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TMI Blog2002 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and in the circumstances of the case, the Tribunal was right in holding that ad hoc compensation received by the assessee from the insurance company was taxable as income for the assessment year 1978-79?" Facts: The assessee, Amartaara Limited, is a public limited company. The assessee, along with two other companies, as associate companies, had taken out five (5) policies of insurance under which loss or damage by fire to their buildings, plant and machinery, stock-in-trade, etc., was covered. On August 15, 1976, there was a fire in the factory of the assessee and the building, machinery and stock-in-trade were destroyed. On August 19, 1976, the insurance company addressed a letter to the assessee and to their associate companies, stating that the insurance company had appointed Mahesh Mehta to survey and assess the loss suffered by the assessee and that on receipt of the survey report, the insurance company shall proceed to settle the claim of the assessee. In the meantime, the assessee was directed to forward the police report and the fire brigade report. On October 28, 1976, the assessee addressed a letter to the insurance company to pay at least Rs. 12.50 lakhs on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1980, receipt of Rs. 8.50 lakhs received by the assessee was treated as income for the assessment year, 1978-79. It was held by the Income-tax Officer that Rs. 8.50 lakhs was received towards total damage suffered by the assessee and their associate companies. Accordingly, on pro rata basis, the Income-tax Officer held that Rs. 7.75 lakhs was received by the assessee herein and that amount was treated as "income" and it was brought to tax accordingly. Being aggrieved, the assessee carried the matter in appeal to Commissioner of Income-tax (Appeals). The order of the Income-tax Officer was confirmed. Being aggrieved the matter was carried in appeal to the Tribunal which took the view that by payment of Rs. 8.50 lakhs, the insurance company had acknowledged their liability to pay the assessee and their associates. That, Rs. 8.50 lakhs was paid on account. That, by such payment on account, the insurance company had acknowledged its liability to pay the assessee and their associates. That, subsequent quantification for pendency of the suit in the High Court was irrelevant. That, section 41(2) of the Act was not invoked by the Department. Consequently, the Tribunal accepted the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's right to compensation accrues only when the insurance company accepts their liability. That, on account payment or ad hoc payment can never amount to acceptance of claim. That, on-account claim was subject to finalization of the claim. That, even assuming for the sake of argument that in cases of insurance contracts the liability arises when the event takes place, even then, the Income-tax Officer did not assess the receipt in the assessment year 1977-78 when the fire took place, but the Income-tax Officer has assessed the receipt in the assessment year 1978-79 as during that assessment year, Rs. 8.50 lakhs were received. Shortly, therefore, two points arise for determination viz., whether receipt of Rs. 8.50 lakhs was on revenue account and, secondly, whether it has been rightly brought to tax during the assessment year 1978-79. According to learned counsel for the assessee, the basic test which should be applied on the second point is as to when the insurance company had accepted its liability. It was contended that in this case the insurance company has not accepted its liability at any point of time. That, the insurance company had invoked clause 13 of the policy on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Electric Supply Co. [2000] 244 ITR 764 and Central India Electric Supply Co. v. CIT [20011 247 ITR 54. By way of rejoinder it was urged by Mr. Pardiwalla that the amounts received on destruction of a capital asset can never constitute revenue receipt. That, such receipt has to be construed only as capital receipt. He relied upon the judgment of the Supreme Court in CIT v. Sirpur Paper Mills Ltd. [1978] 112 ITR 776. He contended that in the said judgment, it has been laid down that the amounts received on destruction of capital assets are to be treated as receipt on capital account. He further contended that the onus was on the Revenue to prove that receipt of Rs. 8.50 lakhs was on revenue account. He contended that this burden has not been discharged by the Department. In this connection, he relied upon the judgment of the Supreme Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532. He contended that merely because the insurance company pays Rs. 8.50 lakhs on account, it does not follow that the insurance company had accepted its liability or that income had accrued to the assessee. That, unless the insurance company accepted their liability, income cannot accrue to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has relied upon the plaint in the suit in which they have averred that Rs. 8.50 lakhs was paid on account of minimum loss suffered by them and that by such payment, the insurance company had admitted and accepted the validity of the claim of the assessee. It has been urged before us repeatedly by the assessee that the income accrues when the insurance company accepts their liability. On their own showing in para. 6 of the plaint, according to the assessee on payment of Rs. 8.50 lakhs the insurance company had accepted their liability. In the circumstances, in the assessment year in question income accrued to the assessee. In fact, for the earlier year the assessee had contended before the Income-tax Officer that the insurance company had not accepted their liability nor had the insurance company paid any compensation in that earlier year and, therefore, it was argued by the assessee for the earlier year that the income had not accrued, either on accrual basis or on receipt basis. This argument was accepted by the Income-tax Officer for the earlier year. However, in the assessment year 1978-79, Rs. 8.50 lakhs was received and it is the case of the assessee that this amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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