Law:

Section:

Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 1978-79 - Whether where insurance company had accepted validity of claim made by assessee and paid ad hoc compensation also on account of minimum loss suffered by it, such compensation was liable to be taxed as income of assessee in relevant assessment year in which said claim was accepted, irrespective of fact that, later on, insurance company, however, repudiated its liability under insurance policy by alleging collusion between assessee and surveyor and called upon assessee to refund on account payment made to it - Held, yes FACTS The assessee, a public limited company, had taken out five insurance policies under which loss or damage by fire to its buildings, plant and machinery, stock-in-trade, etc., was covered. On 15-8-1976, fire broke out in the factory of the assessee and the building, machinery and stock-in-trade were destroyed. The insurance company appointed a surveyor to assess the loss suffered by the assessee. Subsequently, the insurance company paid to the assessee Rs. 8.50 lakhs on account. Later on, the insurance company, however, repudiated its liability under the insurance policy by alleging collusion between the assessee and the surveyor and called upon the assessee to refund on account payment made to it. The assessee filed a suit in the High Court for a decree against the insurance company for the policy amount. The ITO brought to tax Rs. 8.50 lakhs in the relevant assessment year, as the said amount was received by the assessee during that assessment year. On appeal, the Commissioner (Appeals) confirmed the order of the ITO. On further appeal, the Tribunal held that by payment of Rs. 8.50 lakhs on account, the insurance company had acknowledged its liability to pay the assessee and the subsequent quantification of the loss during pendency of the suit in the High Court was immaterial. Accordingly, the Tribunal accepted the case of the department. On reference : HELD No evidence had been led by the assessee giving apportionment of the loss suffered by it on account of damage to plant, machinery and building, on the one hand, damage to stock-in-trade, on the other.…

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