Actual physical destruction test under income tax law: a missing ship was not treated as destroyed for depreciation recapture.

For section 41(2) of the Income-tax Act, 1961, "destroyed" requires actual physical destruction of the asset. A ship merely reported missing at sea could not be treated as destroyed, because disappearance alone did not prove physical destruction. As no such destruction was established, the provision was not attracted.

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Issues: Whether a ship that had disappeared and was reported missing could be treated as "destroyed" so as to attract section 41(2) of the Income-tax Act, 1961.

Analysis: The reference arose from an assessment year 1980-81 dispute concerning the applicability of section 41(2) when the assessee's ship was missing at sea and a claim had been made on the footing of total loss under section 58 of the Marine Insurance Act. The provision in question applies where a building, machinery, plant or furniture is sold, discarded, demolished or destroyed. The decisive expression "destroyed" was held to require an actual physical act or physical destruction. Mere disappearance of the ship, without evidence that it was physically destroyed, did not satisfy the statutory requirement. The fact that the vessel had not been traced did not permit a legal inference of destruction for purposes of section 41(2).

Conclusion: The ship could not be treated as destroyed merely because it was missing, and section 41(2) of the Income-tax Act, 1961 was not attracted.

Ratio Decidendi: For the purpose of section 41(2) of the Income-tax Act, 1961, "destroyed" means actual physical destruction, and a missing asset cannot be treated as destroyed in the absence of proof of such destruction.

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