Law:

Section:

Section 41(2) of the Income-tax Act, 1961 - Balancing charge - Assessment year 1980-81 - Assessee-company made insurance claim for its ship which was reported to be missing on high seas - Insurance department made conditional settlement - Assessing Officer assessed difference between original cost and written down value of ship under section 41(2) on ground that total loss presumed under section 58 of Marine Insurance Act would amount to destruction under section 41(2) - Tribunal confirmed order of Assessing Officer holding that disappeared ship could be considered as destructed and as such provisions of section 41(2) were applicable - Whether for application of section 41(2) there should be physical act of destruction - Held, yes - Whether merely because ship was missing, it could not be said that it was destroyed - Held, yes - Whether, therefore, order of Tribunal was not justified - Held, yes FACTS The assessee-company owned a ship which was reported to be missing when on high seas. Neither the ship nor the crew were traced till date. Presuming total loss, the company lodged a claim with the insurance department for the insurance value on the hull and the machinery policy. The insurance department agreed for a conditional settlement of the claim of the company giving an undertaking in its favour to the effect that the insurance money would be refunded back in the event the ship was recovered and the insured got legal possession thereof. The Assessing Officer assessed the difference between the original cost and the written down value of the ship under section 41(2), on ground that the actual total loss presumed under section 58 of the Marine Insurance Act would amount to 'destruction' as the term has been used in section 41(2). On appeal, the Tribunal upheld the order of the Assessing Officer by holding that the disappeared ship which was not recovered till date, could be considered as destructed and the provisions of section 41(2) were applicable. On reference : HELD The ship was missing. But that did not mean that the ship was destroyed. For application of section 41(2), there should be physical act of destruction. In the instant case, it could not be said…

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