style
of Manna Ramji & Co. in Bhavani Peth Poona City. The business premises consisted of an office and six sheds used for storing
wood and timber of all kinds.
The respondent firm constructed
the six sheds for the purpose of its business after taking the &ite
thereof on a long lease. On May 19, 1944 the Collector of
Poona requisitioned the premises of the respondent under the
Defence of India Act as froln May 19, 1944 for the purpose of
using them as store houses for food grains.
Initially the requisition order covered the six sheds as well as the office of the respondent, but at the request of the respondent firm the Collector agreed
to allow it to remain in possession of the office premises.
In
October, 1944 the respondent made a claim for Rs. 1,85,200 on
account of compensation for the requisitioned premises.
In June,
1946 the Collector offered referred to pay compensation at the
rate of Rs. 310 per month.
The respondent feeling dissatisfied
with the offer of the Collector, moved the Government for a reference to arbitration under the provisions of the Defence of India
Act.
The Civil Judge, Senior Division, Poona was thereafter
appointned arbitrator on November 10, 194 7.
The_ Government
appointed its Consulting Surveyor as an assessor to help the arbitrator in determining the amount of compensation.
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ag_ainst
that the respondent appointed an architect aS' its assessor. There
was considerable difference in the estimaks of the two assessors
regarding the amount of compensation payable to the respondent.
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1070
SUPREME COURT REPORTS
[J 973] l S.C.R.
The Civil Judge, who had been appointed arbitrator,
gave his
award on April 15, 1948.
The -0perative part of the award of the
arbitrator was as under :
"The Government do pay compensation to the
claimants as follows :
( 1 ) Rs. 210 / - per month for rent of the premises
from the 15th May. 1944 till the date of restoring
the premises to the claimants.
(2) A lump sum of Rs. 1,25,500/-for loss .of earnings.
(3) A sum of Rs. 100/- in .;espect of the wooden
frames.
(4) Interest at 3% on Rs. 1,25,500/- from the 15th
November, 1944 till the date of actual payment."
The Government was also ordered to pay Rs. 2,000/- as costs to
the respondent.
The Government filed an appeal
against the
award of the arbitrator, but the same was dismissed by the High
Court on August 7, 1949. The respondent was thereafter paid
the amount of Rs. 1,70,330-10-0 in the Sa1:uat.year 2006. The.
above amount included Rs. 1,25,500 on account of lump sum for
loss of earnings and Rs. 2,000 on account of costs of arbitration.
In computing the respondent's total income the Income Tax
Officer brought to tax the two sums of Rs. 22,180/- on account of
rent receipts and Rs. 20,551 on account of interest.
Besides that,
the Income Tax Officer brought to tax the sum of Rs. 1,50,074/-
under section 10 of the Act by attributing it to the respondent's
business in timber.
This figure of Rs. 1,05,074/- was arrived at
by deducting out of Rs. 1,25,500 a sum of Rs. 20,426/ whiCh,
according to the Income Tax Officer, had been spent by the respondent in the claim proceedings against the Government over and
:;bove the amount of Rs. 2,000/- which had been awarded as costs
. by the arbitrator.
The respondent feeling aggrieved by the finding
of the Income Tax Officer tha.t the sum of Rs. 1,05,074 was business and taxable receipt filed appeal against the order of the
Income Tax Officer.
The Appellant Assistant Commissioner
accepted the respondent's appeal and held that the above amount
was capital receipt.
On further appeal by the department, the
Income Tax Appellate Tribunal held that the sum of Rs. 1,25,500
was a revenue receipt as it hai been received on account of the
loss of earnings of the timber business.
The respondent was, however, allowed to set off the losses of Rs. 4,572 and Rs. 490, which
bad been brought forward from the assessment years 1949-50 and
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C.I.T. v. M. RAMJI & co. (Khanna, J.)
1071
1950-51, against the sum of Rs. 1,05,074.
O~ being 1.noved by
the respondent, the Tribunal referred the followmg question to the
High Court:
"Whether, on the facts and in the circumstances of
the case, the ~um of Rs. 1,05,074/-
"eceived by the
applicant as compensation from the Government is taxable as income of the applicant or is a capital receipt in
its hands ?"
The High Court held that the amount received by the respondent
for the requisitioning of the six sheds or godowns was in the nature
of capital receipt in the hands of the respondent-firm for the damage sustained in the profit making apparatus.
It was, in the opinion
of the High Court, not a revenue receipt and as such, not taxable.
In appeal Mr. Ahuja on behalf of the appellant has assailed
the judgment of the High Court and has urged that the sum of
Rs. 1,05,074 received by the respondent was a revenue receipt
and not a capital receipt as the amouut represented the compensation payable for loss of earnings consequent upon the requisition
of the sheds of the respondent.
As against that, Mr. Hajarnavis
on behalf of the respondent has urged that the amount in question
was a capital receipt and the decision of the High Court in this
respect was correct.
In our opinion, the contention advanced on
behalf of the appellant is well foupded and that the sum in question represents a revenue receipt and not a capital receipt.
In order to resolve the controversy as to whether the sum of
Rs. 1,05,074 received by the responde::~ was a revenue receipt
or a capital receipt, we must try to ascertain the true nature and
character of the payment.
Although the distinction between
capital receipt and revenue receipt is well recognised, the task of
assigning it to the appropriate head in border line cases is not free
from difficulty and becomes one of such refinement.
Decided
cases can provide illustratioru; and afford indications of the kind
of considerations which may relevantly be borne in mind in
approaching the problem.
In the final analysis,
however,
the
controversy would have to be resolved in the light of the facts and
circumstances of each individual case.
It would, therefore, be
relevant to look into the circumstances under which the payment
was made. In this respect we find that after the sheds of the respondent had been requisitioned, the respondent commenced proceedings for claiming compensation.
The Civil Judge Poona was
appointed arbitrator to determine the amount of compensation. In
the course of proceedings before the arbitrator.
the
responr!ent
filed written statement claiming compensation, inter alia, for loss
of profits. The arbitrator by his nward dated April
15,
1948
1072
SUPREME COURT REPOkfS
(1973] l S.C.R.
awarded a sum of Rs. 1,25,500 for loss of earnings to the respondent; In addition to that we have the finding of the Tribunal that
the respondent firm during the period for which the claim for corr.·
pensation was made had been carrying on. business in its usual
name.and style in the same office premises in which it used to carry
on business prior to the requisition of the godowns by the Government.
The effect of the requisition of the godowns, according
to the Tribunal, was not to stop the business of the respondent.
On <he contrary, the respondent continued to carry on the business though at a reduced scale. The finding of the Tribunal in
this respect was as under :
"As already pointed out, the office premises remained
with the assessee firm and the business of disposing of the
stock-in-trade continued to be directed from that place.
Thus this was not a case of a business coming to a
standstill altogether but it is a case of carrying on the
same business on a smaller scale.
Even this business
was carried on by the assessee firm in its usual name
and style from the same office premises from which it
used .to carry it on prior to the requisition of the godowns by the Government ...... If any injury was caused to the assessee's business, including the capital assets
it held for the purpose of carrying on that business, it
was to the volumes of the business and not to the profitmaking apparatus itself."
In the light of the above findings of fact, we have no doubt that
the amount received by the respondent for the loss of earnings was
revenue receipt. It can hardly be disputed that if the respondent
firm had been earning profits as a result of its business during the
years the premises in question remained under requisition, the said
profit would have been treated as revenue receipt and liable to be
taxed as such.
The amount received in lieu of the profits which
woulg have been earned if the premises had not been reguisitioned,
in our opinion, would partake of the same character as the profits.
The present is not a case wherein the respondent firm was permanently deprived of a source of income.
On the contrary, the
present is a case arising out of requisition of the premises. Requisition, unlike acquisition, is of a te1hporary nature and though it
may extend over some years, it has not the element of permanence.
The compel'lsation paid to the respondent represents the
supposed profit which the respondent would have earned during
the years the premises remained under requisition but which profit
th.e rl:lspondent could not earn because of the requisitions.
A case somewhat similar to the present case is Commissioner
of Income Tax/Excess Profits Tax, Bombay City
v.
Shamsher
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C.I.T. v. M. RAMJJ & co. (Khanna, J.)
1073
A
Printing Press(1).
The respondent finn in that. case had for the
purpose of its business a printing press. · The premises in which
the press was housed were requisitioned by the Government and
the respondent had to shift its business to another place.
Of the
various sums paid· as compensation for the requisition, the Govero·
ment paid.Rs. 57,435 towards the claim of the respondent "on
n r.ccount of the compulsory vacation of the premises, disturbance
and loss of business". It was held by this Court that the sum of
Rs. 57,434 had not been received by the respondent for any injury
to its capital assets, including goodv.ill.
The above sum, it was
further held, had been received as compensation for los> of profit
and '"as a revenue receipt liable to tax.
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Reference has been made by Mr. }lajarnavis to the observations
in the award of the arbitrator regarding the manner of computing
the compensations payable to the respondent for the loss of .earning.
The arbitrator in this connection took the view that the
;imount of two years purchase made by the respondent would be
the most equitable and fair figure for determining the amount of
compensation. The lump sum payable to the respondent for loss
1 of earning was thus found to be Rs. 1,25,500. The important
thing to note is that the above sum was paid to the .respondent on
account of loss of earning.
The method of computing the compensation payable for the loss of earning would not in our opinion,
alter the real character or the essential nature of the receipt of the
'aid compensation in the hand of the respondent.
As observed by
Lord Buckmaster in the case of The Glennboig Union Fireclay
Co. Ltd. v. The Commissi<mers of Inland Revenue(') "there is
no relation between the measure that is used for the purpose of
calculating a particular result and thr- quality of the figure that is
arrived at by means of the- applicati ~u. of that test".
The above
observation was quoted· with approval by this Court in the case of
Sonairam Doongerma/l v. Commissioner of Income Tax(') and
it was held that it is the quality of payment that is decisive of the
character of the payment and not the meμiod of the payment or its
measure as makes it fall within capital or revenue.
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Reliance has been placed by Mr. Hajarnavis on the ratio of the
decision of this Court in tqe case of Senairam Doongarmall
(supra).
The assessee family in that case owned a tea estate
consisting of tea gardens, factories and other buildings and carried
on the busine;ss of growing and manufacturing tea. The factory
and other bμildings on the estate were requisitioned for defence
purposes by military authorities.. Though the assessee continued
in possession of the tea gardens and tended them to preserve the
plants, the manufacture of tea was stopped completely.
The
(l) [1960] 39 I. T. R. 90.
(?. 1
7
.) 2 T. C. 42.
19-L172Sup.CI/73.
(3) [1961] 42 I. T. R. 392, 387.
1074
SUPREME COURT REPORTS
[1973) 1 S.C.R.
assessee was paid compe.nsation for the years 1944 and 1945
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under the Defence of India Rules, calculated on the basis of the
out-turn .of tea that would have been manufactured by the assessee
during that period.
This Court held that the amount of compensation received by the assessee was not revenue receipt and did not
comprise any element of income. In arriving at that conclusion,
the Court took note of the fact that tax was payable by. an assessee
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under the head "Profits and gains of ·a business" in respect of a
bminess carried on by him.
As the assessee had not carried on
any business at all, the compensation received by the assessee wao
held to be not profit of business.
This case, in our opinion, cannot be of much help to the respondent because in the present case,
as observed earlier, the Tribunal has expressly found that the resc
pondent was carrying on the business during the relevant years.
Reliance has also been placed by Mr. Hajamavis upon the
decision of House of Lords in the case of The Glenboig Union
Fireclay Co. Ltd. (supra). The assessee in that case was carrying on business for the manufacture of fireclay goods and had taken
in connection with that business a fireclay field on lease, over part
of which ran the lines of the Caledonian Railway.
The railway
administration prohibited the assessee from excavating the field
within a certain distance of the rails and paid compensation therefor in accordance with die provisions of a statute. It was held
by the House of Lords that this was a capital receipt as the compensation was really the price paid "for sterlising the assets from
which otherwise profit might have ~en obtained". It would follow
from the above that the fireclay field was accepted to be a capital
asset which was to be utilised for the carrying on of the business
of manufacturing firec!ay goods.
When the assessee was prohibited from exploiting the field, it was considered to be an injury
inflicted on his capital asset.
The case of The Glenboig Union
Firecla:r· Co. Ltd. (supra) was cited before this Court in Commissioner of Income Tax, Nagpur v. Rai Bahadur Jairam Valji and
Others(') and Senairam Doongarmall (supra) and was· distinguished on the ground that it related to the sterlisation and destruction of a capital asset.
In the present case there has been no
sterlization and destruction of the capital asset of the respondent
firm.
As such, the case of ·The Glenboig Union Fireclay Co. Ltd.
cannot afford much assistance in the present case.
Reference has also been made by Mr. Hajarnavis to the cases
of S. R. Y. Sivaram Prasad Bahadur v. Commissioner of Income
Tax, Andhra Pradesh(") and Commissioner of Income Tax.
Punjab, Haryana, .Tammtt & Kashmir and Himachal Pradesh
v.
Prabhu Dayal("). Siva ram Prasad Bahadur' s case
related to
{I) {19S9j 35 I. T. R. 14R.
(1) [1971] 82 I. T. R. '1".
{3) [1971] 82 I. T. R. 004.
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C,I.T. v. M. RAMJI & co. (Khanna, J.)
1075
interim payments made under the Madras Estates (Abolition and
Conversion into Ryotwari) Act, 1948 to a former holder of an
estate which had been abolished during the period between the
taking over of the estate and the final ~etermination and. deposit. of
campensation under that Act. It was held to be a capital receipt
and not liable to tax. Prabhu Dayal's case related to an assessee
who had discovered by chance the existence of kankar in the Jind
State. The assessee brought about an agreement between the
State and one Shanti Prasad Jain for the acquisition of sole and
exclusive monopoly rights for
manufacturing
cement.
Shanti
Prasad Jain transferred his rights under the agreement to a company of '.''hich the assessee was one of the promoters.
For the
services rendered by hin1, the company agreed to pay the assessee
a commission of 1 per cent on the yearly net profits earned by the
company.
The agreement was acted upon till 1950 whereafter
the company did not pay the commission to the assessee.
The
assessee filed a suit which ended in a compromise. In terms of
the compromise, the assessee was paid certain amounts as commission for the years 1951, 1952 and 1953 and a further sum of
Rs. 70,000 by way of compensation for the determination of the
agreement between him and the company as from January
1,
1954.
Question which arose for determination was whether the
sum of Rs. 70,000 was capital receipt in the hand of the as,:essee.
The assessee, it was found, had not engaged either in the business
of discovering kankar or any minerals or in the business of bringing about agreement between the parties. There was, indeed, no
evidence that he was a business man. It was held that none of the
activities of the assessee could be considered to be business activitv."
The compromise, in the opinion of this Court, destroyed an income yielding asset of the assessee and in its place he was given
Rs. 70,000 as compensation. The sum o.f Rs. 70,000 was accordingly held to be capital receipt. It is manifest from the narration
of the facts of Sivaram Prasad Bahadur and Prabhu Dayal's cases
that there is no similaritybetween those cases and the present case.
As suclt, these two decisions cannot be of any avail to the respondent.
It may also be mentioned that Mr. Hajarnavis has assailed the
findings of fact of the Tribunal.
In this respect we are of the view
that the Tribunal is the final fact finding authority.
It is for the
Tribunal to find facts and it is for the High Court and this Court
to lay down the law applicable to the facts found.
Neither the
High Court nor this Court has jurisdiction to go behind or ti) question the statement of facts made by the Tribunal.
The statement
of case is binding on the parties and they are not entitled
tLl go
behind the facts of the Tribunal in the statement. When the
question refer1ed to the High Court speaks of "on the facts and
circumstances of the case", it means on the facts and circumstances
1076
SUPREME COURT REPORTS
[1973] l S.C.R.
found by the Tribunal and not on the facts and circwnstances as
may be found by the High Court [see Karnani Properties Ltd.
· v. Commissioner of Income Tax, West Bengal(1)].
As a result of the above, we accept the appeal, set aside the
judgment of the High Court and answer the question referred by
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the Tribunal in favour of the department.
In our opinion, the
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sum of Rs. 1,05,074 received by the respondent as compensation
from the Government was taxable as income of the respondent and
was not a capital receipt. In the circumstances of the case, we
leave the parties to bear their own costs or this Court as well as
in the High Court.
S.B.W.
Appeal allowed.
(I) (1971] 82 I. T. R. 547.
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