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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 ..... 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 account. They also submitted the police report and the fire brigade report to the insurance company. However, the insurance company paid to the assessee, Rs. 8.50 lakhs on December 17, 1976, on account. By letter dated September 24, 1977, the insurance company made it clear to the assessee that the claim made by the assessee was fraudulent and false. By the said letter they were called upon to refund the on account payment made to the assessee. They also repudiated their liability under clause 13 of the insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal 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 the Department. Being aggrieved, the matter has come by way of reference to this court. The assessee had filed Suit No. 242 of 1979, which was unconditionally withdrawn by the assessee on July 31, 1998. Arguments: On behalf of the assessee, it was contended by Mr. Pardiwalla, learned counsel, that the assessee had shown the said receipt of Rs. 7.75 lakhs as liability. That, in the company's account, the assessee did not appropriate the said amount to any asset. That, the said amount was not credited in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 the ground of fraudulent suppression of facts. That the matter was sub-judice. That, the payment made on December 17, 1976, was on account. It was an ad hoc payment. That, such payment can never constitute acceptance of its liability by the insurance company. That, the insurance company had repudiated the claim of the assessee by letter dated September 24, 1977, after payment of Rs. 8.50 lakhs and that the suit was filed on December 22, 1977. Therefore, the repudiation was also during the assessment year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction 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 assessee. That, payment on account cannot vest in the assessee the right to receive. Findings: The short question which arises for determination in this reference is whether receipt of Rs. 8.50 lakhs was taxable as income and if so, whether it was taxable in the assessment year 1978-79? We are confining our judgment to the facts of this case. At the very outset, we may also clarify that no evidence has been led by the assessee giving apportionment of the loss suffered by them on account of damage to plant, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any 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, paid by the insurance company, amounted to acceptance of the liability by the insurance company. It is now well settled that the receipt of compensation in such matters could be on capital account or on revenue account. One has to go by the facts of each case. We are confining our judgment to the facts of this case. Accordingly, we answer the above question in the affirmative, i.e., in favour of the Department and against the assessee. Conclusion: On the facts and circumstances of the case, we answer the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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