Law: Income Tax Act, 1922

Section: 12,12B

[Income Tax Act, 1922 (XI of 1922)]........Section 12 B-CapitaI gains sale, transfer or exchange of capital assets-Compensation-Loss of ship to war-Compensation received from Insurance Company in lieu of insurable interest-Transaction whether can he equated with transaction of sale, transfer or exchange-Held no-Compensation whether liable to capital gains-Held no. Case relied on:- Commissioner of Income Tax v. Dewas Cine Corporation (1978) 68 I.T.R. 240 Case referred to:- Commissioner of Income Tax v. Madurai Mills Co. Ltd. (1976) 34 taxation 122. JUDGMENT [The order was passed by M. I. SIDDIQUI, President},-This appeal by a corporation, carrying on shipping business, contests before us the directions of the Appellate Assistant Commissioner regarding the tax- ability of profits to the extent of Rs, 3,16,22,574, under Section 12B of the Income Tax Act, as capital gains. The facts of the case show that some of the appellants ships costing Rs. 5,98,72,452 were lost during the war and as a result it received compensation from the Insurance Company to the tune of Rs.9,14,95,016. The appellant offered the depreciation claimed for the ships for tax purposes under the provisions of Section 10(2)(vii), but the excess receipts over and above the costs of the ships amounting to Rs. 3,16,22,574 were claimed as exempt. But the Income Tax Officer held the same as capital gains liable to tax under the Income Tax Act. The learned Appellate Assistant Commissioner confirmed this position. Before us the learned counsel for the appellant once again contends that this surplus is not taxable even under Section 12B of the Income Tax Act. It is contended that the capital gains envisaged by Section 12B of the Income Tax Act comprise of gains, which acrue or arise from the sale, exchange or transfer of a capital asset. It is vehemently argued that in the present case it is neither a sale, nor exchange nor a transfer of the ships that were lost. The receipt of the assessee is nothing but a mere compensation for losses. Reliance in this connection is once again placed on the .decisions reported as (1957) 22-I.T.R. page 120, (1968) 68-I.T.R. page 240, and (1976) 34- Taxation page 120. The…

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