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Issues Involved:
1. Whether the Tribunal was correct in holding that the loss of Rs. 2,42,245 was a capital loss and could not be claimed as a business loss by the assessee. 2. Whether the Tribunal was justified in holding that the assessee was entitled to claim the loss in respect of burglary during the relevant accounting year. Detailed Analysis: Issue 1: Capital Loss vs. Business Loss The Tribunal concluded that the loss of Rs. 2,42,245 related to the theft of fixed assets should be considered as a capital loss and not a business loss. The Tribunal noted that the nature of the assets did not change merely because the assessee claimed the loss from the insurance company and showed the claim as part of its assets. Even if the insurance company had paid for the loss, the assessee would have purchased the requisite moulds, adding to the invested capital on which depreciation could be claimed. The Tribunal emphasized that the cause of the loss was the theft, not the rejection of the insurance claim, and thus, the loss remained a capital loss. Issue 2: Entitlement to Claim Loss for Burglary The Tribunal held that the assessee was entitled to claim the loss of Rs. 3,94,415 for the stocks stolen from the factory during the relevant accounting year. The Tribunal referenced several case laws, including M.P. Venkatachalapathy Iyer & Anr. vs. CIT, where it was held that a loss should be claimed in the year when it becomes actual and certain. The Tribunal found that the loss was crystallized in the relevant accounting year when the insurance claim was finalized, and the irrecoverable amount was claimed as a business loss. Additional Considerations: - Section 32(1)(iii) of the IT Act: The assessee argued that even in the case of capital assets, where such assets were sold, discarded, demolished, or destroyed, the loss could be claimed as a business loss. However, the Tribunal clarified that depreciation is allowed only on capital assets, and a total loss of a capital asset must be treated as a capital loss. - Section 28 of the IT Act: The assessee contended that the profits and gains of business or profession should be taxed on the basis of commercial principles. The Tribunal maintained that even on commercial principles, a loss of capital assets would still be treated as a capital loss. Tribunal's Decision: The Tribunal remanded the case back to the CIT(A) to decide afresh on the merits of the assessee's claim. The Tribunal found that the loss took place during the accounting year relevant to the assessment year 1971-72 but was not claimed as a business loss because the current assets included the insurance claim amount. The insurance company rejected a substantial part of the claim, leading the assessee to claim the irrecoverable amount as a business loss in the relevant year. Court's Conclusion: The High Court upheld the Tribunal's decision. The first question was answered in the affirmative and in favor of the Revenue, confirming that the loss of Rs. 2,42,245 was a capital loss. The second question was also answered in the affirmative and in favor of the assessee, allowing the claim for the burglary loss during the relevant accounting year. The Court noted that the Tribunal had left undecided whether the burglary actually took place and referred the matter back to the CIT(A) for a fresh decision. Separate Judgments: - S.C. Sen, J.: Delivered the main judgment. - B.P. Banerjee, J.: Agreed with the judgment. Costs: There will be no order as to costs.
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