Consequential loss insurance proceeds replacing lost profits are taxable income when received in the course of business.

A receipt under consequential loss insurance that compensates for loss of profits is income chargeable to tax when it arises in the course of business. The Supreme Court treated the amount as attributable to business profits rather than capital loss, held that the wide definition of total income under the Indian Income-tax Act, 1922 covered it, and found the casual receipt exception inapplicable because the payment arose from business and not from an isolated non-business source. The insurance character of the payment did not alter its taxable nature.

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Issues: Whether the amount received under consequential loss insurance, representing loss of profits, was income chargeable to tax under the Indian Income-tax Act, 1922.

Analysis: The receipt was treated throughout as attributable to loss of profits and not to capital loss. Under Sections 3 and 4 of the Indian Income-tax Act, 1922, total income includes income, profits and gains from whatever source derived, and the expression is of wide amplitude. A receipt that is received in the course of business and represents profits which the business would otherwise have earned is a business receipt and forms part of income. Section 4(3)(vii) did not apply because the receipt arose from business. The fact that the payment was made under an insurance arrangement and after compliance with conditions for claiming indemnity did not alter its character as income.

Conclusion: The insurance receipt was income and was assessable to tax, in favour of the Revenue.

Final Conclusion: The appeal was unsuccessful, and the taxability of the consequential loss insurance receipt was upheld.

Ratio Decidendi: A receipt under a business insurance policy which replaces loss of profits is income chargeable to tax when it arises from the conduct of the business and is not excluded by the casual receipt exception.

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