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TMI Blog1991 (7) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... remia on the said insurance policies were being paid in the U.K. 3. Around 11.30 PM on July 2, 1972 a fire broke out in the factory located at Sirikundra Estate. By the time the fire brigade could arrive from Pollachi, a town about 40 miles away from the Estate, the entire factory structure had collapsed, the plant and machinery was destroyed and the entire stock of tea at the factory burnt. On the insurance policies relating to the said factory the assessee-company received a sum equivalent to Rs. 21,97,486 in this aggregate. Included in the said sum was a sum of Rs. 2,86,000 which was the insurance money attributable to the stock of tea destroyed. It also realised an aggregate sum of Rs. 1,47,563 by selling the scrap. 4. In its accounts relating to the year ending on 30th June, 1973 the assessee had credited the sum of Rs. 2,86,000 being the insurance money attributable to the stock of tea destroyed. The assessee, however, did not return the capital gains and section 41(2) profits arising out of the balance of insurance money of Rs. 19,11,486. 5. In the original assessment for the assessment year 1974-75, which was completed on 23-9-1977, the capital gains and section 41(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings. The said sum was also brought to tax in the original assessment. The capital gains and section 41(2) profits similarly needed to be brought to tax. 10. Predictably the assessee took up the matter in appeal before the CIT(A). The following points were urged before him on behalf of the assessee :--- (1) The impugned assessment order was bad in law because, the very order in revision pursuant to which it came to be passed was bad in law. (2) The insurance policy was taken in the U.K., the premia were paid in the U.K. and the insurance money was also received in the U.K. Therefore, the insurance money did not arise or accrue in India, nor can it be deemed to arise or accrue in India. (3) For a fact, even the scrap value of Rs. 1,47,563 was not liable to tax in India as the foreign insurer has taken the said sum into account while fixing the quantum of the insurance money payable to the assessee. Even assuming that it is taxable in India, no section 41(2) profits arose because the said sum was very much less than the written down value of the assets in question. (4) Similarly, the insurance money attributable to the stock of tea destroyed was not exigible to tax in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 41(2) itself deems what is really a capital receipt as a revenue receipt. But section 9(1) of the Act does not contain any provision enabling the Assessing Authority to import into it any idea of double deeming with a view to bringing section 41(2) profits within section 9(1) of the Act. 15. Thirdly, the concept of business connection incorporated into section 9(1) signifies business operations. And the assessee was not having any operations involving the destruction of its property in India. Fire is caused by force majeure and the latter cannot be regarded as business operation of the assessee. 16. Fourthly, the contract of insurance in question was taken on reinstatement basis, which entities the assessee only to a part of the value of the insured assets destroyed. Thus the situation before us is not different from the situation of partial damage which was before the Supreme Court in the case of Sirpur Paper Mills Ltd. Consequently, the ratio of that case squarely applies to the case before us. 17. Fifthly the decision in the case of Performing Right Society Ltd. is distinguishable on facts. He highlighted the fact that in that case though the contract was entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s focussed, inter alia, on the exigibility issue relating to two items, namely (i) capital gains and (ii) section 41(2) profits. The order of revision came to be passed because initially the Assessing Officer had failed to consider the exigibility issue relating to the said two items. An order in revision, qualitatively speaking, is of the same genre as a reassessment order made under section 148. There is a line of cases in which it has been held that in reassessment proceedings initiated under section 148 the assessee is precluded from raising issues which are favourable to him, the rationale being that the reassessment proceedings themselves have been initiated to bring to tax escaped income. Prima facie, therefore, even in the course of proceedings under section 263 or even in the course of the proceedings taken in consequence of order under section 263, the assessee cannot raise issues which he had not raised earlier at the time of the original assessment --- issues which according to the assessee ought to have been decided in his favour. 26. In the case before us the sum of Rs. 2,86,000 being the insurance money attributable to the stock of tea destroyed was credited to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, if the income of a non-resident becomes exigible to tax either by reasons of its having been received, actually or constructively, in India, or by reason of its actually accruing in India, then section 9 has no application. It is only when the receipt and the actual accrual tests fail that section 9 gets activated its aim and objective being to see whether the income could be deemed to accrue or arise in India. Section 9 is, thus, so to speak, a residuary legatee. 29. The foregoing analysis will indicate that if the business of the non-resident assessee is conducted in India, then the profits of that business will have to be brought to charge on accrual basis under the first part of section 5(2)(b) of the Act. In the case before us the assessee's tea estates and tea manufacturing factories are all situate in India, green tea is produced in India, it is manufactured into marketable tea in India, and the manufactured tea is also sold in India. Therefore, the income from the tea manufacturing business of the non-resident assessee is chargeable to tax on accrual basis under the first part of section 5(2)(b). For a fact, it is on this basis that all along assessments had been c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnificant fact that the contract of insurance was taken by the assessee in the ordinary course of its business conducted in India and as a matter of business expediency, there can be no doubt that the insurance money arose or accrued in the ordinary course of the assessee's business and was integral to it. It should, therefore, follow that the insurance money was an integral part of the income derived by the assessee from the business run by it in India. We, therefore, hold that on accrual basis incorporated in the first part of section 5(2)(b) of the Act all the components of the insurance money received by the assessee would be exigible to tax, provided, of course, there is nothing contrary thereto in the Act. 33. As pointed out earlier, the assessee received an aggregate sum of Rs. 21,97,486 from the insurance company. For income-tax purposes the following items of the said sum came up for consideration:---- (i) Capital gains : Rs. 4,43,360 (ii) Section 41(2) : Rs. 8,87,530 (iii) Value of stock of tea destroyed : Rs. 2,86,000. Though strictly speaking and purely from arithmetical point of view, the capital gain component was Rs. 4,43,360, yet it is not exigible to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t give rise to capital gain. (iii) Section 41(2) profits arising out of the insurance money are exigible to tax. (iv) The sum of Rs. 2,86,000 being the insurance money attributable to the stock of tea destroyed is exigible to tax. 38. Before the lower authorities, however, the case had proceeded on the footing that provisions of section 9(1) were applicable to it. As already pointed out, section 9(1) is, so to speak, a residuary legatee. In other words, when the matter properly fell to be considered in the light of section 5(2)(a) and the first part of section 5(2)(b), the provisions of section 9(1) are not applicable. Even so, we now proceed to examine the case on the basis of the said section. 39. As it stood at the relevant point of time, section 9(1) dealt with five different categories of income, namely all income arising or accruing, whether directly or indirectly---- (i) through or from any business connection in India, or (ii) through or from any property in India, or (iii) through or from any asset or source of income in India, or (iv) through or from any money lent at interest and brought into India in cash or in kind, or (v) through transfer of a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 41(2) profits also --- see section 2(24)(v). Thus, section 41(2) profits are, by definition, income for purposes of the Income-tax Act. Section 5 talks, inter alia, of income that is deemed to accrue or arise in India and section 9(1) defines the types of income that are deemed to arise or accrue in India. Therefore, the situation before us is not one of double deeming. 43. Before the lower authorities the exigibility issue was examined in the light of the question whether there was business connection in India. As we see it, having regard to the fact that the assessee's business itself was situate in India, there was no need to examine the question whether the assessee had a business connection in India. It should not be forgotten that section 9(1) introduced into the Act with a view to casting the taxing net wide enough to catch practically all types or income from all possible sources which a resident may have in India. When the assessee's case falls within the plea of section 5(2)(a) and the first part of section 5(2)(b), it is not necessary to invoke the provisions of section 9(1), which defines the scope of second part of section 5(2)(b). 44. The second category of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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