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TMI Blog1984 (5) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Gujarat High Court in the case of CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 as well as the decision of the Calcutta High Court in the case of Marybong Kyel Tea Estates Ltd. v. CIT [1981] 129 ITR 661. Basing on these two decisions, the department's contention is that the amount received from the insurance company would be taxable to capital gains. Shri Palkhivala, the learned counsel for the assessee, submitted that the point at issue is already covered by the Tribunal's decision for the assessment year 1971-72 wherein under similar circumstances, the Tribunal has held that no capital gains would arise. He then pointed out certain distinguishing features of the assessee's case from the decided cases before the Gujarat and Calcutta High Courts. He submitted that for the reasons given, the Tribunal's decision given earlier should be followed. 10. We are, however, unable to accept Shri Palkhivala's submissions. Although the point was decided by the Tribunal in the year 1971-72, subsequent to appeal, two High Court decisions point out that the department's stand could be reasonable. There are no other High Court decisions brought to our notice which is in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the Tribunal not to constitute the capital gains. 11.6 There are two decisions, one by the Gujarat High Court and another by the Calcutta High Court which were delivered subsequent to the Tribunal's decisions. Both cases are easily distinguishable on facts. 11.7 Apart from this, insurance money is received pursuant to a contract and not because of extinguishment of any rights--Babubhai M. Sanghvi v. CIT [1974] 97 ITR 213 (Bom.) and CIT v. R.M. Amin [1971] 82 ITR 194 (Guj.). 11.8 There is intrinsic evidence within the statute that receipt of insurance claim is regarded as a special transaction. See clause (1) of Explanation to section 32(1)(iii) of the Act. Authority cited was CIT v. Chugandas Co. [1960] 38 ITR 241, 262 (Bom.) as affirmed by the Supreme Court in CIT v. Chugandas Co. [1965] 55 ITR 17. 12. We can consider each of the submissions. Taking up the first submission in order to attract capital gains, there should be a transfer. That transfer must be within the definition in section 2(47). The expressions which could be considered are 'relinquishment' and 'extinguishment'. Now the submission that the asset should continue to exist and the assessee's right a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. 15. We may also consider the submissions based on the clause in the insurance contract that the assessee cannot abandon the damaged/lost aircraft to the insurer. Now one fundamental principle in insurance, whether marine or aviation, is the right of subrogation. This right is defined in Halsbury's Laws of England, Fourth edition, Vol. 25 as follows : "Where the insurer pays for a total loss, . . . of the subject-matter insured, he thereupon becomes entitled to take over the interest of the assured in whatever may remain in the subject-matter so paid for, and he is thereby subrogated to all rights and remedies of the assured in and in respect of the subject-matter is from the time of casualty causing the loss." [Emphasis supplied] 16. Under this principle, the insurer steps into the shoes of the assured and gets all the rights the assured had in the asset. This is a transfer and this transfer takes place at 'the time of casualty causing the loss'. It is because of this principle that the department claims there is a transfer under section 2(47). 17. Now this position is sought to be got over by referring to the abandonment clause. Now the difference between abandonment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fifth submission is that the issue is already decided by the Tribunal for the year 1971-72 holding that there is no capital gain. We have gone through the decision carefully. The operative part of the order is in para 6, wherein an earlier order of the Tribunal is quoted. Going through the extract of that order, we find that the point therein was decided by referring to the 'reinstatement value clause attached to and forming part of the insurance policy'. However, in a case of total destruction, the Tribunal, while disposing of the appeal of 1971-72, observed at the end of para 7, after considering the Gujarat High Court decision in R.M. Amin's case : "In view of those observations, it is possible that in a case of total destruction the compensation received by an assessee may result in taxable capital gains". Apart from the above observation in their order, the order of the Tribunal for 1971-72 has to be considered and followed only if it is not inconsistent to the High Court decisions pronounced subsequently and we find that the line of thinking of the High Court to be somewhat different than the Tribunal. The Gujarat High Court in the case of Vania Silk Mills (P.) Ltd. has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussion is on this point. 24. In order to understand this and why their Lordships gave a finding that it is a 'goods policy', the submission made before them should be noticed. In that case, the goods insured were given on hire to a third party and the third party had insured the goods. When it was destroyed by fire, the payment received from insurance company was passed on to the assessee. It was this peculiar fact, i.e., the absence of privity of contract with the insurer, was sought to be emphasised by the assessee. The High Court noted : "It is true that the assessee had itself not insured the machinery nor had it paid any premia . . . However, by this transaction, the proprietary rights of the assessee in the machinery were completely terminated on receipt of the amount in question from Jasmine Mills Pvt. Ltd., and the transaction could, therefore, be treated as a 'transfer' in favour of the latter. Even if the 'transfer' is treated as having been effected in favour of the insurer, the fact that there was no privity of contract between the assessee and the insurer would not make any difference in the conclusion arrived at, if the problem is looked at from the proper legal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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