9911796707
TMI Blog1993 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for automobiles, booked copper ingots from a corporation in the United States of America for being brought to Bombay where it was to be rolled into strips and sheets and then despatched to the assessee for being used for manufacture. While the ingots were at sea, hostilities broke out between India and Pakistan and the vessel carrying the goods was seized by the authorities in Pakistan. The claim of the assessee for the price paid by it for the goods was ultimately settled in its favour by the insurer in America. Meanwhile, the Indian rupee had been devalued and, therefore, in terms of rupees, the appellant firm got Rs. 3,43,556 as against their payment of Rs. 2,00,164 at the old rate. The difference was credited to profit on devaluation in the profit and loss account. The claim of the appellant that the difference being a casual receipt and non-recurring in nature, it was not liable to tax was not accepted by the Income-tax Officer. In appeal, the Appellate Assistant Commissioner was of the opinion that the receipt was one which did not arise directly from carrying on business by the assessee but was incidental to it. But he did not find any merit in the submission that the ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a higher rate which would have increased as a result of devaluation, then there can be no dispute that the assessee would be liable to tax on the difference between the sale price and the cost", the High Court oversimplified the issue. May be any profit or gain accruing to an assessee as a result of difference between the sale price and the cost price in a year is income. And by that yardstick, the devaluation surplus, irrespective of any other consideration, may be a receipt which, in common parlance, may be income. But liability to pay tax under the Act arises on the income accruing to an assessee in a year. The word " income ", ordinarily, in the normal sense, connotes any earning or profit or gain periodically, regularly or even daily in whatever manner and from whatever source. Thus, it is a word of very wide import. Clause (24) of section 2 of the Act is legislative recognition of its elasticity. Its scope has been widened from time to time by extending it to the varied nature of income. Even before it was defined as including profits, gains, dividends and contributions received by a trust, it was held to be a word, " of broadest connotation " which could not be "understo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he irregular or the accidental income arose as a result of business activity, then even if it was non-recurring, it may not have fallen outside the revenue net. The real test, therefore, was the nature and character of income which accrued to the assessee. The casual nature of it or non-recurring nature were only aids to decide whether the nature of income was in the course of business or otherwise. In Raghuvanshi Mills Ltd.'s case [1952] 22 ITR 484 (SC), it was held by this court that receipt, even if it was casual and non-recurring in nature, would be liable to tax if it arose from business. " Business " has been defined in clause (13) of section 2 of the Act as including " any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture ". In Barendra Prasad Ray v. ITO [1981] 129 ITR 295, it has been held by this court that the expression " business " is of very wide import and it means an activity carried on continuously and systematically by person by the application of his labour and skill with a view to earning income. The width of the definition has been recognised by this court even in S. G. Mercantile Corporation P. Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are really incidental to the trade itself. " The word " from" according to the dictionary means " out of ". The income thus should have accrued out of the business carried on by the assessee. An income directly or ancillary to the business may be an income from business, but any income to an assessee carrying on business does not become an income from business unless the necessary relationship between the two is established. What was lost on the seas was not raw material, but something which was capable of being converted into raw material. The necessary nexus between ingots and radiators which could have resulted in income from ingots never came into being. Thus any devaluation surplus arising out of payment paid for loss of ingots could not be treated as income from business of the assessee. For deciding the next aspect, namely, whether the excess payment due to devaluation could be treated as revenue receipt, two questions arise, one, if the ingots were stock-in-trade and the other the effect in law of its being blocked or sterilised. Stock-in-trade is goods or commodities in which the assessee deals in the course of his business activity. Goods or commodities may be cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the decision in Raghuvanshi Mills [1952] 22 ITR 484 (SC) where any amount paid by the insurance company, " on account of loss of profit " was held taxable. But what happens where the insurance company pays any amount against loss of goods. Does it, by virtue of compensation, become profit and is it taxable as such. Taxability of the amount paid on settlement of a claim by the insurance company depends both on the nature of the payment and the purpose of insurance. Raghuvanshi Mills' decision [1952] 22 ITR 484 (SC) is an authority for the proposition where the very purpose of insurance itself is profit or gain. The result may be the same where the payment is made for goods in which the assessee carried on business. Any payment being an accretion from business, the excess or surplus accruing for any reason may be nothing but profit. (See King v. B. C. Fir and Cedar Lumber Company Ltd. [1932] AC 441, Green (H.M. Inspector of Taxes) v. J. Gliksten and Son Ltd. [1929] 14 TC 364 (HL), CIT v. Popular Metal Works and Rolling Mills [1983] 142 ITR 361 (Bom). But, where payment is made to compensate for loss of the use of any goods in which the assessee does not carry on any busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
