- (1.) The Tribunal, Allahabad, has referred the following question of law under Section 256(2) of the IT Act, 1961, hereinafter referred to as the Act, for opinion to this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in upholding the order of the CIT(A) who had erred in law in not deciding the matter in the light of the provisions of Section 41(2) of the IT Act, 1961, in respect of compensation received for the units of the building and the items of machinery completely destroyed in the firm (sic) ?"
(2.) Briefly stated, the facts giving rise to the present reference are as follows : The reference relates to the asst. yr. 1984-85. The respondent/assessee is a private limited company. The accounting period for the assessment year under consideration ended on 31st Dec., 1983. A fire broke out in the month of August, 1983, in the respondent/assessee's mill. As a result of the damage to the flour mill, building and plant and machinery by fire, the respondent-company received compensation of Rs. 18,16,499 from insurance company as under : Building Rs. 1,81,499Machinery Rs. 16,35,000 The assessing authority assessed the entire compensation to tax as revenue receipt under Section 41 of the Act, whereas the respondent had claimed it as capital receipt. An expenditure of Rs. 5,84,013 was allowed by the AO as revenue expenditure. Feeling aggrieved by the assessment order, the respondent filed an appeal before the CIT(A). The CIT(A) had partly allowed the appeal by holding that as a result of receipt of compensation loss the actual expenditure incurred for repair and restoration would constitute capital receipts. Thus, a relief of Rs. 6,98,742 was allowed after deducting Rs. 11,17,757 on repairs and restoration of machinery and building. The Revenue, feeling aggrieved, preferred an appeal before the Tribunal. The Tribunal has upheld the decision of the CIT(A) and had held that the ratio of the judgment of the Hon'ble Supreme Court in CIT v. Sirpur Paper Mills Ltd. AIR1978 SC 509 , [1978 ]112 ITR776 (SC ), (1978 )1 SCC468 , 1978 (10 )UJ66 (SC ) was applicable. It did not accept the contention of the Revenue that the building along with the plant and machinery were completely destroyed in the fire and in respect of. such damage the compensation received should have been brought to tax under Section 41(2) of the Act..
(3.) We have heard Shri A.N. Mahajan, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent/assessee and have perused the report of the surveyor, which has been made part of the statement of case and also the order of the Tribunal.;