TMI Blog1952 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ay in an Income-tax Reference under Section 66(1) of the Indian Income-tax Act of 1922. The reference was made to the Bombay High Court by the Bombay Bench of the Income-tax Appellate Tribunal in the following circumstances. The appellant-assessee is a company known as the Raghuvanshi Mills Ltd., of Bombay. The assessment year with which we are concerned is 1945-46. The assessee had insured its buildings, plant and machinery with various insurance companies and also took out, besides those policies, four policies of a type known as a "Consequential Loss Policy." This kind of policy insures against loss of profit, standing charges and agency commission. The total insured against under the latter heads was Rs. 37,75,000 on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been split up either by the insurance companies or by the assessee, nor is there any material on which we would be able to apportion it. Our decision therefore proceeds on the assumption that the whole sum is assignable to loss of profits and we make it clear that we decide nothing about other moneys which may be distributable among other heads. The question has been referred in these terms :-- "Whether in the circumstances of the case, the sum of Rs. 14,00,000 was the assessee company's income within the meaning of Section 2(6C) of the Indian Income-tax Act and liable to pay income-tax under the Indian Income-tax Act." We are concerned in this case with four policies of insurance with four different insurance companies. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properly chargeable to capital) resulting from the business of the Insured at the premises after due provision has been made for all Standing and other charges including depreciation. Insured standing charges.--Interest on Loans and Bank Overdrafts, Rent Rates and Taxes, Salaries to Permanent Staff and Wages to Skilled Employees, Directors' Fees, Auditor's Fees, Travelling Expenses, Insurance Premiums, Advertising and Agency Commission. Period of indemnity.--The period beginning with the occurrence of the fire and ending not later than eighteen consecutive calendar months thereafter during which the results of the business shall be affected in consequence of the fire. Rate of Gross Profit.--The rate of gross profit per unit earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e called profits because the money is only payable if and when there is a loss or partial loss and that something received from an outside source in circumstances like these is not money which is earned in the business and if there are no earnings and no profits there cannot be any income. But that only concentrates on the word "profits". This may not be a "profit" but it is something which represents the profits and was intended to take the place of them and is therefore just as much income as profits or gains received in the ordinary way. Section 4 is so widely worded that everything which is received by a man and goes to swell the credit side of his total account is either an income or a profit or a gain. No attempt has been made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l prudent businesses, namely by insuring against loss of profits. It is indubitable that the money paid in such circumstances is a receipt and in so far as it represents loss of profits, as opposed to loss of capital and so forth, it is an item of income in any normal sense of the term. It is equally clear that the receipt is inseparably connected with the ownership and conduct of the business and arises from it. Accordingly, it is not exempt. This question was considered by the Supreme Court of Canada which decided that a receipt of this nature is not a "profit" and so is not taxable (B. C. Fir and Cedar Lumber Co. v. The King). But the Court did not examine the wider position whether it is " income " and in any event the decision was r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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