TMI Blog1999 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... a, for a sum of ₹ 4,00,000. The terms of the insurance policy enabled the insurer to opt for replacement of the aircraft in the event of loss or damage thereto in an accident. The relevant clauses in the policy are in the following terms : Section I LOSS OR DAMAGE TO AIRCRAFT Subject to the terms conditions and limits hereof the company will at their option pay or replace or make good accidental loss of or damage to the aircraft as described in the Schedule hereto (hereinafter referred to as the aircraft ), including standard component parts thereof temporarily detached in connection with the overhaul or repair while in the custody or control of the insured (unless other similar component parts have been substituted) whilst the aircraft is In flight Taxying On the ground Moored Conditions 7 and 8 of the General conditions read as follows : 7. In the event of the company exercising their option under section 1 to replace the aircraft the replacement shall unless otherwise mutually agreed be by an aircraft of the same make and type and in reasonably like condition. 8. The aircraft shall at all times remain the property of the insured who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instance of the assessee, the matter was referred to the High Court for answering the following question (see [1985] 152 ITR 541, 544) : Whether, on the facts and circumstances of the case, there was any profit assessable under section 41(2) of the Income-tax Act, 1961, by the insurance company execising its option under the policy to replace the damaged aircraft with an aircraft of same make and type ? The High Court after a detailed consideration of the matter concluded that the expression moneys payable occurring in section 41(2) of the Act could not be made applicable to the present case. Holding that on the exercise of the option by the insurer, the contract could not be considered to be one for payment of money, the High Court answered the reference in favour of the assessee and against the Revenue. It is the said judgment of the High Court which is in challenge in this appeal filed by special leave. The learned Attorney-General appearing for the appellant formulated his propositions in the following manner : A contract of insurance is in essence a contract for money and money only. On the occurrence of the accident, money became payable under the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due. The expression moneys payable found in the sub-section has been defined to have the same meaning as in sub-section (1A) of section 32 (vide Explanation 2 to section 41(2A)). The Explanation to section 32(1A) defines moneys payable in the following terms : (i) 'moneys payable' in respect of any structure or work, includes (a) any insurance or compensation moneys payable in respect thereof ; (b) where the structure or work is sold, the price for which it is sold ;.... The principle that a taxing statute should be strictly construed is well settled. In Principles of Statutory Interpretation by justice G. P. Singh, Sixth edition 1966, the law is stated thus : The well-established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any benefit or amenity or perquisite whether convertible into money or not in clause (c)(iii) of section 40 of the Act came up for interpretation and the Division Bench of the High Court held that those words excluded cash paid directly to an employee as there was no question of convertibility to money where cash was paid. When the Legislature has instead of using any word such as benefit used only the term money , it can refer only to money as understood in the ordinary common parlance. In Shorter Oxford English Dictionary, money has been defined as a. current coin ; metal stamped in pieces as a medium of exchange and measure of value. b. Hence, anything serving the same purposes as coin, late ME. c. In mod. use applied indifferently to coin and to such promissory documents representing coin (esp. bank-notes) as are currently accepted as a medium of exchange . Hence, the word money used in section 41(2) of the Act has to be interpreted only as actual money or cash and not as any other thing or benefit which could be evaluated in terms of money. The learned Attorney-General has argued that a contract of insurance is only a contract for payment of money and money o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Act of 1974. The same was answered in the negative. The court observed that one of the three elements of a contract of insurance was that the assured would become entitled to something on the occurrence of some event ; that that something must normally be of the nature of money or its equivalent and not some other benefit. It should be noticed that though the court was prepared to extend money to equivalent of money , it refused to extend the meaning of the expression money to benefit . Thus, the decision can even be used against the appellant and it is not helpful to him. Reliance is placed upon the judgment of this court in CIT v. Artex Manufacturing Co. [1997] 227 ITR 260. The Bench referred to the provisions of section 41(2) of the Act and while analysing the rationale of the section quoted the following passage found in an earlier judgment reported in CIT v. Bipinchandra Maganlal and Co. Ltd. [1961] 41 ITR 290 (SC) : In CIT v. Bipinchandra Maganlal and Co. Ltd. [1961] 41 ITR 290 (SC), this court has thus explained the reason for introducing the fiction in the second proviso to section 10(2)(vii) 'The reason for introducing this fiction appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is in the same position as if he had originally contracted to do the act which he has elected to do. Till this date, the proposition remains undisturbed and it has been followed in several cases. Mr. K. Parasaran, learned senior counsel for the respondent, has placed before us xerox copies of the relevant pages in Halsbury's Laws of England (4th edition), and several text books wherein Brown's case [1859] 1 E E 853, has been cited without reference to any contrary decision. In Halsbury's Laws of England, fourth edition., volume 25, paras 634, 635 and 636, read as under : 634. Option as to reinstatement.---By the form of policy in general use, the insurers reserve to themselves the option of reinstating the property instead of making payment in money. This option is reserved for the insurers' benefit and it is for them to elect whether to reinstate ; the assured is not entitled to require them to reinstate. Nor may he prevent them from reinstating if they elect to do so. 635. Exercise of option to reinstate.---An election for or against reinstatement is final once it is made, and cannot afterwards be withdrawn. No formal election is necessary ; an el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exercise of the option thereafter by the insurer would not alter the nature of the contract. The contract itself gives the right to the insurer to exercise the option and the legal effect of such exercise is to make the contract one for reinstatement only from the inception. It is analogous to the doctrine of relation back . Such exercise of option could only be after the occurrence of the accident and not at any time earlier. Consequently, the expression moneys payable in section 41(2) will not apply in this case. We are unable to accept the contention that the word money should be interpreted as money's worth . The reasons given by us earlier are sufficient and we need not add to them. The reason for introducing a fiction in section 41(2) of the Act as explained in Bipinchandra Maganlal and Co. Ltd.'s case [1961] 41 ITR 290 (SC) quoted in Artex Manufacturing Co.'s case [1997] 227 ITR 260 (SC), that it is for the purpose of recoupment by the Revenue of the benefit allowed to the assessee in the previous years does not alter the situation. In the result, we do not find any error in the view expressed by the High Court in the judgment under appeal. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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