2013 (7) TMI 927 - HC - Income Tax

Insurance claims not deductible for business income under tax law. Sales tax, CST excluded from turnover.

The High Court upheld the decisions of the lower authorities, ruling that insurance claims cannot be reduced from business income for deduction purposes ... Deduction u/s 80HHC(4C) - ITAT held insurance claim was not in the nature of 'other receipts' and 90% of such receipts could not be reduced from 'profit of business' under clause (baa) of Explanation below Section 80 HHC (4C) - Held that:- The words “any other receipt of a similar nature included in such profits” used in the explanation have to be read “edjusdem generis” to the preceding words, i.e., “brokerage”, “commission”, “rent”, “charges”. The words “similar nature” used before the words “any other receipt” refers to and alludes to the principle of “edjusdem generis” and in fact leaves no ambiguity as to legislative intent that only such receipts would fall within the meaning of sub-clause (1) of the explanation as would partake the nature of the words preceding the expression “receipts of a similar nature”. A claim for insurance arises on account of a special loss to an assessee and, therefore, does not require any degree of legal acumen or scholarship to infer that such receipt cannot be included within sub-clause (1) of the aforementioned explanation. We draw support for a conclusion from a judgment of this Court in CIT Vs. Khemka Containers Private Ltd. (2004 (8) TMI 68 - PUNJAB AND HARYANA High Court). In view of what we have discussed above, we answer the first question accordingly and hold that Commissioner of Income Tax (Appeal) and Income Tax Appellate Tribunal have not committed any error of law while holding against the revenue. Issues:1. Whether insurance claim can be reduced from 'profit of business' under Section 80 HHC (4C) of I.T. ActRs.2. Whether sales tax and CST are includible in total turnover for deduction u/s 80 HCC of I.T. ActRs.3. Whether premium on export quota sales is entitled to deduction under Section 80 HHC(3) of I.T. ActRs.Issue 1 - Insurance Claim and Profit of Business:The case involved a challenge to the order passed by the Income Tax Appellate Tribunal, Chandigarh, regarding the treatment of an insurance claim received by the assessee for damage to goods in a fire. The Assessing Officer held that the insurance claim cannot be reduced from business income for deduction purposes under Section 80 HHC (4C) of the Income Tax Act. However, the Commissioner of Income Tax (Appeals) allowed the appeal, emphasizing that the insurance claim was a reimbursement of expenditure/loss suffered by the business and should not be reduced from profits. The Income Tax Appellate Tribunal also upheld this decision, stating that insurance claim is a recovery for losses and does not fall under the explanation (baa) of Section 80 HHC. The High Court agreed with this interpretation, citing the principle of 'edjusdem generis' and previous case law to support that insurance claims do not fall within the definition of 'business income' for deduction purposes.Issue 2 - Sales Tax and CST in Total Turnover:The second issue raised was whether sales tax and CST should be included in the total turnover for computing deduction under Section 80 HCC of the Income Tax Act. The parties agreed that this issue was covered against the revenue by a judgment of the Supreme Court in Commissioner of Income Tax v. Lakshmi Machine Works. The High Court, based on this agreement, answered this issue against the revenue in line with the Supreme Court judgment.Issue 3 - Premium on Export Quota Sales:The final issue was regarding the treatment of premium on export quota sales for deduction under the first proviso to Section 80 HHC(3) of the Income Tax Act. The High Court noted an agreement between the counsels that this issue had been answered against the revenue in a previous order. Therefore, the High Court answered this issue against the revenue as per the previous order.In conclusion, the High Court upheld the decisions of the lower authorities regarding the treatment of insurance claim, sales tax, CST, and premium on export quota sales for deduction purposes under the Income Tax Act. The judgment provided detailed reasoning based on statutory provisions, legal principles, and precedent cases to support the decisions on each issue raised in the appeal.