TMI Blog1999 (7) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... been totally destroyed by the fire. The value of the goods so lost as shown in the assessee's book, was Rs. 10,07,996. As under the terms of the insurance policy, the insurer was to compensate the assessee by paying the replacement value of the goods lost and the insurer paid to the assessee the sum of Rs. 11,17,270. The difference between the cost of goods lost as shown in the books of the assessee and the amount received from the insurance company that difference being the sum of Rs. 1,09,274 was credited by the assessee to what it termed as "insurance reserve account". The Income-tax Officer held that this surplus would represent income and was a receipt which was incidental to the carrying on of the assessee's business. The assessee's income for the assessment year 1968-69 was reassessed and the reassessment completed on March 5, 1974, levying, inter alia, tax on this sum of Rs. 1,09,274. The assessee preferred an appeal against that order of assessment, but was unsuccessful in that appeal. The assessee then carried the matter to the Income-tax Appellate Tribunal. The Tribunal held that the difference between the replacement value and the value of goods as per the assessee's b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the assessee was correct. Counsel relied on the decision of the Supreme Court in the case of CIT v. Karam Chand Thapar and Bros. (P.) Ltd. [1989] 176 ITR 535, wherein the court observed that the Tribunal is a final fact-finding body and that the questions whether a particular loss is a trading loss or a capital loss and whether the loss is genuine or bogus are primarily questions to be determined on the appreciation of facts. Learned counsel for the assessee also submitted that the assessee is free to employ his own method of keeping accounts. Counsel referred us to the decision of the Supreme Court in the case of Investments Limited v. CIT [1970] 77 ITR 533, wherein the court, inter alia, held that a method of accounting adopted by the assessee may be discarded only if in the opinion of the Departmental authorities income of the trade cannot be properly deduced therefrom. The court also held that a method of accounting adopted by the trader consistently And regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. Counsel submitted that it was open to the assessee to choo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the property. Counsel also referred to the decision of the Supreme Court in the case of CIT v. Kasturi and Sons Ltd. [ 1999] 237 ITR 24, wherein it was held that where after the destruction of goods covered by the fire insurance policy, the insurer exercised the option of replacing the goods, there was no payment of money or money's worth to the insured and the insured cannot be regarded as having received taxable amount on account of the market value of the replaced goods on the date of replacement being higher than the amount at which the goods had been valued on the date of the loss. Counsel for the assessee placed before us the balance-sheet for the relevant previous year. We have perused the same. Section 2(14) of the Income-tax Act defines "capital asset". It is sufficient for our present purpose to extract that definition to the extent set out below : "2. (14) 'capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include--- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ; . . ." This definition excludes from its pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted earlier. The note found in the profit and loss account statement which has been signed by the directors of the company includes a note as under : "A fire broke out at the factory premises in April, 1967. Apart from the amount of Rs. 76,600 received towards building and furniture and credited to these accounts (in fixed assets schedule) the amount receivable from the insurers (on account of stores and stocks) was Rs. 11,17,271. Out of this Rs. 10,07,997 was accounted for by crediting 'raw material' and stores and spare parts' accounts and the balance of Rs. 1,09,274 was credited to insurance claims accounts". The amount received from the insurer has been described by the directors as amount receivable on account of stores and stocks. As observed by the apex court in the case of P. H. Divecha [1963] 48 ITR 222 (SC), it is the true character and quality of the receipt that is to be determined for the purpose of ascertaining its exigibility to tax. There can be no doubt that the amount which the assessee received from the insurer was not on account of loss of any capital assets and, therefore, the amount received from the insurer is not an amount which is required to be excl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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