High Court Of Calcutta
Investors Corporation vs. CIT
Asst. Year 1969-70
Suhas Chandra Sen & Bhagabati Prasad Banerjee, JJ.
IT Ref. No. 192 of 1980
11th September, 1989
SUHAS CHANDRA SEN, J.:
The following question of law has been referred to this Court by the Tribunal under s. 256(1) of the IT Act, 1961 : “Whether, on the interpretation of s. 41(1) of the IT Act, 1961, the Tribunal was right in holding that the whole of the amount of Rs. 75,500 received from the insurance company was taxable for the asst. yr. 1969-70 ?”
The assessment year involved in this reference is the asst. yr. 1969-70, for which the relevant period of account is 1375 B.S.
The facts found by the Tribunal, as stated in the statement of case are as follows : “The assessee was a partnership firm deriving income from business in cloth. In this appeal we are concerned with the asst. yr. 1969-70, the year ended 13th April, 1969 was the relevant previous year. The head office of the assessee is at Calcutta and it had a branch at Gauhati. On 26th Jan., 1968 the premises of the Gauhati Branch were burnt during a riot. The assessee suffered loss on account of fire. The firm was dissolved on 3rd April, 1968. During the previous year under consideration, i.e., 14th April, 1968 to 13th April, 1969, the assessee was not carrying on any business. During the asst. yr. 1968-69, the assessee claimed loss of Rs. 48,346 on account of damage caused to the stock-in-trade by fire on 26th Jan., 1968. The loss was allowed by the ITO. On 20th May, 1968, the assessee was awarded a sum of Rs. 75,550 by the insurance company money as payable under the fire insurance in respect of the loss suffered by the assessee on 26th Jan., 1968. The assessee claimed before the ITO that a sum of Rs. 20,135 only was taxable under s. 41(1) of the IT Act, 1961 during the asst. yr. 1969-70. This was arrived at after deducting some credits of Rs. 56,042 from the insurance receipts. The ITO, however, rejected this claim and taxed the entire sum of Rs. 76,229 under s. 41(1) of the Act.
The assessee appealed to the AAC and reiterated the contentions it took before the ITO. The AAC, however, held that the entire receipt of Rs. 75,500 received from the insurance company was taxable in full during the year under consideration. He, therefore, confirmed the order of the ITO.
Being aggrieved, the assessee preferred further appeal to the Tribunal. It was urged on behalf of the assessee that the sum of Rs. 48,346 alone was allowed as a loss during the asst. yr. 1968-69 and consequently, the sum of Rs. 48,346 alone could be taxed under s. 41(1) of the Act. The Tribunal looked into the records and posed the question as to what portion of the total receipts of Rs. 75,500 was taxable under s. 41(1) of the Act in the assessment for the asst. yr. 1969-70 in which the amounts were received from the insurance company. The Tribunal referred to the said provision of the Act and decided the issue against the assessee.
The Tribunal held :
“In the case before us, the business carried on by the assessee has ceased to exist during the year under consideration in which the amounts were received from the insurance company. But, that fact is no bar for taking the amount under s. 41(1) of the Act. Again there is no dispute that the loss of Rs. 48,346 allowed in the asst. yr. 1968-69 is clearly taxable during the asst. yr. 1969-70 on the basis of the receipt from the insurance company. Even regarding the balance, we find that the same becomes taxable having been allowed in the earlier year. After all, the balance amount was received as compensation for loss of stock-in-trade due to fire. In the year in which the stock-in- trade was purchased, they were admittedly, allowed as expenses deductible from the gross receipts of the business in order to arrive at the income from business. It is not the case of the assessee that the purchase amount of stock-in-trade was not deducted in the year in which they were purchased. Hence, this amount was clearly an expenditure allowed during the year of purchase. The amount received during the year under consideration was nothing but reimbursement of the expenses incurred in the earlier year. In this view of the matter, we have to doubt in our mind that the whole of the receipts from the insurance company was taxable.”
4. Dr. Pal has argued that the Tribunal was in error in coming to this decision and the Tribunal misconstrued the scope of s. 41(1) and s. 41(2). According to Dr. Pal the amount which could be included in the assessment of the business of the assessee, was limited to the extent of recoupment of loss. This argument is entirely fallacious. Admittedly what was destroyed by fire was the assessee’s stock-in-trade. Compensation money paid by the insurance company for this loss has to be taken as representing the replacement of the stock-in-trade and, therefore, it is to be treated as an income on revenue account. If that be so, the entire income is liable to be assessed as income of the assessee. The Tribunal has emphasised the fact that the loss of the entire stock-in-trade as claimed by the assessee was allowed as business loss. Therefore, when the said amount has been recovered, the amount is clearly liable to be taxed though the assessee has claimed and had been allowed some deduction on account of the loss in the earlier assessment year. The fire that broke out relates to the relevant previous year. Sec. 41(1) of the Act provides that : “41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.”
5. The assessee in this case has been allowed deduction in respect of the expenditure and the amount of expenditure has been recovered from the insurance company. Therefore, the entire allowance has to be written back in this particular year of account when he received the amount from the insurance company.
6. In view of the aforesaid, the question referred to is answered in the affirmative and in favour of the Revenue. There will be no order as to costs.
BHAGABATI PRASAD BANERJEE, J.:
[Citation : 201 ITR 378]