Law:

Section:

Section 4 of the Income-tax Act, 1961-Capital or revenue receipt-Goods indented from england by assessee-company-Same were insured but were seized during transit by pakistan on account of hostilities between pakistan and india-In settlement of its claim assessee received insurance amount in excess of insured amount on account of devaluation of rupee-Whether, such excess amount represented revenue receipt in assessee's hands-Held, on facts, yes Facts The goods indented from England by the assessee-company had been seized in transit by the Pakistan Government in September 1965 on account of hostilities between India and Pakistan. The goods were insured with a foreign insurer. The assessee, however, made a claim with the custodian of enemy property for Rs. 2,05,539. The claim was ultimately settled by the insurance company. However, by the time the claim was settled, Indian Rupee had been devalued and their assessee received Rs. 1,14,710 in excess of the insured amount. In the assessment for the assessment year 1967-68 the ITO negatived the assessee's claim that the excess amount was a casual receipt or, alternatively, a capital gain and could not be taxed as profit. While this order was confirmed by the AAC, the Tribunal took the view that the excess receipt was due to the fact that Indian currency was devalued and, therefore, it was not a trading receipt because the assessee was not a dealer in foreign exchange. The excess amount was directed to be treated as capital gains by the Tribunal. On reference: Held 1. In order to decide whether the excess amount received by the assessee-company from the insurance company partakes of the nature of revenue receipt, it has to be decided whether the receipt is in respect of a trading asset or whether it is in respect of a capital asset. Now what the assessee had, in fact, received was in the nature of compensation for goods lost and, normally, the compensation would have represented the price of the stock-in-trade for which the assessee had taken out the insurance. Therefore, moneys received from the insurance company, in fact, represented the equivalent in money value of the goods which were insured. There could hardly be…

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