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TMI Blog1992 (4) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal, the CIT (Appeals) held that these expenditure will not fall for disallowance under section 37(3A). The revenue is in appeal but we find the order of the CIT (Appeals) is in conformity with the decision of the High Court in CIT v. Chase Bright Steel Ltd. (No.1) [1988] 177 ITR 124 (Bom.). Hence his order is confirmed on this point. 3. The second point in dispute is the sum of Rs. 4,77,245 being the excise duty paid in respect of finished goods lying in stock. The assessee claimed that as the tax has been paid, it should be allowed under section 43. The Assessing Officer did not consider this question. On appeal, the CIT (Appeals) followed his own order for the earlier year 1984-85 and rejected the claim. Before us, the assessee has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(2) would include not merely the sale proceeds but also the compensation received from the insurance company. 6. In the further appeal before us, it was contended on behalf of the assessee that the receipt of insurance money for the damage of the asset was an independent event and could not be taken into account for the purpose of computing the profit under section 41(2) as that profit related only to sale of an asset. Reliance was placed on the decision of the Supreme Court in CIT v. Sirpur Paper Mills Ltd. [1978] 112 ITR 776 to contend that the receipt of insurance money was a capital receipt and cannot be assessed to tax. On the other hand, it was contended on behalf of the Revenue that the Explanation defining the meaning of the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original cost less depreciation allowance, the revenue is justified in taking back what it had allowed in recoupment against wear and tear, because in fact the depreciation did not result. But the reason of the rule does not alter the real character of the receipt. Again, it is the accumulated depreciation over a number of years which is regarded as income of the year in which the asset is sold. The difference between the written down value of an asset and the price realised by sale thereof though not profit earned in the conduct of the business of the assessee is notionally regarded as profit in the year in which the asset is sold for the purpose of taking back what had been allowed in the earlier years." It may be worthwhile to reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received." " 41. Profits chargeable to tax.--- (2) Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purpose of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due : " Explanation to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1922 Act and under the 1961 Act, if we read the Explanation into the main provisions. It follows that in computing the profit under section 41(2), we have to look only at the event which gives rise to that profit. This is the approach of the Department also as can be seen from the Board's Circular No. 36, dated 6-8-1942 extracted below : " Recoveries of insurance money in respect of loss of machinery or plant are not of the same character as money recovered when machinery or plant is sold. Such recoveries should, therefore, be left out of account for assessment purposes and consistently no allowance should be made where the insurance recoveries and the aggregate depreciation allowance are together less than the original cost of such machin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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