Assessment of interim compensation paid to life insurance concerns on nationalisation. - Income Tax - 409/CBDT

INSTRUCTION NO. 409/CBDT Dated: April 26, 1972 Section(s) Referred: 143 Statute: Income - Tax Act, 1961 Reference is invited to the Board's letters No. 51(2)-IT/56 dated 16th July, 1957 and 30th August, 1957, about the assessment of interim compensation paid to life insurance concerns on nationalisation. 2. The Delhi High Court in their Judgment dated the 21st August, 1970 in the case of Lakshmi Insurance Co. (P) Ltd. Vs. Commissioner of Income-tax New Delhi (80 ITR 575) have taken a stand at variance with the Board's above-noted instructions and held that the relevant interim compensation was not a revenue receipt, as contended by the Department, but it was a capital receipt. As an appeal against the Delhi High Court decision could not be filed before the Supreme Court the decision has to be followed within the jurisdiction of the said High Court, but the Board desire that at other places, the instructions contained in the Board's above noted letters may be kept in view while framing assessments and they may also be canvassed before the appellate authorities if the assessments are challenged. The Delhi High Court's attention was not drawn to the principle laid down in the case of Waterloo Main Colliery Co. Ltd. (29 T.C. 235). In that case part of the colliery area was requisitioned under the Defence (General) Regulations, 1939 and the court was concerned with the payment received as compensation from the Ministry of Works which was computed by reference to the expectation which if possession had not been taken, the company would have had of deriving a profit from such working. In that case the Court, referred to the decision in Glenboid Union Fire Clay Co. V.I.R.C. (12 T.C. 427) where compensation was paid because the assessee was forbidden to work fire clay under the railway lines and the Court held that it was a capital payment. The Court in the Waterloo Main Colliery case distinguished that decision, inter alia, on the ground that in Glenboid Union Fire Clay Co. case, the assessee was forbidden to work fire clay and therefore he was paid compensation for something sterilised out of which no profit could be made, but in the Waterloo Main Colliery case the object of taking over was that more profit could be made and paid to the company, and hence it was in the nature of revenue receipt. In this context, we may adopt the line of argument that by taking over the life insurance business and such other business on similar terms the object is only to work the business in a more profitable way and therefore the compensation paid was not to sterilise the working of the relevant business but to make it more profitable and hence the receipt in lieu thereof is a revenue receipt. 3. Any favourable or adverse decisions of appellate authorities from Tribunal above, if available, or as and when they may be available in future, may be brought to the notice of the Board. 4. The Officers in the charge including the Authorised Representatives may please be apprised of the position and the Appellate Asst. Commissioners also informed.