TaxTMI 
TaxTMI 
2003 (9) TMI 311
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....ear 1992-93 against the appellant's income for assessment year 1993-94." 2. In respect of the first ground of appeal, the relevant facts are as follows. The Assessing Officer observed that the assessee has claimed Rs. 17,72,807 on account of repairs & maintenance of plant & machinery. After verification of the bills and accounts, he found that the entire expenditure represents capital expenditure and therefore, the same cannot be allowed as business expenditure. However, considering that the expenditure under this head in the immediately preceding year was Rs. 1,35,983, he allowed Rs. 2,50,000 out of Rs. 17,72,807 as revenue expenditure and disallowed the balance Rs. 15,22,807 as capital expenditure. The CIT(A) has gone through the details of the expenditure and found that Rs. 2,82,713 was incurred for repairs of existing machinery or replacement of existing machinery or spare parts. Therefore, considering the nature of the expenditure incurred, he deleted the disallowance of Rs. 2,82,793 being revenue in nature. Similarly, Rs. 2,805 was for other repairs and Rs. 2,59,911 was for repairs and replacement of electrical lines and installations and hence, the same were deleted. The ....
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....count of loss on fire. According to the Assessing Officer whatever loss arose to the assessee because of the fire was a trading loss which has already affected the trading result of the immediately preceding financial year; And the receipt of insurance claim of Rs. 29,48,511 was an additional benefit derived in the course of the business under section 28 of the Act. In this view of the matter, he added Rs. 29,48,511 to the income of the assessee for the year under consideration. The CIT(A) after verification with the insurance policies held that Rs. 4,25,000 was on account of the destruction of the stock-in-trade and Rs. 25,23,511 was against damage or loss to plant & machinery and building. He held that Rs. 4,25,000 was to be assessed as the assessee's business income because it represented the price realised for loss of trading goods. He further, opined that money received from the Insurance Company on account of loss caused to the capital assets cannot be considered as a business income. Hence, he directed the Assessing Officer to restrict the addition of Rs. 29,48,511 to Rs. 4,25,000. 5. We have considered the rival submissions and perused the orders of the lower authorities....
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..... Hence, following the decision of the Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. v. CIT[1991] 191 ITR 647, we are of the considered opinion that the aforesaid compensation of Rs. 25,23,511 can not be charged to tax under the head "capital gains" also. In view of the above, we do not find any reason to interfere with the order of the CIT(A). Hence, this ground of appeal of the Revenue is dismissed. 6. The last ground of appeal pertains to direction of the CIT(A) to set off loss for the assessment year 1992-93 against the assessee's income for the assessment year 1993-94. The CIT(A) found that vide its order dated 7 -8-1995 passed in the case of the assessee in respect of the assessment year 1992-93, he directed the Assessing Officer to carry forward the loss of that year and allow its set off in subsequent year. Hence, he directed the Assessing Officer to set off the loss of the assessment year 1992-93 against the income of the year under consideration. The learned Departmental Representative at the time of hearing conceded that the CIT(A) was justified in giving the above direction. We find that the CIT(A)'s order passed in appeal No. Shill. 123/94/95 in th....
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....these capital assets was not debited by the assessee in the Profit and Loss Account. No addition can be made to the business income of the assessee in respect of insurance claim received for damages caused to capital assets. In support of the same reliance was placed on the decision of the Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. It was, therefore, submitted that the order of the CIT(A) should be upheld and the ground taken by the Revenue should be rejected. 7. I have considered the rival submissions of the parties and perused the materials available on record. The fire broke out in the factory of the assessee on 17th January, 1992, corresponding to the assessment year 1992-93. However, the assessee has received the claim from the insurance company in the assessment year 1993-94, the year under appeal, therefore, the assessee has credited the insurance claim amounting to Rs. 29,48,511 in its profit and loss account for that year. In the original return of income also the assessee has included the amount from the insurance claim in the income of the assessee and filed the return showing net income at Rs. 11,32,120. Subsequently the assessee has submitted re....
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....an extinguishment of right not brought about by transfer was outside the purview of section 45." Respectfully following the decision of the Hon'ble Apex Court as mentioned above the amount received from insurance company is not assessable under the head capital gains. Subsequently by Finance Act, 1999, with effect from 1-4-2000 the money received under the insurance policy was brought to tax as capital gain under section 45(1A) of the Act. Since the case before us is for the assessment year 1993-94 the amendment made by the Finance Act, 1999, is not applicable and accordingly the assessee is not liable to pay capital gain tax. Now, the issue remains as to whether the assessee's case falls under section 43 of the Income-tax Act. The Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, has introduced with effect from 1st April, 1988, a new scheme of depreciation allowance under which the depreciation is to be allowed in respect of a block of assets instead of for each individual item as envisaged earlier. Pursuant to this clause (c) of sub-section (5) of section 43 of the Act has been inserted to define the written down value in the context of the block system o....
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....achinery and claiming depreciation in its books of account on the opening written down value of the said assets. Even in the return of income filed by the assessee, the assessee has claimed the depreciation on opening W.D.V. of factory building @ 10 per cent and plant & machinery @ 25 per cent which is against the clear provisions of the Act as mentioned hereinabove and hence the money received from the insurance company in respect of the factory building and plant & machinery is liable to be adjusted in the said block of assets which may be reduced to nil. Accordingly the order of the CIT(A) is set aside on this account and the Assessing Officer is directed to revise the assessment in the light of the provisions of section 43(6)(c) read with Explanation 4 of the Act. Before doing so, the Assessing Officer shall also provide a reasonable opportunity of being heard to the assessee. The ground taken by the Revenue is allowed for statistical purpose. 10. On the remaining grounds of appeal I fully agree with the view taken by my learned Brother, Accountant Member and accordingly no interference is called for. 11. In the result, the appeal filed by the Revenue is partly allowed fo....
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....he assessee on account of assets damaged in the assessment year 1992-93 and the receipt was not on the account of sale discard, demolish or destruction of any asset during the previous year relevant to the assessment year under consideration, still can it be held that the amount of Rs. 25,23,511 received from the insurance company will go to reduce the written down value of the assets of the year under consideration in view of the provisions of section 43(6)(c) of the Income-tax Act?" 2. The Registry is directed to place the matter before the Hon'ble President, Income-tax Appellate Tribunal. THIRD MEMBER ORDER Per M.A. Bakshi, Vice-President--As a result of difference of opinion amongst the Members constituting the Division Bench, I have been nominated as Third Member in regard to the point of difference. The difference of opinion in this case amongst the ld. Members has arisen in regard to the treatment of a sum of Rs. 29,48,511 received by the assessee from the insurance company in respect of two policies of insurance taken for factory building, plant & machinery and stocks. 2. Rival contentions have been heard. Dissenting orders and other record considered. I conside....
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....the assessee lodged claim with the Insurance Company. The assessee vide claim No. 03427 dated 11-3-1992 made a claim for Rs. 34,10,000 as per Policy No. 1 and on the same date for Rs. 5,00,000 as per Policy No. 2. The assessee had mentioned "Total loss" against the column "Extent of Loss". In the previous year relevant to assessment year 1993-94, i.e. the year under appeal, the assessee received a sum of Rs. 29,48,511 from the Insurance Company against the claims made. As against claim of Rs. 34,10,000, the Insurance Company allowed Rs. 25,76,278 against Policy No. 1 and Rs. 3,72,233 against Policy No. 2. The assessee filed the return of income and originally the sum of Rs. 29,48,511 was reflected as income of the assessee. However, subsequently revised computation of income was filed before the Assessing Officer claiming the said amount received from the Insurance Company as capital receipt and not liable to tax. The Assessing Officer considered a sum of Rs. 4,25,000 as compensation received for the loss of finished goods and stores and assessed the same as income from business. The remaining claim of Rs. 25,23,511 received by the assessee from the Insurance Company was also held ....
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....43(6)(c) wherein the words used are sold or discarded or demolished or destroyed" read with words employed in section 45(1A) wherein the words used are on account of damage to, or destruction of" can it be held that money received from the insurance company on account of damages of assets will go on to reduce the written down value of the assessee? 3. Whether on the facts and circumstances of the case, when it is not in dispute that Rs. 25,23,511 was received by the assessee on account of assets damaged in the assessment year 1992-93 and the receipt was not on the account of sale, discard, demolish or destruction of any asset during the previous year relevant to the assessment year under consideration, still can it be held that the amount of Rs. 25,23,511 received from the insurance company will go to reduce the written down value of the assets of the year under consideration in view of the provisions of section 43(6)(c) of the Income-tax Act?" 7. As against the above points of disputes identified by the Ld. Accountant Member, the Ld. Judicial Member has identified the point of dispute as under: "Whether on the facts and in the circumstances of the case, the money received....
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....is aspect of the matter. 11. The Ld. Departmental Representative contended that it is well-settled principle of law that when all material facts are available on record, it is open to the Tribunal to consider any point of law even if such a point of law has neither been raised nor dealt with by the lower authorities. In this connection reliance has been placed on the following decisions of the Supreme Court and other High Courts:-- National Thermal Power Co. Ltd. v. CIT [1958] 229 ITR 383 at 387 (SC) CIT v. Rayala Corpn. (P.) Ltd. [1995] 215 ITR 883 at 894-95 (Mad.) CIT v. Cochin Refineries Ltd. [1996] 220 ITR 398 at 407 (Ker.) Byramji & Co. v. CIT [1943] 11 ITR 286 (Nagpur) It was contended that admittedly section 45(IA) is applicable w.e.f. 1-4-2000 and, therefore, is inapplicable for the taxability of the receipt of the assessee from insurance company in the assessment year 1993-94. However, provisions of section 43(6)(c) are attracted and that the Assessing Officer having treated the entire amount as revenue receipt, had not considered the provisions of section 43(6)(c). The CIT(A) having held that the receipt from insurance company was a capital receipt not l....
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....rance company and the adjustment be made only in respect of the assets which had been destroyed and not in relation to the assets which are partially damaged. 13. The Ld. Departmental Representative invited my attention to the claim made by the assessee placed at pages 43 to 45 of the paper book. It was pointed out that the assessee themselves have claimed 'total loss' of all the assets and as such the contention on behalf of the assessee for adjustment does not deserve consideration. 14. In this case, there is a peculiar situation insofar as the Ld. Judicial Member has dealt with a different aspect of the assessability of receipt from the insurance company which was not at all dealt with by the Ld. Accountant Member in the proposed order. The Ld. Accountant Member has taken the opportunity to differ with the view expressed by the Ld. Judicial Member by incorporating the doubt in the point of difference referred to the Third Member. In my view, this situation is avoidable. As per the settled conventions, when an order is proposed by one of the Members, the other Member may accept the view as proposed and sign the proposed order. After the signature of the Second Member, the o....
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....h restricts the Tribunal to the determination of the questions raised before the departmental authority. All questions, whether of law or of facts, which related to the assessment of the assessee might be raised before the Tribunal. If, for reasons recorded by the departmental authority, in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, the Tribunal would be under a duty to grant that relief. Similarly, if the disallQwance of certain expenditure to an assessee is warranted by certain provision of law. Tribunal is competent to deal with that question and decide the same in accordance with the law: In the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), their Lordships of the Supreme Court held that where the claim before the Tribunal was regarding the development rebate on account of installation of new machinery, the Tribunal had the power to grant relief on the ground of current repairs. The relevant portion of the decision is given hereunder:-- "(ii) that because the Tribunal rejected the assessee's claim for development rebate it was not bound to disallow the claim of the assessee for allowance of....
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....ny. Their Lordships of the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), held that the first appellate authority has plenary powers in disposing of an appeal. The scope of his powers is conterminous with that of the ITO. He can do what the ITO can do and can also direct him to do what he has failed to do. This principle has been reiterated by the Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688(SC). 17. In the present case, the CIT(A) has failed to deal with the issue relating to taxability of the receipt in the light of provisions of section 43(6)(c). The Ld. Accountant Member also did not consider the applicability of provisions of section 43(6)(c). The Judicial Member had dealt with the issue and, he was justified in doing so. While dealing with section 43(6)(c) with reference to the taxability of the receipt of insurance claim, the Ld. Judicial Member had dealt with another aspect of the same addition and has not dealt with any new source of income. Subject-matter of dispute in the Tribunal in this case is the treatment for the purpose of taxability of the receipt of Rs. 29,48,511 received from the i....
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....isdiction. 18. Similarly, in the present case the Ld. Judicial Member has dealt with different aspect of the same addition in the light of the relevant provisions of the Act. The facts are on record. Law is unambiguous and, therefore, the action of the Ld. Judicial Member in dealing with the issue, vis-a-vis provisions of section 43(6)(c) notwithstanding the fact that the addition was not made with reference to the said section either by the Assessing Officer or by the CIT(A), in my view, is justified. I, therefore, do not agree with the doubts expressed by the Accountant Member in this regard. In this case it is not disputed that section 43(6)(c) is attracted in regard to the receipt of the claim from the insurance company. Thus, when the Ld. Judicial Member expressed the view that the receipt is adjustable in the block of assets, he has not exceeded his jurisdiction in giving his opinion. Therefore, I am of the view that the order of the Ld. Judicial Member in dealing with the issue under section 43(6)(c) with reference to the receipt of the insurance claim is in order and does not suffer from any infirmity. The learned counsel of the assessee has also conceded the said state ....
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....cals & Industries Ltd. In view of the aforementioned enunciated law laid down by the Hon'ble Supreme Court, the exercise for determination of the actual amount adjustable under section 43(6)(c) shall have to be gone into by the Assessing Officer after giving an opportunity of being heard to the assessee. Prima facie it appears that most of the assets have been destroyed. So however, the Ld. Judicial member has left it open for the assessee to establish that part of the claim has been received in respect of the partially damaged assets. The Assessing Officer shall have to do that exercise. I, therefore, agree with the Ld. Judicial Member that the claim received by the assessee has got to be adjusted under section 43(6)(c) to the extent the same has been received in respect of the destroyed assets. 21. In final analysis, I agree with the reasoning as well as conclusion arrived at by the Ld. Judicial Member. 22. Let the matter be placed before the regular Bench for announcing the majority view. Per Shri Dinesh K. Agarwal Judicial Member.--In view of the difference of opinion between the learned Accountant Member and the learned Judicial Member, the following points were refer....