High Court Of Madras
Smt. Agnes Corera vs. CIT
Sections 2(47), 45
R. Jayasimha Babu & K. Gnanaprakasam, JJ.
Tax Case No. 455 of 1985
13th December, 2000
R. Janakiraman, for the Assessee : O. Anandaram, for the Revenue
K. GNANAPRAKASAM, J. :
Two questions have been referred to this Court at the instance of the assessee which are : “(1) Whether, on the facts and in the circumstances of the case, the assessee is liable to capital gains tax in respect of the amount of Rs. 80,000 received from the insurance company on 18th Feb., 1977, on the loss of Boat No. T.U. 87 ? and (2) Whether the Tribunal was right in law in holding that there was a transfer within the meaning of s. 2(47) of the Act so as to attract the provisions of s. 45 ?”
The assessee was an individual who owned a boat which sank in the sea on 25th Aug., 1976. As the boat was insured, the assessee made a claim of Rs. 80,000 with the insurance company and the assessee also preferred a claim of Rs. 6,106 being the expenditure incurred towards the salvaging expenses. Both the claims of the assessee were paid by the insurance company on 18th Feb., 1977. The assessee has not offered any profits under s. 41(2) of the IT Act, 1961, or capital gains in respect of the boat which had been lost, on the ground, that the boat was lost due to natural case and there was no transfer to attract “capital gains” in terms of s. 45 of the Act. But the ITO did not accept the contention of the assessee. On appeal, the order of the assessing authority was confirmed and the contentions raised by the assessee were not accepted. The assesseeâs appeal to the Tribunal was also rejected, and in the said circumstances, these questions are referred to us.
Learned counsel for the appellant has contended that the amount realised by the assessee from the insurer arose out of the sinking of the ship and not as a consequence of transfer of capital goods, and that therefore, the capital gain will not at all arise in this case. He cited the judgment of the apex Court in the case of Vania Silk Mills P. Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC) : TC 20R.290, to sustain his claim wherein, the apex Court held, as set out in the headnote that, “…….capital gains tax was attracted under s. 45 by transfer and not merely be extinguishment of rights howsoever brought above. What ever the mode by which the transfer was a precondition : unless the asset existed in fact, there could not be a transfer of it. The extinguishment of a right or rights should in any case be on account of it or their transfer in order to attract the provisions of s. 45. If it was not, and was on account of the destruction or the asset, it was not a transfer and did not attract the provisions of s. 45 which related to transfer and not to mere extinguishment of a right. Hence, an extinguishment of right not brought about by transfer was outside the preview of s. 45. (ii) That in the case of damage, partial or complete, or destruction or loss of the property, there was no transfer policy in such cases was by way of indemnity or compensation for the damage, loss or destruction of the property. It was not in consideration of the transfer of the property or the transfer of any right in it in favour of the insurance company. It was by virtue of the contract of insurance or of indemnity, and in terms of the conditions of the contract. (iii) That the fact that while paying for the total loss of or damage to the proeprty, the insurance company took over such property or whatever was left of it, did not change the nature of the insurance claim which was indemnity or compensation for the loss. The payment by the insurance company was not in consideration of the property taken over by the insurance company. (iv) That it was not necessary to inquire whether the amount received by the appellant was spent in replacement of the machinery or not. (v) That, therefore, the different of Rs. 3,50,792 was not capital gains and was not chargeable to tax under s. 45.”
4. As the principles laid down by the apex Court are squarely applicable to the case on hand, we also hold that the Tribunal was not correct in calling upon the assessee to pay tax on capital gains and, therefore, we answer the issues in favour of the assessee and against the Revenue.
[Citation : 249 ITR 317]