Law:

Section:

JUDGMENT Chagla, CJ.-The question that arises in this reference is whether the two sums of Rs. 8,25,000 and Rs. 5,75,000 received by the assessee, the Raghuvanshi Mills, Ltd., Bombay, on 8th September, 1944, and on 22nd December, 1944, respectively, are subject to tax. The company came to receive these two sums in these circumstances. A fire broke out in the company's mills on 18th January, 1944, with the result that the buildings, etc., were destroyed and there was a cessation of the manufacturing activities of the company. The company had taken out a policy with the South India Fire and General Insurance Company Ltd., and with other insurance companies of the nature known as "Consequential Loss Policies". These policies indemnified the company against any loss of profits which might result as a consequence of any fire that may break out, and it is not disputed before us that these two sums were received by the assessee company as an indemnity for the loss suffered by them of their profits because of the cessation of the company's activities as a manufacturing company. Sir Jamshedji's contention is that these sums are not liable to tax because they do not represent the profits earned by the assessee but they have been received on an indemnity and they should be looked upon more as a windfall than as something earned during the course of the business of the company. In my opinion, that contention is fallacious. These sums received by the company represent the profits which the company would have earned but for the fact of the fire having broken out. They take the place of the profits which would normally have been earned by the company and clearly as profits which would also be available for distribution to the shareholders of the company. They do not represent a windfall because the company was careful and cautious enough in the course of its business to insure itself against the contingency of a fire breaking out. But it is unnecessary to labour this point because this very question was considered by the Privy Council in Rex v. B.C. Fir and Cedar Lumber Co. [1932] AC 441, and the conclusion they came to was the same as the conclusion reached by the Income-tax…

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