THE COMMISSIONER INCOME TAX V. M/S IMERIAL AUTO INDUSTRIES

ITA/278/2004

AI Insights

The case involves the Commissioner of Income Tax, Faridabad as the appellant and M/s Imperial Auto Industries, Faridabad as the respondent. The appeal was against the judgment and order passed by the ITAT (Delhi Bench) concerning the assessment year 1994-95. The primary issues were the treatment of a loss due to fire damage to the assessee's assets and the deductibility of insurance premiums paid on the lives of the partners. The ITAT had ruled in favor of the assessee, treating the fire damage loss as a revenue loss and allowing the insurance premiums as business expenditures. The High Court upheld these decisions, agreeing with the ITAT's interpretation and application of the relevant sections of the Income Tax Act.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 718973 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 29-03-2012
• Assessment Year: misc
• Other Referred Cases: Mary Bong & Kyel Tea Industries Ltd., 91 Taxman 11, Vania Silk Mills (P) Ltd., 191 ITR 657
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S K MUKHI
• Assessee Lawyers: TEJINDER JOSHI
• Keywords: Assessment year 1994-95; Capital Gain; Fire damage; Insurance premium; Revenue Loss; Destruction of assets
• Section: 37(1); 2(47); 36(1)

Judgement Text

"ITA No.278 of 2004 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.278 of 2004 (O&M) Date of decision: 29.03.2012 The Commissioner of Income Tax, Faridabad ....Appellant Versus M/s Imperial Auto Industries, Faridabad ....Respondent CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE ALOK SINGH Present: - Mr. Tejinder K. Joshi, Advocate, for the appellant-revenue. Mr. S.K. Mukhi, Advocate, for the respondent-revenue. 1.Whether to be referred to the Reporters or not? 2.Whether the judgment should be reported in the Digest? ***** ALOK SINGH, J. 1. Present appeal is filed against the judgment and order dated 14.8.2003 passed by ITAT (Delhi Bench CN DLI) in ITA No.1037/Del/1998 and ITA No.1038/Del/1998 for the assessment year 1994-95. 2. Present appeal was admitted on the following substantial questions of law: - “1. Whether the Hon'ble Income Tax Appellate Tribunal was right in allowing the loss on account of destruction of assets by treating the same as revenue loss after the change in the Income Tax Act, 1961 providing for adjustment of the loss against other assets of the block with effect from assessment year 1988-89. 2. Whether the Hon'ble Income Tax Appellate ITA No.278 of 2004 (O&M) -2- Tribunal was right in allowing insurance premium paid on the life of two partners of the firm before the introduction of change brought about by the Finance Act, 1961 allowing the amount of insurance money on maturity or on death of keyman becoming taxable in the hands of the recipient i.e, the firm in this case which was effective from 1.10.1996.” Question No.1 3. Brief facts of the present case, inter alia, for the purpose of deciding question No.1, are that assessee is engaged in the manufacture and sale of automotive components; loss of ` 1,90,278/- on account of fire was claimed; due to short circuit, fire broke out in the factory premises of the assessee on 16.12.1993; assessee suffered a total loss of ` 7,49,544/-; assessee received a sum of ` 5,59,226/- from the insurance company and the balance amount was debited to profit and loss account; at the time of assessment, the A.O. disallowed the same, which was upheld by the CIT. 4. Learned Tribunal in the impugned order has held that any capital gain or capital loss arises only when there is a transfer of assets within the meaning of Section 2(47) of the Act; the definition of 'transfer' includes the sale exchange or relinquishment of the assets or the extinguishments of any rights therein; in the instant case there is no relinquishment of the assets as due to fire, the asset is lost which could be the extinguishments of the assets. Learned Tribunal, while relying on the judgments of Hon'ble the Supreme Court in the case of Mary Bong & Kyel Tea Industries Ltd., 91 Taxman 11 and in the case of Vania ITA No.278 of 2004 (O&M) -3- Silk Mills (P) Ltd., 191 ITR 657, has held that where the asset is destroyed it will not amount to transfer of the assets. Therefore, claim received from the insurance company against the loss suffered by the assessee due to fire would be revenue loss incurred in the normal course of business and allowable deduction under Section 37(1) of the Act and cannot be treated as capital gain. 5. We do not find any infirmity in the observations made by learned Tribunal. The judgment of Hon'ble the Apex Court in the case of Vania (supra) has full application in the present case. Therefore, question No.1 stands answered against the revenue and in favour of the assessee. Question No.2 6. Brief facts of the present case, inter alia, for the purpose of deciding question No.2, are that premium of ` 2,22,830/- paid to the insurance company on the life policy taken on the lives of the partners was found not covered either under Section 36(1) or 37 of the Act by the Assessing Officer. However, learned Commissioner of Income Tax (Appeals) as well as learned Tribunal has found that policy has been issued to the partnership firm and the beneficiary is the firm. The policies have been purchased to keep the partnership business alive and not to be disturbed even if there is a death of any of the partners. Thus, the policies have been effected for the benefit of business and not for the benefit of the partners. Therefore, the expenditure incurred by the assessee on the insurance policy is allowable expenditure. 7. Since, Commissioner (Appeals) as well as learned Tribunal have recorded concurrent finding of fact in favour of the assessee, we do ITA No.278 of 2004 (O&M) -4- not find any reason to take contrary view. Therefore, question No.2 also stands answered in favour of the assessee and against the revenue. 8. Appeal stands dismissed accordingly. (M.M. Kumar) Judge (Alok Singh) Judge March 29, 2012 R.S. "