- (1.) The Judgement of the court was delivered by SIKRI J.-The Income-tax Appellate tribunal, Calcutta bench " A ", referred the following question under section 66(1) of the Indian Income-tax "Act, 1922, to the High court at Calcutta " Whether, on the facts and in the circumstances of the case, the sum of Rs. 19,81,899.00 received by the assessee in 1950, being the surplus of the compensation money over the written down value of the assets destroyed by fire in the year 1948, is taxable under the 4th proviso to section 10(2)(vii) as the income of the assessee for the year 1950 -
(2.) The facts and circumstances out of which the question arose are as follows: The relevant assessment year is 1951-52 and the corresponding accounting year is the calendar year 1950. The Moon Mills Ltd., Bombay, respondent, hereinafter referred to as " the assessee ", carried on the manufacture and sale of cotton yarn and cotton piece-goods in Bombay. On 6.06.1948, a devastating fire broke out in the premises of the mills of the assessee destroying the building and partially destroying and damaging the machinery and plant. The amount of compensation was settled between the insurers and the assessee at Rs. 62,41,177.00. Although the settlement took place in 1948, the amount was received by the assessee in 1950. The manufacturing operations of the mills ceased after the fire, though the other trading activities were continued throughout the years 1948, 1949 and 1950, on a restricted scale. The fixed assets of the business in respect of which compensation was claimed from -the insurers having been destroyed and put out of order by the fire were not used for the purpose of business in the year 1950 in which the compensation was received but they had been soused in the year 1948 before they were destroyed by fire. The Income-tax Officer for the assessment year 1951-52 held that a sup of Rs. 22,35,181.00 was profit assessable under the fourth proviso to section 10(2)(vii), and included this in the total income of the assessee. Before the Appellate Assistant Commissioner it was argued by the assessee that the fourth proviso was not applicable to the case in view of the fact that the fixed assets for which compensation was received were not used for the purposes of business during the accounting year. The Appellate Assistant Commissioner rejected this contention, but reduced the amount chargeable under the fourth proviso to Rs. 19,81,899.00. The Appellate tribunal, Calcutta bench " A", sustained the order of the Appellate Assistant Commissioner but on different considerations. That High court answered the question in the negative and in favour of the assessee. The Commissioner of Income-tax having obtained special leave the appeal is now before us. The learned counsel for the revenue contended that the High court erred in answering the question in favour of the assessee, while Mr. Desart relying on three recent decisions of this court, urged that the point would almost concluded in his favour. The relevant portions of section 10(1) and section 10(2) read as follows " 10. Business.-(1) The tax shall be payable by an assessee under the head ' profits and gains of business, profession or vocation ' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely :- (iv) in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation, the amount of any premium paid; (v) in respect of current repairs to such buildings, machinery, plant at furniture, the amount paid on account thereof .. (vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the buildings machinery or plant, as the case may be, is actually sold or its scrap value Provided further that where the amount for which any such buildings machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much on the excess as does not exceed the difference between the original could and the written down value shall be deemed to be profits of the previous year in which the sale took place .... Provided further that where any insurance, salvage or compensation moneys are received in respect of any such building, machinery or plant aforesaid, and the amount of such moneys exceeds the difference between the written down value and the scrap value no amount shall be allowance under this clause and so much of the excess as does not exceed the different between the original cost and the written down value less the scrap value shall be deemed to be profits of the previous year in which such moneys were received............"
(3.) This court recently interpreted proviso 2 above in Commissioner of Income-tax V/s. Express Newspapers Ltd. and Commissioner of Income-tax V/s. Ajax Products Ltd. In the former case, Subba Rao J., as he then was, held : " Therefore, to bring the sale proceeds to charge, the following conditions shall be fulfilled : (1) during the entire previous year or a part of it the business shall have been carried on by the assessee; (2) the machinery shall have been used in the business ; and (3) the machinery shall have been sold when the business was being carried on and not for the purpose of closing it down or winding it up.";