Travancore Electro Chemical Industries Ltd. vs Commissioner of Income Tax (No. 1)

T. L. Viswanatha Iyer, J.—Two questions have been referred for the opinion of this court at the instance of the assessee, namely :

" (1) Whether the Tribunal was right in law in holding that the sum of Rs. 2,34,270 has been correctly assessed as short-term capital gains in respect of the compensation received from the insurance company for an 8 MVA transformer, which suffered partial damage ?

(2) Whether the Tribunal was right in law in confirming the computation of the capital employed u/s 80J of the Act ?"

In dealing with the first question, the Tribunal relied primarily on the decision of the Gujarat High Court in Commissioner of Income Tax Vs. Vania Silk Mills (P.) Ltd., . Accordingly, he held that in receiving compensation for machinery which has been damaged or lost, there was a transfer attracting Section 45 of the Act. Tfye aforesaid decision in Commissioner of Income Tax Vs. Vania Silk Mills (P.) Ltd., has been reversed by the Supreme Court in Vania Silk Mills (P) Ltd. Vs. Commissioner of Income Tax, Ahmedabad [OVERRULED], . The Supreme Court has stated that in''the case of damage, partial or complete, or destruction or loss of the property, there was no transfer of it in favour of a third party. The money received under the insurance policy in such cases was by way of indemnity or compensation for the damage, loss or destruction of the property. It was not in consideration of the transfer of the property or the transfer of any right in it in favour df the insurance company. The payment Was made by virtue of the contract of insurance or of indemnity and in terms of the conditions of the contract. There being thus no transfer of any property, Section 45 was not attracted and the question of assessment of capital gains under the Act did not arise. The aforesaid decision of the Supreme Court squarely applies to the facts of this case and, accordingly, we must answer the first question in favour of the assessee and against the Department.

The other question referred stands concluded against the assessee by the decision of the Supreme Court in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, .

We, accordingly, dispose of the reference by answering question No. 1 in favour of the assessee and against the Revenue and question No. 2 in favour of the Revenue and against the assessee.

There will no order as to costs.