1965 (12) TMI 39 - SC - Income Tax

Whether the war damage receipts of 13,889 and 85,479 constitute income of the assessee for assessment in the years 1954-55 and 1956-57 respectively ? Held that - When the assessee put forward the claim for compensation under the scheme framed by the Central Board of Revenue that its entire property had been lost through enemy action and it obtained relief under the special scheme on that basis, the value of the assets must after receipt of compensation be taken to be nil, and the assessee by not writing off the value in his books of account on and after accepting the benefits of the special scheme could not invest those assets for the purpose of assessment to tax with any book value which was liable to be taken into account. Compensation received in replacement of those assets by the assessee from the war damage commission must therefore be treated in its entirety as profit liable to tax. Appeal dismissed.

Summary

Issues:
1. Taxability of war damage receipts as income for assessment in specific years.
2. Taxability of replantation dividend receipts as income for assessment in specific years.

Analysis:
1. The judgment involves a reference made by the Income-tax Appellate Tribunal regarding the taxability of war damage receipts received by an assessee in specific assessment years. The assessee, a firm in the real estate business in Malaya, suffered property damage during the second world war. The Government of India and Malaya provided relief and compensation schemes for such losses. The assessee received compensation from the Government of Malaya under the War Damage Compensation Scheme. The Income-tax Officer included these amounts in the assessee's taxable income for the assessment years 1954-55 and 1956-57. The assessee contended that only the excess over the book value of the damaged assets should be taxed, as per the scheme by the Central Board of Revenue. However, the court held that the entire compensation received should be treated as profit liable to tax, as the assessee had already benefited from the special relief scheme and the value of the assets was considered nil post-compensation.

2. The judgment clarifies that the second question regarding the taxability of replantation dividend receipts was not relevant due to a separate judgment. The focus was on determining the taxability of war damage receipts. The court rejected the assessee's argument that only the excess over the book value of the damaged assets should be taxed. It was emphasized that the compensation received in replacement of the lost assets should be treated as profit for tax purposes. The court highlighted that the assessee's failure to write off the asset value post-compensation meant that the entire compensation amount was taxable. The judgment dismissed the appeals, upholding the taxability of the war damage receipts in full as income for the respective assessment years, and directed the assessee to bear the costs incurred during the legal proceedings.

In conclusion, the Supreme Court held that the war damage receipts received by the assessee were fully taxable as income for the relevant assessment years, rejecting the contention that only the excess over the book value of the damaged assets should be taxed. The judgment emphasized the treatment of the compensation received as profit for tax purposes, considering the special relief scheme availed by the assessee and the nil value assigned to the assets post-compensation.