TMI Blog2003 (7) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer observed that the assessee has claimed Rs. 17,72,807 on account of repairs and maintenance of plant and 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 Commissioner of Incometax (Appeals) has gone through the details of the expenditure and found that Rs. 2,82,793 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 Commissioner of Income-tax (Appeals) further, found that out of the aforesaid Rs.17,72,807, Rs. 12,22,061 was on account of repairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of loss on fire. According to the Assessing Officer whatever loss arose to the assessee because of the fire was a trading loss which has already affected the trading result of the 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 Commissioner of Income-tax (Appeals) 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 and 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. We have considered the rival submissions and perused the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was not applicable in the year under consideration. Hence, following the decision of the hon ble Supreme Court in the case of Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647, we are of the considered opinion that the aforesaid compensation of Rs. 25,23,511 cannot 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 Commissioner of Income-tax (Appeals). Hence, this ground of appeal of the Revenue is dismissed. The last ground of appeal pertains to the direction of the Commissioner of Income-tax (Appeals) to set off loss for the assessment year 1992-93 against the assessee s income for the assessment year 1993-94. The Commissioner of Income-tax (Appeals) found that vide its order dated August 7, 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 the 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 hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here. The learned Departmental Representative relied on the order of the Assessing Officer. On the other hand, learned counsel for the assessee submitted that the amount received by the assessee in respect of damage of factory building and plant and machinery from the insurance company is a capital receipt. The loss occurred to these capital assets was not debited by the assessee in the profit and loss account. No addition can be made to the business income of the assessee in respect of insurance claim received for damages 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. v. CIT [1991] 191 ITR 647. It was, therefore, submitted that the order of the Commissioner of Income-tax (Appeals) should be upheld and the ground taken by the Revenue should be rejected. 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 January 17, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset 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 its or their transfer in order to attract the provisions of section 45. If it was not, and was on account of the destruction or loss of the asset, it was not a transfer and did not attract the provisions of section 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 purview of section 45. Respectfully following the decision of the hon ble apex court as mentioned above the amount received from insurance company is not assessable under the head capital gains . Subsequently by the Finance Act, 1999, with effect from April 1, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred during the previous year together with the amount of scrap value may exceed the written down value at the beginning of the year is increased by the actual cost of any new asset acquired, or (B) All the assets in the relevant block may be transferred during the year. In the case of the assessee we find that the assessee has not reduced the W.D.V. of its factory building and as well as the plant and machinery and claiming depreciation in its books of account on the opening written down value of the said assets. Even in the return of income filed by the assessee, the assessee has claimed the depreciation on opening W.D.V. of factory building at 10 per cent. and plant and machinery at 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 and machinery is liable to be adjusted in the said block of assets which may be reduced to nil. Accordingly the order of the Commissioner of Income-tax (Appeals) 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 43(6)(c) wherein the words used are sold or discarded or demolished or destroyed read with the 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 assets ? 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 ? The Registry is directed to place the matter before the hon ble President, Income-tax Appellate Tribunal. Order of Third Member M. A. Bakshi (Vice-President).-As a result of difference of opinion amongst th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed before the Assessing Officer claiming the said amount received from the insurance company as capital receipt and not liable to tax. The Assessing Officer considered a sum of Rs. 4,25,000 as compensation received for the loss of finished goods and stores and assessed the same as income from business. The remaining claim of Rs. 25,23,511 received by the assessee from the insurance company was also held to be assessable under section 28 of the Income-tax Act, 1961. Accordingly, the Assessing Officer did not allow the claim made by the assessee in the revised computation of income. In other words, the entire amount of Rs. 29,48,511 was assessed to tax as a business receipt. The assessee appealed to the Commissioner of Income-tax (Appeals). 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. v. CIT [1991] 191 ITR 647, it was held that the said amount is not liable to tax. The assessee appealed to the Tribunal. The learned Accountant Member has upheld the view of the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious 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 ? As against the above points of disputes identified by the learned Accountant Member, the learned Judicial Member has identified the point of dispute as under : Whether, on the facts and in the circumstances of the case, the money received from the insurance company on account of damages of assets, i.e., factory building and plant and machinery which was added by the Assessing Officer as business income under section 28 can be considered in the light of the provisions of section 43(6)(c) 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 Commissioner of Income-tax (Appeals) to Rs.25,23,511 is a capital receipt not chargeable to tax ? In my considered view, the real point of dispute in this appeal is as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayala Corporation (P.) Ltd. [1995] 215 ITR 883 at 894-5 (Mad) ; CIT v. Cochin Refineries Ltd. [1996] 220 ITR 398 at 407 (Ker) ; and Byramji and Co. v. CIT [1943] 11 ITR 286 (Nag). It was contended that admittedly section 45(1A) is applicable with effect from April 1, 2000 and, therefore, is inapplicable for the taxability of the receipt of the assessee from the insurance company in the assessment year 1993-94. However, the provisions of section 43(6)(c) are attracted and that the Assessing Officer having treated the entire amount as revenue receipt, had not considered the provisions of section 43(6)(c). The Commissioner of Income-tax (Appeals) having held that the receipt from the insurance company was a capital receipt not liable to tax has failed to consider the provisions of section 43(6)(c). The learned Departmental Representative contended that since a statutory provision was ignored and the issue relating to the taxability of the receipt from the insurance company was the matter of dispute before the Tribunal, the learned Judicial Member was absolutely justified to consider the statutory provisions of the Act in regard to the facts on record. Learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not deserve consideration. In this case, there is a peculiar situation in so far as the learned Judicial Member has dealt with a different aspect of the assessability of receipt from the insurance company which was not at all dealt with by the learned Accountant Member in the proposed order. The learned Accountant Member has taken the opportunity to differ with the view expressed by the learned Judicial Member by incorporating the doubt in the point of difference referred to the Third Member. In my view, this situation is avoidable. As per the settled conventions, when an order is proposed by one of the members, the other member may accept the view as proposed and sign the proposed order. After the signature of the second member, the order becomes the order of the Tribunal. However, so long as the second member does not sign the order, the proposed order by one of the members remains a draft order. In the event of difference of opinion in regard to the proposed order, the dissenting member should 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that relief. Similarly, if the disallowance of certain expenditure to an assessee is warranted by certain provision of law, where the allowance or disallowance is the subject-matter of the appeal, the Tribunal is competent to deal with that question and decide the same in accordance with the law. In the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC) their Lordships of the Supreme Court held that where the claim before the Tribunal was regarding the development rebate on account of installation of new machinery, the Tribunal had the power to grant relief on the ground of current repairs. The relevant portion of the decision is given hereunder : (ii) that because the Tribunal rejected the assessee s claim for development rebate it was not bound to disallow the claim of the assessee for allowance of the amount spent, if it was a permissible allowance on another ground. Whether the allowance was admissible under one head or another of sub-section (2) of section 10, the subject-matter for the appeal remained the same, and the Tribunal having held that the expenditure incurred fell within the terms of section 10(2)(v), though not under section 10(2)(vib), i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer. He can do what the Income-tax Officer can do and can also direct him to do what he has failed to do. This principle has been reiterated by the hon ble Supreme Court in the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688. In the present case, the Commissioner of Income-tax (Appeals) has failed to deal with the issue relating to the taxability of the receipt in the light of the provisions of section 43(6)(c). The learned Accountant Member also did not consider the applicability of the provisions of section 43(6)(c). The learned Judicial Member had dealt with the issue and, in my considered view, he was justified in doing so. While dealing with section 43(6)(c) with reference to the taxability of the receipt of insurance claim, the learned Judicial Member had dealt with another aspect of the same addition and has not dealt with any new source of income. The subjectmatter of dispute in the Tribunal in this case is the treatment for the purpose of taxability of the receipt of Rs. 29,48,511 received from the insurance company. The said amount has been held to be not a revenue receipt. Its taxability as a capital receipt has been dealt with by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not travel beyond its jurisdiction. Similarly, in the present case the learned Judicial Member has dealt with different aspect of the same addition in the light of the relevant provisions of the Act. The facts are on record. Law is unambiguous and, therefore, the action of the learned Judicial Member in dealing with the issue, vis-a-vis, the provisions of section 43(6)(c) notwithstanding the fact that the addition was not made with reference to the said section either by the Assessing Officer or by the Commissioner of Income-tax (Appeals) , in my view, is justified. I, therefore, do not agree with the doubts expressed by the Accountant Member in this regard. In this case it is not disputed that section 43(6)(c) is attracted in regard to the receipt of the claim from the insurance company. Thus, when the learned Judicial Member expressed the view that the receipt is adjustable in the block of assets, he has not exceeded his jurisdiction in giving his opinion. Therefore, I am of the view that the order of the learned Judicial Member in dealing with the issue under section 43(6)(c) with reference to the receipt of the insurance claim is in order and does not suffer from any infirm ..... 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