41. A, while travelling in TSRTC bus, meets with an accident and is temporarily disabled. TSRTC pays an amount of Rs. 10,000 as compensation to him. State whether the amount is revenue receipt or capital receipt.

1. Facts of the Case

Mr. A, while traveling on a TSRTC (Telangana State Road Transport Corporation) bus, meets with an accident and sustains temporary disability. In response, TSRTC pays Rs. 10,000 as compensation for the injury and loss suffered. The issue is whether this compensation should be treated as a revenue receipt (and hence taxable) or a capital receipt (and hence not taxable unless specifically brought under the tax net).

2. Issues in the Case

1. What is the nature of the compensation paid by TSRTC—revenue or capital?
2. Is the amount of Rs. 10,000 received by A for temporary disability taxable under the Income Tax Act, 1961?
3. What are the legal criteria used to distinguish between revenue and capital receipts in such cases?

3. Legal Principles Covered

A. Capital vs Revenue Receipt – General Principle

• Capital receipts are those which arise from a capital asset or injury to the capital structure of a person or business. These are not taxable, unless specifically included under the provisions of the Income Tax Act.
• Revenue receipts are those that arise from the normal course of business or personal activity and are generally taxable unless exempted.

B. Relevant Case Law

• In CIT v. Mrs. Indira (1979) 119 ITR 837 (Mad.), the court held that compensation received for physical injury or loss of a limb is a capital receipt and not taxable, as it is meant to restore the injured person’s capital structure and not a gain or profit.
• The Supreme Court in K.T.M.T.M. Abdul Kayoom v. CIT (1962) 44 ITR 689 (SC) provided guidelines to distinguish between revenue and capital receipts by analyzing the purpose and nature of the receipt.

C. Application in Accidental Compensation Cases

• Compensation received for injury, pain, suffering, or impairment of earning capacity is generally regarded as capital receipt.
• This includes amounts received as ex gratia payments from employers, public authorities, or insurance.

4. Possible Judgement

In the present case:

• The amount of Rs. 10,000 is not linked to any income-generating activity or business.
• It is received by Mr. A for temporary physical disability, which affects his bodily integrity, a part of his capital structure.
• Therefore, the payment is not in the nature of profit or remuneration, but a compensatory amount for the loss suffered.