2002 (10) TMI 33 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that ad hoc compensation received by the assessee from the insurance company was taxable as income for the assessment year 1978-79? - It is now well settled that the receipt of compensation in such matters could be on capital account or on revenue account. One has to go by the facts of each case. We are confining our judgment to the facts of this case. - we answer the above question in the affirmative, i.e., in favour of the Department and against the assessee.

Summary

Issues Involved:
1. Taxability of ad hoc compensation received from the insurance company.
2. Nature of the receipt (capital or revenue).
3. Timing of income accrual.

Issue-wise Detailed Analysis:

1. Taxability of Ad Hoc Compensation Received from the Insurance Company:
The primary issue was whether the ad hoc compensation of Rs. 8.50 lakhs received by the assessee from the insurance company was taxable as income for the assessment year 1978-79. The Tribunal had held that this amount was taxable as income, and the High Court was asked to confirm this decision. The court noted that the payment was made by the insurance company on account of the loss suffered by the assessee due to a fire incident. The insurance company had paid Rs. 8.50 lakhs on December 17, 1976, which was treated as income for the assessment year 1978-79 by the Income-tax Officer. The Tribunal supported this view, stating that the insurance company had acknowledged its liability by making this payment, even though the final quantification of the claim was pending.

2. Nature of the Receipt (Capital or Revenue):
The assessee argued that the receipt of Rs. 8.50 lakhs was on capital account and thus not taxable. The assessee's counsel contended that the amount received was for the loss of capital assets (plant, machinery, and buildings) and should be treated as a capital receipt. The Department, however, argued that the amount was paid towards ultimate compensation and should be considered revenue receipt. The court found that the assessee had not provided any evidence to apportion the loss between capital assets and stock-in-trade. The court emphasized that the assessee's own statements in the plaint indicated that the payment was part of the minimum loss suffered and that the insurance company had accepted the validity of the claim by making this payment. Thus, the court concluded that the receipt was taxable as income.

3. Timing of Income Accrual:
The court examined whether the income accrued in the assessment year 1978-79. The assessee contended that income accrues only when the insurance company accepts its liability, which, according to the assessee, had not happened. The court, however, pointed out that the assessee had itself stated in the plaint that the insurance company had accepted its liability by making the payment of Rs. 8.50 lakhs. Therefore, the court concluded that the income accrued in the assessment year 1978-79, when the payment was received.

Findings:
The court found that the receipt of Rs. 8.50 lakhs was taxable as income in the assessment year 1978-79. The court emphasized that the assessee's own statements in the plaint indicated that the payment was part of the minimum loss suffered and that the insurance company had accepted the validity of the claim by making this payment. Therefore, the court concluded that the income accrued in the assessment year 1978-79.

Conclusion:
The court answered the question in the affirmative, in favor of the Department and against the assessee. The receipt of Rs. 8.50 lakhs was taxable as income for the assessment year 1978-79. The reference was disposed of with no order as to costs.