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JUDGMENT P.D. Desai, J.-An interesting question as to the true interpretation of the expression "the extinguishment of any rights therein", that is, in a capital asset, occurring in section 2(47) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), which defines the word "transfer" used in section 45 and other cognate sections, arises in this reference in the context of the following facts. The assessee is a private limited company carrying on business of manufacture and sale of art-silk cloth. In the year 1967, it purchased machinery worth Rs. 2,81,741 and gave it on hire to Messrs. Jasmine Mills Pvt. Ltd., Bombay, at an annual rent of Rs. 33,900. On August 11, 1966, fire broke out in the premises of Messrs. Jasmine Mills Pvt. Ltd. causing extensive damage to the machinery hired from the assessee and other machinery belonging to Messrs. Jasmine Mills Pvt. Ltd. The assessee's machinery was damaged to such an extent that it could not any longer be put to use as such. It appears that Messrs. Jasmine Mills Pvt. Ltd. has insured the assessee's machinery along with its own machinery and on a settlement of the insurance claim, it received certain amount out of which it paid a sum of Rs. 6,32,533 to the assessee on account of the destruction of its machinery. The difference between the actual cost of such machi-nery and its written down value worked out to Rs. 2,62,781 and in the course of proceedings for assessment to income-tax for the assessment year 1967-68 (the relevant previous year being the year ending December 31, 1966), the assessee returned the said amount of Rs. 2,62,781 as profit chargeable to tax under section 41(2) of the Act. The Income-tax Officer, in addition to bringing the aforesaid amount to tax, also subjected to tax the additional amount of Rs. 3,50,792, being the difference between the amount of Rs. 6,32,533 received as aforesaid by the assessee from Messrs. Jasmine Mills Pvt. Ltd. and the original cost of Rs. 2,81,741 of the machi-nery in question, as "capital gains" chargeable under section 45 of the Act. The assessee carried the matter in appeal before the Appellate Assistant Commissioner who upheld the decision of the…

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