1991 (7) TMI 156 - AT - Income Tax

Accounting Year, Attributable To, Factory Building, Foreign Company, Non-resident Company, Plant And Machinery, Tea Estate

Issues Involved:

1. Validity of the order in revision passed by the Commissioner of Income-tax.
2. Taxability of capital gains and section 41(2) profits from insurance money.
3. Taxability of the insurance money attributable to the stock of tea destroyed.
4. Taxability of the scrap value realized from the sale of scrap.
5. Levy of interest under sections 214 and 215 of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Validity of the order in revision passed by the Commissioner of Income-tax:

The assessee argued that the assessment order was invalid as it was based on a revision order that was itself invalid. However, since no appeal was filed against the revision order, this ground was dismissed. The Tribunal held that issues related to the validity of the revision order could not be raised in the quantum appeal.

2. Taxability of capital gains and section 41(2) profits from insurance money:

The Tribunal agreed with the assessee's contention that the capital gains component of the insurance money was not taxable, citing the jurisdictional High Court's decision in C. Leo Machodo v. CIT [1988] 172 ITR 744 (Mad.). Consequently, the addition of Rs. 5,90,923 under the head "Capital gains" was deleted.

Regarding section 41(2) profits, the Tribunal noted that the insurance policy was taken in the UK, and the premiums and insurance money were also paid and received in the UK. Despite this, the Tribunal held that section 41(2) profits were taxable as they were integral to the assessee's business conducted in India. The Tribunal rejected the argument of double deeming under section 9(1) and held that section 41(2) profits were income as per section 2(24)(v) and thus taxable.

3. Taxability of the insurance money attributable to the stock of tea destroyed:

The Tribunal held that the sum of Rs. 2,86,000 attributable to the stock of tea destroyed was taxable. It was noted that the insurance money was credited to the sales account and offered for taxation by the assessee. The Tribunal emphasized that the insurance money filled a hole in the profits of the assessee, making it a trading receipt as per the Supreme Court's decision in CIT v. S.N.A.S.A. Annamalai Chettiar [1972] 86 ITR 607.

4. Taxability of the scrap value realized from the sale of scrap:

The Tribunal held that the scrap value of Rs. 1,47,563 realized from the sale of scrap was not taxable as capital gains. The scrap was sold in India, and the money was received in India, but it was a receipt on capital account, not revenue account. The aggregate original cost of the building and plant and machinery was far in excess of the scrap value, resulting in no capital gain.

5. Levy of interest under sections 214 and 215 of the Income-tax Act:

The Tribunal noted that the issue of interest under sections 214 and 215 was consequential in nature and did not require a separate discussion.

Conclusion:

The Tribunal concluded that:

1. The capital gain component of the insurance money was not taxable.
2. The scrap value realized did not give rise to capital gain.
3. Section 41(2) profits from the insurance money were taxable.
4. The insurance money attributable to the stock of tea destroyed was taxable.
5. The issue of interest under sections 214 and 215 was consequential.

The assessee's appeal was partly allowed.

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