C LEO MACHODO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question which falls for consideration in this reference at the instance of the assessee reads as follows "Whether, on the facts and in the circumstances of the case, the assessee is not liable to be assessed to capital gains tax in respect of the sum of Rs.1 lakh received by the assessee from the United India Fire and General Insurance Co., on November 25, 1974, on the loss of the boat No. TTN 39?" *THE assessee was carrying on the business of plying of boats and during the relevant accounting year, a boat belonging to the assesses being boat No. TTN 39 met with an accident on August 17, 1974, and got sunk in the sea.

(2.) THE boat was insured with the United India Fire and General Insurance Company and in accordance with the contract of insurance, the assessee received a sum of Rs. 1 lakh from the insurance company on November 25, 1974.In the assessment proceedings for the assessment year 1976-77, the Income-tax Officer taking the original cost of the boat at Rs. 49, 992, took the view that Rs. 50, 008 were chargeable to capital gains tax and added this sum to the income of the assessee. THE figure of Rs. 50, 008 was arrived at by deducting from Rs.. 1 lakh received from the insurance company, the original cost of the boat.

(3.) THE Bench quoted with approval the following observations in CIT v. R. M. Amin1971 (82) ITR 194.THE transfer that is contemplated by section 45 read with section 2(47) is, therefore, a transfer as a result of which consideration is received by the assessee or accrued to the assessee. Substituting the words 'extinguishment of any rights in the capital asset' for the words 'transfer of the capital asset', the transaction, in order to attract the charge of tax as capital gains, must, therefore, be such that consideration is received by the assessee or accrues to the assessee as a result of the extinguishment of the rights in the capital asset. "After referring to these observations, the Bench took the view that on the plain language of section 45 itself and even by reading the said provision along with section 48, therefore, it is manifest that the profit or gain must have been received by or accrued to the assessee as a result of the extinguishment of any rights in a capital asset and not on account of extinction of some other distinct rights. On the facts of that case, the Division Bench took the view that when the machinery was destroyed by fire, there was a clear extinguishment of the rights of the assessee in the capital asset and consideration was received by it as a result of such extinguishment.