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TMI Blog2002 (8) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... he question referred to us at the instance of the assessee is whether, on the facts and in the circumstances of the case, the assessment of the sum of Rs. 4,45,305 as capital gains liable to tax arising out of the compensation amount received under the insurance policy on account of damage to the assessee's Sutton Tea Factory building by fire, is valid in law. The assessment year is 1976-77. The assessee is engaged in the business of growing and manufacturing tea. It had two factories, one situated in Sutton Estate and another in Katary Estate. On June 23, 1975, there was a fire accident in which the factory buildings and machinery installed in Sutton Tea Factory premises were destroyed. The assets had been insured with two insurance comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee having carried the matter further to the Tribunal, the Tribunal relying upon one of its earlier orders in the case of another assessee affirmed the order of the Commissioner. That the building was completely destroyed in the fire is undisputed. The capital asset thus was not in existence when the assessee received compensation. The asset was not available for being owned, used or enjoyed by any one. "Capital asset" is defined in section 2(14) of the Act. It is defined as meaning property of any kind held by an assessee, whether or not connected with his business or profession. The definition of "transfer" in section 2(47) of the Act as it stood at the commencement of the year 1976-77 read thus: "'transfer', in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the sea, the capital asset is no longer available for being owned, used or enjoyed by anyone including the assessee. With the destruction of the asset, the rights of the assessee in that asset also would be destroyed. The destruction of such rights in an asset consequent upon the assets ceasing to exist is a situation which is not contemplated either in the definition of "transfer", or in the charging section. The Supreme Court in the case of Vania Silk Mills Pvt. Ltd. v. CIT [1991] 191 ITR 647 dealt with a case where the assessee's machineries had been destroyed in a fire and for which it had received the amount payable by the insurer who had insured those machineries against the risk of fire. The court in that case held thus: "When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of transfer was a precondition: unless the asset existed in fact, there could not be a transfer of it." Learned counsel for the Revenue, however, contended that the law declared by the apex court in the case of Vania Silk Mills Pvt. Ltd. [1991] 191 ITR 647, is no longer good law, and that that decision has been both expressly and impliedly been overruled by a three-judge Bench in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323 (SC). In the case of Mrs. Grace Collis [2001] 248 ITR 323 (SC), the court was concerned with the question as to whether there is a transfer of the shares when the amalgamation of the company whose shares are held by the assessee is ordered by the court with another company. The court held that the rights o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined with reference to the value of the respective shares which is dependent upon the value of the assets and prospects of the company. Despite the extinguishment of the rights in the shares of the amalgamating company on its dissolution, the assets which gave value to those shares prior to amalgamation continue to exist, now under the ownership of the amalgamated company, and may provide added value to the shares of that company. The extinguishment of rights in the capital asset referred to in the definition of "transfer" in section 2(47) of the Act, therefore, would clearly apply to a case where the rights in the shares in the amalgamating company are extinguished on amalgamation to be replaced by shares in the amalgamated company, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 647 (SC). In the case of Mrs. Grace Collis [2001] 248 ITR 323 (SC), the court considered the terms "extinguishment of any rights therein" and the defini tion of "transfer" in section 2(47) of the Act. The court did not approve limiting the effect of the words "extinguishment of any rights therein" in the definition of "transfer" in section 2(47) of the Income-tax Act, to extinguishment on account of transfers. The court held,: "As we read it, therefore, the expression does include the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer." In the case of Mrs. Grace Collis [2001] 248 ITR 323 (SC), the court did not have occasion to go into the question as to whether the destruction of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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