COMMISSIONER OF INCOME TAX Vs. SWASTIKA METAL WORKS

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, "the Tribunal"), has referred the following question of law for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 1,42,000 received by the assessee from the Mercantile Bank is in the nature of casual receipt and not partaking of the nature of income liable to tax for the asst. yr. 1974 -75 -

(2.) THE assessee is a registered firm engaged in the business of manufacturing and sale of brass, zinc and copper sheets. In the course of the business, the assessee placed an order with M/s Ore & Chemical Corporation, New York, through its agent at Bombay for the purchase of 90 metric tonnes of copper ingots valued at $ 103805.87. The assessee also opened a letter of credit with the Mercantile Bank Ltd., Chandni Chowk Branch, Delhi. The supplier despatched the goods through its agent in America, namely Chase Mahattan Bank, New York, against the delivery of documents of title to the goods along with the bill of exchange drawn upon the assessee and endorsed in favour of the bank in terms of the letter Government of Pakistan ordered that the cargo of the steamer which was on its way from New York to India, via Karachi, be discharged at Karachi and confiscated the same. After expiry of the due date for payment, the bank caused the presentation of the bill of exchange to the assessee through notary public. Thereupon, the assessee paid an amount of Rs. 30,000. The bank also filed a claim for payment of insurance money on account of loss of the cargo because the goods despatched by M/s Ore & Chemicals Corporation, New York, were covered by a policy of insurance issued by New York office of Eaglestar Insurance Company Ltd. for $ 114495. The insurance company accepted the bank's claim and paid the amount specified in the policy. By that time, the Indian rupee had been devalued against the dollar. As a result of this, the bank received a sum of Rs. 8,60,217.88 as equivalent of $ 114495. When the assessee came to know that the bank had realised an amount Rs. 8,60,217.88 as against the amount of Rs. 4,99,063 paid by it to M/s Ore & Chemicals Corporation, New York, towards the cost of goods, it demanded a sum of Rs. 3,54,808 from the latter. The bank did not comply with the demand of the assessee who then filed a suit in the Delhi High Court. The suit was finally compromised and the bank paid a sum of Rs. 1,42,000.

(3.) THE ITO, "D" Ward, Yamuna Nagar (for short, "the AO"), while making the assessment for the asst. yr. 1974 -75, held that the amount received by the assessee from the bank was a trading receipt and was liable to be treated as such under s. 41(1) of the IT Act, 1961 (for short, "the Act"). Accordingly, he made an addition of Rs. 1,42,000. The AAC, Ambala, confirmed the addition made by the AO and dismissed the appeal filed by the assessee.