TMI Blog2003 (9) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that the assessee has claimed Rs. 17,72,807 on account of repairs maintenance of plant machinery. After verification of the bills and accounts, he found that the entire expenditure represents capital expenditure and therefore, the same cannot be allowed as business expenditure. However, considering that the expenditure under this head in the immediately preceding year was Rs. 1,35,983, he allowed Rs. 2,50,000 out of Rs. 17,72,807 as revenue expenditure and disallowed the balance Rs. 15,22,807 as capital expenditure. The CIT(A) has gone through the details of the expenditure and found that Rs. 2,82,713 was incurred for repairs of existing machinery or replacement of existing machinery or spare parts. Therefore, considering the nature of the expenditure incurred, he deleted the disallowance of Rs. 2,82,793 being revenue in nature. Similarly, Rs. 2,805 was for other repairs and Rs. 2,59,911 was for repairs and replacement of electrical lines and installations and hence, the same were deleted. The CIT(A) further, found that out of the aforesaid Rs. 17,72,807, Rs. 12,22,061 was on account of repairs to factory buildings and sheds. Out of the above Rs. 12,22,601, he found that Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately preceding financial year; And the receipt of insurance claim of Rs. 29,48,511 was an additional benefit derived in the course of the business under section 28 of the Act. In this view of the matter, he added Rs. 29,48,511 to the income of the assessee for the year under consideration. The CIT(A) after verification with the insurance policies held that Rs. 4,25,000 was on account of the destruction of the stock-in-trade and Rs. 25,23,511 was against damage or loss to plant machinery and building. He held that Rs. 4,25,000 was to be assessed as the assessee's business income because it represented the price realised for loss of trading goods. He further, opined that money received from the Insurance Company on account of loss caused to the capital assets cannot be considered as a business income. Hence, he directed the Assessing Officer to restrict the addition of Rs. 29,48,511 to Rs. 4,25,000. 5. We have considered the rival submissions and perused the orders of the lower authorities and also the decision cited at the Bar. We find that the Department could not bring any material on record to show that the assessee received from the insurer more than Rs. 4,25,000 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsation of Rs. 25,23,511 can not be charged to tax under the head "capital gains" also. In view of the above, we do not find any reason to interfere with the order of the CIT(A). Hence, this ground of appeal of the Revenue is dismissed. 6. The last ground of appeal pertains to direction of the CIT(A) to set off loss for the assessment year 1992-93 against the assessee's income for the assessment year 1993-94. The CIT(A) found that vide its order dated 7 -8-1995 passed in the case of the assessee in respect of the assessment year 1992-93, he directed the Assessing Officer to carry forward the loss of that year and allow its set off in subsequent year. Hence, he directed the Assessing Officer to set off the loss of the assessment year 1992-93 against the income of the year under consideration. The learned Departmental Representative at the time of hearing conceded that the CIT(A) was justified in giving the above direction. We find that the CIT(A)'s order passed in appeal No. Shill. 123/94/95 in the case of the assessee for the assessment year 1992-93 is filed by the assessee along with its paper book at pages 51 to 53. From the same it was observed that the assessee filed its retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages caused to capital assets. In support of the same reliance was placed on the decision of the Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. It was, therefore, submitted that the order of the CIT(A) should be upheld and the ground taken by the Revenue should be rejected. 7. I have considered the rival submissions of the parties and perused the materials available on record. The fire broke out in the factory of the assessee on 17th January, 1992, corresponding to the assessment year 1992-93. However, the assessee has received the claim from the insurance company in the assessment year 1993-94, the year under appeal, therefore, the assessee has credited the insurance claim amounting to Rs. 29,48,511 in its profit and loss account for that year. In the original return of income also the assessee has included the amount from the insurance claim in the income of the assessee and filed the return showing net income at Rs. 11,32,120. Subsequently the assessee has submitted revised computation of total loss of Rs. 12,23,825 after deducting the insurance claim of Rs. 29,48,511. The Assessing Officer has not allowed the deduction of insurance claim of Rs. 29,48,511 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from insurance company is not assessable under the head capital gains. Subsequently by Finance Act, 1999, with effect from 1-4-2000 the money received under the insurance policy was brought to tax as capital gain under section 45(1A) of the Act. Since the case before us is for the assessment year 1993-94 the amendment made by the Finance Act, 1999, is not applicable and accordingly the assessee is not liable to pay capital gain tax. Now, the issue remains as to whether the assessee's case falls under section 43 of the Income-tax Act. The Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, has introduced with effect from 1st April, 1988, a new scheme of depreciation allowance under which the depreciation is to be allowed in respect of a block of assets instead of for each individual item as envisaged earlier. Pursuant to this clause (c) of sub-section (5) of section 43 of the Act has been inserted to define the written down value in the context of the block system of assets. It was elaborately explained in the commentary on the Income-tax Act, 1961, by the learned author, A.C. Sampath Iyengar, the law of Income-tax, 9th edition, volume two at page 2932 which is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing W.D.V. of factory building @ 10 per cent and plant machinery @ 25 per cent which is against the clear provisions of the Act as mentioned hereinabove and hence the money received from the insurance company in respect of the factory building and plant machinery is liable to be adjusted in the said block of assets which may be reduced to nil. Accordingly the order of the CIT(A) is set aside on this account and the Assessing Officer is directed to revise the assessment in the light of the provisions of section 43(6)(c) read with Explanation 4 of the Act. Before doing so, the Assessing Officer shall also provide a reasonable opportunity of being heard to the assessee. The ground taken by the Revenue is allowed for statistical purpose. 10. On the remaining grounds of appeal I fully agree with the view taken by my learned Brother, Accountant Member and accordingly no interference is called for. 11. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is a difference of opinion between the Members in the present appeal, the same is required to be resolved by one or mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under consideration, still can it be held that the amount of Rs. 25,23,511 received from the insurance company will go to reduce the written down value of the assets of the year under consideration in view of the provisions of section 43(6)(c) of the Income-tax Act?" 2. The Registry is directed to place the matter before the Hon'ble President, Income-tax Appellate Tribunal. THIRD MEMBER ORDER Per M.A. Bakshi, Vice-President --As a result of difference of opinion amongst the Members constituting the Division Bench, I have been nominated as Third Member in regard to the point of difference. The difference of opinion in this case amongst the ld. Members has arisen in regard to the treatment of a sum of Rs. 29,48,511 received by the assessee from the insurance company in respect of two policies of insurance taken for factory building, plant machinery and stocks. 2. Rival contentions have been heard. Dissenting orders and other record considered. I consider it useful to give the relevant facts for the sake of coherence and ready reference even at the cost of repetition. 3. The assessee is engaged in the manufacturing of plywood. The assessee had taken two insurance pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to tax as a business receipt. 4. The assessee appealed to the CIT(A). Whereas the action of the Assessing Officer in assessing the sum of Rs. 4,25,000 as business income was upheld, the sum of Rs. 25,23,511 was held to be a capital receipt and relying upon the decision of the Supreme Court in the case of Vania Silk Mills (P.) Ltd., it was held that the said amount is not liable to tax. 5. The assessee appealed to the Tribunal. The Ld. Accountant Member has upheld the view of the CIT(A) that the sum of Rs. 25,23,511 received by the assessee from the Insurance Company was a capital receipt. The Ld. Accountant Member has further opined that section 41(2) of the Act was not applicable to the facts of this case. It has further been held that section 45(1A) has been inserted w.e.f. 1-4-2000 for taxability of the amount received from the insurance companies and, therefore, was not applicable for the assessment year 1993-94 as the amendment was not retrospective in nature. The Ld. Judicial Member has agreed with the Ld. Accountant Member that the amount of Rs. 25,23,511 received by the assessee from Insurance Company was not a revenue receipt. He has also agreed that the said amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Explanation 4 in the same Chapter of the Act for arriving W.D.V. of such assets which in this case is worked out to nil despite the fact that the amount received from the insurance company as reduced by the CIT(A) to Rs. 25,23.511 is a capital receipt not chargeable to tax?" 8. In my considered view, the real point of dispute in this appeal is as to what treatment is to be given to the amount of Rs. 25,23,511 received by the assessee from the insurance company on account of destruction/damage of plant, machinery and building. As a corollary to the aforementioned issue, it is also to be considered as to whether it is open to the Tribunal to consider the applicability of provisions of section 43(6)(c) when such a provision was not invoked by the Assessing Officer or by the CIT(A). 9. Before proceeding further, it may be pertinent to mention that there is no dispute about the taxability of the receipt of Rs. 4,25,000 which has been treated as receipt against destruction of stocks. In regard to the receipt of Rs. 25,23,511, the Ld. Members of the Bench are in agreement that the receipt from the insurance company is not taxable as a revenue receipt. The Ld. Members have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute before the Tribunal, the Ld. Judicial Member was absolutely justified to consider the statutory provisions of the Act in regard to the facts on record. 12. The learned counsel for the assessee fairly conceded that the Tribunal has the power to consider any aspect of the taxability of an amount on the basis of existing facts on record notwithstanding the fact that such an aspect was not considered by the lower authorities. The learned counsel, however, contended that though the applicability of section 43(6)(c) as a matter of principle is not objected to, yet the facts and circumstances of this case shall have to be taken into account in determining as to the extent to which the written down value has got to be reduced. In this connection it was contended that section 43(6)(c)(i)(B) provides for adjustment of the written down value on account of money received in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year. It was further contended that the adjustment is permissible in respect of the assets totally destroyed and not in regard to the assets which are partially damaged. In regard to the mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinarily bring to the notice of the author of the order his point of view by way of a note and if the author of the order has omitted any aspect of the matter, also to draw his attention to that omission. This is how the author of the order shall have an opportunity to consider the views expressed by the dissenting Member before a final view is formulated. The author of the order may accept the suggestion and, accordingly, redraft the order incorporating the suggestions given by the other Member. Consequently, unnecessary dissent would be avoided. However, after the receipt of the dissenting note from the other Member of the Bench, the author of the order may not change his opinion. So, however, he will get an opportunity to incorporate certain aspects of the issue which might have been left to be dealt with in the proposed order. In this case, if the aforementioned procedure had been followed, perhaps the Ld. Accountant Member could have got an opportunity to express his views with supporting reasons. However, it seems he did not get such an opportunity. Be that as it may be, the Ld. Accountant Member has expressed his dissent by way of formulating the point of difference and I, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred fell within the terms of section 10(2)(v), though not under section 10(2)(vib), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee. Under section 33(4) the Appellate Tribunal is competent to pass such orders on appeal "as it thinks fit". There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions, whether of law or of facts, which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him" In the case of National Thermal Power Co. Ltd., the Hon'ble Supreme Court held as under: "The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Supreme Court in the case of Vania Silk Mills (P.) Ltd. The duty of the Tribunal does not stop with giving an opinion in accord with the opinion of the first appellate authority or by the revenue authorities or contrary to it. The Tribunal is duty bound to dispose of the matter in accordance with law. This principle may be explained with an example. The Assessing Officer may treat an expenditure incurred by the assessee as expenditure not incurred for purposes of business. On appeal, the first appellate authority may disagree with the Assessing Officer and hold that the expenditure has been incurred by the assessee for purposes of the business. Though the order of the Assessing Officer may have to be reversed by the first appellate authority, yet the first appellate authority shall have to take into consideration the statutory limitation provided under section 37(2A) for allowance of deduction on account of entertainment expenses notwithstanding the fact that the Assessing Officer had not made any disallowance under section 37(2A). Another situation may arise where the view expressed by the Assessing Officer about the non-allowability of the expenditure of entertainment n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the assets destroyed in fire. The Assessing Officer has also been directed to give an opportunity of being heard to the assessee. Whether the entire assets had been destroyed or not or whether the claim received by the assessee was in regard to the total destruction of the assets or partially damaged assets has not been gone into by the Ld. Judicial Member. However, since the Ld. Judicial Member has directed the Assessing Officer to give an opportunity to the assessee before passing the order, no prejudice is caused to the assessee. The assessee shall have an opportunity before the Assessing Officer to furnish any evidence in establishing that any part of the claim received from the insurance company was in respect of partial damaged assets. As per the claim of the assessee before the United India Insurance Co. Ltd. placed on record, it is observed that the assessee themselves have claimed that there was total destruction of the assets insured with the insurance company. I may hasten to add that this is however, a mere claim. The claim is subject to settlement for the purpose of which a survey report is relevant. The final acceptance of the claim by insurance company is also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l consider the issue of determination of the Written Down Value of assets suo motu keeping in mind the decision of the Apex Court in the case of CIT v. Indira Balkrishna 39 ITR 546 (SC)? 2. Whether in view of provisions of section 43(6)(c) wherein the words used are "sold or discarded or demolished or destroyed" read with words employed in section 45(1A) wherein the words used are "on account of damage to, or destruction of" can it be held that money received from the insurance company on account of damages of assets will go on to reduce the written down value of the assessee? 3. Whether on the facts and circumstances of the case, when it is not in dispute that Rs. 25,23,511 was received by the assessee on account of assets damaged in the assessment year 1992-93 and the receipt was not on the account of sale, discard, demolish or destruction of any asset during the previous year relevant to the assessment year under consideration, still can it be held that the amount of Rs. 25,23,511 received from the insurance company will go to reduce the written down value of the assets of the year under consideration in view of the provisions of section 43(6)(c) of the Income-tax Act?" 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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