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TMI Blog1996 (1) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... t the withdrawal of the depreciation amounting to Rs. 1,04,994 is correct ? 2. Whether, on the facts and in the circumstances of the case, the provisions of section 41(2) are attracted and that the replacement of the boiler has to be interpreted to be brought within the words 'moneys payable' ? 3. Whether the Tribunal was right in holding that the provisions of the capital gains are attracted to the facts of the case ?" The assessee purchased a Mitsubishi boiler during the accounting year 1967-68, relevant to the assessment year 1969-70 at an actual cost of Rs. 8,01,563. Depreciation totalling to Rs. 2,76,592 was allowed on this boiler for the assessment years 1969-70 and 1970-71 and the written down value, as on October 1, 1969, was Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original cost and the written down value. The difference between the "moneys payable" in respect of the discarded boiler of Rs. 9 lakhs and the written down value of the boiler, viz., Rs. 5,24,971 was Rs. 3,75,029, as computed by the Income-tax Officer. Excluding the profit under section 41(2), i.e., Rs. 2,76,592, the Income-tax Officer treated the balance of Rs. 98,437 as capital gain. On appeal by the assessee, the Commissioner of Income-tax held that the notional profit under section 41(2) cannot be taxed. According to the appellate authority what remained in the original boiler was a drum, chimney, etc., and the boiler was rendered completely useless, necessitating its replacement by a new boiler. The Commissioner further referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that "actual cost" under section 43(1) meant "actual cost" of the asset to the assessee, i.e., what the assessee had spent for acquiring the asset. As in the present case, the assessee did not incur any cost, the Commissioner rejected the assessee's claim for depreciation on Rs. 9 lakhs. On further appeal both by the assessee and the Revenue, the Tribunal held that as regards the replacement of the boiler, the sum of Rs. 9 lakhs was the money payable to the assessee in respect of the old boiler, which was discarded by the assessee, as having been destroyed and, hence, the assessee is liable to pay tax for profits under section 41(2). In order to come to this conclusion, reliance was placed on the Gujarat High Court judgment in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Paper Mills Ltd. Therefore, inasmuch as money was not directly paid to the assessee and under the insurance coverage, there is an option for the insurer either to replace the goods in specie or pay the amount of compensation for the goods lost, according to him, the provision of section 41(2) will not be applicable to the facts of this case. In Kasturi and Sons Ltd. v. CIT [1985] 152 ITR 541 (Mad), this court, while considering the provisions of section 41(2) of the Act, held as follows : "In the instant case, by exercising the option to replace the damaged aircraft, the insurer discharged his liability under the terms of the policy to make good the loss sustained, in specie, and in such a case, there was no question of payment of any mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92. A similar question came up for consideration before the Supreme Court in Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647, wherein the Supreme Court held : "In the case of damage, partial or complete or destruction or loss of the property, there was no transfer of it in favour of a third party. The money received under the insurance policy in such cases was by way of indemnity or compensation for the damage, loss or destruction of the property. It was not in consideration of the transfer of the property or the transfer of any right in it in favour of the insurance company. It was by virtue of the contract of insurance or of indemnity, and in terms of the conditions of the contract . . . When an asset is destroyed, there is no questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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