1977 (3) TMI 52 - AT - Income Tax

Summary

Issues:
- Inclusion of receipts from insurance company in the assessment for the assessment year 1970-71.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT CALCUTTA-C concerned the inclusion of receipts from an insurance company in the assessment for the assessment year 1970-71. The assessee, a firm involved in the plying of buses, had received sums of Rs. 5,600 and Rs. 6,578 from an insurance company due to damages to one of its buses in accidents occurring in the previous year. The Income Tax Officer (ITO) included these amounts totaling Rs. 12,178 in the assessment for the assessment year 1970-71, even though the sums were received during the following year relevant to the assessment year 1971-72.

The matter was taken to the Appellate Assistant Commissioner (AAC) who upheld the ITO's decision to include the sum of Rs. 12,178 in the assessment for the assessment year 1970-71. The AAC found that the amount had not been included in the income of the year in which it was received. The assessee contended that the right to receive the compensation accrued only when the insurance company cleared the claim, and therefore, the amount should be assessed in the assessment year 1971-72. The assessee relied on the decision of the Supreme Court in the case of CIT vs. Gajapathy Naidu to support this contention.

After considering the submissions, the Appellate Tribunal held that the authorities were not justified in including the sum of Rs. 12,178 in the assessment for the assessment year 1970-71 solely based on the accidents occurring during the previous year and the filing of the claim with the insurance company. The Tribunal noted that the claim filed with the insurance company gave rise to an inchoate right to the assessee to receive compensation, and therefore, it was correct not to incorporate the probable amount of compensation in the accounts following the mercantile system. The Tribunal agreed with the assessee's counsel that the amount in dispute should be assessable in the assessment year 1971-72 and, consequently, deleted the addition of Rs. 12,178 from the assessment for the assessment year 1970-71.