COMMISSIONER OF INCOME-TAX, CALCUTFA versus M/S. MOON MILLS LTD.

Citation: [1966] 2 S.C.R. 393 · Decided: 26-10-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

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Judgment (excerpt)

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A 
COMMISSIONER OF INCOME-TAX, CALCUTfA 
B 
c 
D 
E 
F 
G 
H 
v. 
M/S. MOON MILLS LTD. 
October 26, 1965 
[K. SUBBA RAo, J. C. SHAH AND S. M. SJK!.U, JJ.] 
Income-tax Act (11 of 1922), s. 10(2) (vii), 41/i proviso-Capiial 
asset destroyed by fire-Right to receive insurance a111ount-lf an1011nt 
taxable. 
As a result of a fire breaking -out and destroying its &tock-in-trade, 
machinery and buildings, the assessee \received Rs. 65 lakhs from the 
Insurance Company in full settlement of its claim. Though the Insurance 
Company finally accepted the claim on 13th December 1948, the amount 
was paid only on 27th March 1950. Out of that amount, a sum of 
Rs. .27 lakhs and odd represented the loss in respect of buildings and 
machinery, and it was not included in the return of assessee for the as-
sessment year 1949-50. The Income-tax Officer, on the ground that the 
said amount became receivable by the 
assessee in December 
1948, in-
cluded it in the taxable income for the assessment year 1949-50. 
The 
Appellate Assistant Commissioner allowed the assessee.'s appeal holding 
that the amount could only be' assessed to tax under the 4th proviso to 
s. 10(2) (vii) of the Income tax Act, 1922, when the, assessee actually 
received the amount. 
The Appellate Tribunal and the High Court on a 
reference, agreed with the Appellate Assistant Commissioner. 
In bis appeal to tills Court, the Commissioner contended that the 
asses.see maintained its accounts on mercantile basis and therefore, its 
profits and gains should be computed in accordance with that method of 
accounting; and if so computed, the assessee acquired a right to receive 
the amount in Decembe.r, 1948 with the result that it became a part 
of the taxable income of the assessee during the accounting year. 
HELD : As the compensation for the loss of machinery and buildings 
by fire was not actually received by the assessee during the accounting 
year the said amount could not be assessed during the assessment year. 
[401 HJ 
The pro.fit and loss of a business concern is ascertained on commercial 
principles. Section 13 of the Act imposes a duty ou the Re>venue to com-
pute the profits of a business in accordance with the method of account-
ing adopted by an assessee under the said principles. 
But the concept 
of assessable income under the Act is different from profit and loss in 
a commercial sense. 
Though profit and loss ascertained under the system 
adopted by an assessee is the basis, the assessable incon1e is arrived at 
by adopting some artificial rules incorporated in s. 10(2). Under the 
4th proviso to s. 10(2) (vii), when insurance money is received in respect 
of any building, macbine"Y or plant which has been destmyed, and it 
exceeds the difference between the written down value and the scrap 
value, so much of the exce6S as mentioned therein will be. deemed to be 
!he profits of the previous y~ar in whlch such money is received. 
Though 
m fact the s~1d compensahon represents a capital asset, because com-
pensation received from an insurance company towards loss of a capital 
asset d~ not represent profit in a commercial sernse, to the extent men-
tioned in the proviso. the compensation is deemed to be the profits of 
the previous year in which such money is received. The proviso therefore, 
39 4 
SUPREME COURT REPORTS 
[1966] 2 S.C.R. 
introduces a fiction that what is not a profit in the previous year is 
A 
deemed to be a profit in that year. Since the fiction serves the purpose of 
section it cannot be enlarged by importing another fiction, namely that if an 
amount was receivable during lhe previous year it must be deemed ro 
have been received during lhat ye'ar. 
Further, the definition of the ex-
pression "paid" in s. 10(5) incorporating the concepts of mercantile sys-
tem of accoun:ancy into it, iSi a clear indication that in the case of the 
other terms such as "received" etc., in s. 10(2), the Legislature intended 
B 
to give those expressions their natural meanings. 
There is, 
therefore, 
no scope for holding that the expression "received" means "receivable". 
[398 E-H; 399 D-G; 401 E, F] 
Case law referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 839 of 
1964. 
Appeal from the judgment and order dated January 16, 1962 
of the Calcutta High Court in Income-tax Reference No. 63 of 
1957. 
S. V. Gupte, Solicitor-General, R. Ganapathy Iyer, R. H. 
c 
Dhebar and R. N. Sachthey, for the appellant. 
D 
A. V. Viswanatha Sastri, 

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