Law:

Section:

Section 80-I of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings, etc., after certain dates - Assessment year 1988-89 - Assessee received an amount towards insurance claim on account of loss of raw material in fire and claimed deduction under section 80-I - Whether while computing profits of industrial undertaking for purposes of deduction under section 80-I, income arising out of gross receipt of insurance claim, and not gross receipt itself, had to be excluded and such income could only be computed by deducting cost of raw material destroyed in fire from gross receipt of insurance claim - Held, yes FACTS During the assessment year 1988-89, the assessee received an amount towards insurance claim on account of loss of raw material in fire. The assessee included the said amount in profits and claimed deduction under section 80-I. The Assessing Officer as well as the first appellate authority rejected the claim but the Tribunal, on further appeal, allowed the claim observing that the amount received had close connection with the profit derived from industrial undertaking because the raw material which was destroyed in fire would have been used in generating income for the industrial undertaking and, therefore, the compensation received for such raw material could be said to be profit derived from industrial undertaking. On reference: HELD The amount of insurance claim received by the assessee cannot be said to be income derived from industrial undertaking so as to qualify for deduction under section 80-I. The amount in question was the amount received from the insurance company in respect of the claim of raw material destroyed in fire. However, while computing the profits of the industrial undertaking for the purposes of deduction under section 80-I, what has to be excluded is not the gross receipt but the income arising out of this receipt. Such income could only be computed by deducting the cost of raw material destroyed in fire from the gross receipt of insurance claims. The raw material had been admittedly purchased during the year under consideration and its cost debited in the purchase account of the year. [Para 10]…

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