1990 (8) TMI 178 - AT - Income Tax

Summary

Issues:
Appeal against the order confirming withdrawal of development rebate under section 155(5) of the Income-tax Act, 1961 due to sinking of a ship and receipt of insurance money.

Analysis:
The appeal was directed against the CIT (Appeals) order confirming the ITO's decision to withdraw the development rebate allowed to the appellant during the original assessment. The ship, for which the rebate was claimed, sank in the sea and the appellant received insurance money. The ITO issued a show-cause notice under section 155(5) as the sinking occurred within 8 years of the original assessment. The appellant argued that no sale or transfer occurred, as the sinking was due to an act of God. However, the ITO held that the insurance money extinguished the appellant's right in the ship, justifying rebate withdrawal.

The CIT (Appeals) referred to relevant case laws and opined that there was a transfer/extinguishment of the appellant's right in favor of the Insurance Company. The appellant's counsel contended that section 155(5) did not apply as no sale or transfer took place, emphasizing that the sinking was a total loss without salvage. The counsel distinguished the cited cases, arguing they were not applicable to the current scenario.

The Tribunal held that the ITO's order under section 155(5) was incorrect in law. It clarified that the section applies to assets sold or transferred, requiring consideration and identifiable transferor-transferee relationship. As no sale or transfer occurred, the sum received from the Insurance Company did not constitute consideration. The Tribunal highlighted that section 155(5) is meant for deliberate disposals within 8 years, not for assets destroyed by natural acts beyond human control, as in this case.

The Tribunal further explained that even if the transaction was considered a transfer, it would not fall under section 155(5) as Insurance Companies, post-nationalization, are considered Government companies. The Tribunal distinguished the cited cases and concluded that the ITO's order was to be set aside, restoring the development rebate originally allowed. The appeal was allowed, ruling in favor of the appellant.