1993 (2) TMI 137 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of insurance money received due to fire under sections 41(2) and 45 of the Income-tax Act.
2. Timing of taxability of insurance money under section 41(2).
3. Disallowance of surtax liability.
4. Disallowance under section 37(3A) for motor car expenses.
5. Disallowance under section 43B for provident fund contributions.

Issue-wise Detailed Analysis:

1. Taxability of Insurance Money under Sections 41(2) and 45:
The assessee, a company in the plantation industry, suffered a fire that destroyed its factory building and machinery. The insurance company agreed to pay Rs. 27,05,313 for reinstatement. The Income-tax Officer taxed the excess over the cost of assets as capital gains under section 45 and the difference between the written down value and cost under section 41(2). The CIT (Appeals) upheld this, citing various High Court decisions. However, the Tribunal noted that the Supreme Court in Vania Silk Mills (P.) Ltd. v. CIT reversed the Gujarat High Court's decision, establishing that no capital gains arise from destruction due to fire. Thus, the Tribunal held that no capital gains arose from the insurance money received.

2. Timing of Taxability under Section 41(2):
The CIT (Appeals) held that the insurance money became taxable in the year the fire occurred. The Tribunal disagreed, citing multiple cases (e.g., P. C. Gulati v. CIT, Akola Electric Supply Co. Ltd. v. CIT) that established taxability arises when the money "became due" and was ascertained. Since the insurance payments were made in subsequent years, the Tribunal held that the insurance money was not taxable in the assessment year 1984-85.

3. Disallowance of Surtax Liability:
The assessee's claim for surtax liability deduction was rejected by the CIT (Appeals) based on the Kerala High Court decision in A.V. Thomas & Co. Ltd.'s case. The Tribunal upheld this decision, declining to interfere.

4. Disallowance under Section 37(3A) for Motor Car Expenses:
The Assessing Officer included motor car expenses under section 37(3A). The CIT (Appeals) deleted this disallowance, noting that such expenses fall under sections 30 and 31. The Tribunal upheld this deletion, following its own decision in A. V. Thomas & Co. Ltd.

5. Disallowance under Section 43B for Provident Fund Contributions:
The assessee paid provident fund contributions late, leading to disallowance under section 43B. The Tribunal upheld the CIT (Appeals) decision, referencing N. Raghavan Pillai v. ITO, which established that section 43B is not attracted if payments are not made within the allowed time.

Conclusion:
The Tribunal allowed the assessee's appeal partly, setting aside the CIT (Appeals) order regarding the taxability of insurance money under sections 41(2) and 45 and the timing of such taxability. The revenue's appeal was dismissed, upholding the CIT (Appeals) decisions on motor car expenses and provident fund contributions.