Appeal No 1496 of 1993
From the Judgment and Order dated 2021985 of the Orissa High Court in First Appeal No139 of 1974 Raj Kumar Mehta for the Appellant
The Judgment of the Court was delivered by BP JEEVAN REDDY J
Heard the counsel for the appellant
None appears for the respondent though served
Leave granted
This appeal by the Orissa State Electricity Board is preferred against the judgment of the Orissa High Court allowing partly an appeal preferred by the respondent
The dispute pertains to the liability of the consumer respondent in this appeal to pay the minimum charges during the period subsequent to the date of disconnection of supply of energy to him for the non payment of electricity dues
The respondent is an industry
It entered into an agreement with the appellant for supply of electricity on March 5 1965
The agreement was valid for a period of five years
He started availing of the energy with effect from July 31 1965
The supply of his industry was disconnected on April 30 1968 for non payment of electricity charges
Since the consumer also failed to pay the minimum charges for the period subsequent to the date of disconnection the Board filed a suit for the amount due on account of the electricity consumed between April 1 1968 and April 30 1968 and for the minimum charges for the period May 1 1968 to March 5 1970
It may be remembered that the agreement between parties was valid upto March 5 1970
The Trial Court decreed the suit as prayed for along with interest 862 of 6 per annum on the amount decreed from the date of suit till the date of decree and also future interest at the same rate till full satisfaction
On appeal the High Court sustained the decree of the Trial Court only for the period upto the date of disconnection April 30 1968 but disallowed the claim for the period subsequent to the date of disconnection
The reasoning of the High Court is that inasmuch as the supply was disconnected and the respondent consumer did not avail of any energy whatsoever during the period subsequent to the disconnection it is not liable to pay the minimum charges
In this appeal it is contended by the learned counsel for the appellant that the question arising herein is concluded in favour of the Board by the decision of this Court in Bihar State Electricity Board Patna and Ors
vs Ms Green Rubber Industries and Ors 1990 1 SCC 731
On a perusal of the judgment we find that was also a case where the claim inter alia pertained to the period subsequent to the date of disconnection till the expiry of the agreement
In that case too minimum charges were claimed by the Board even for the period during which the supply remained disconnected and no energy whatsoever was availed of by the consumer
We also find that clause 4 of the agreement considered  in the said decision and clauses 6 and 13 of the agreement concerned herein are substantially same
Clause 13 of the agreement between the parties hereto does oblige the consumer to pay a certain minimum charges in any event
The clause reads as follows Clause 13
The consumer shall subject to the provisions hereinafter contained pay to the Engineer for the power demand and electrical energy supplied under this Agreement the charges to be ascertained as mentioned below viz Government resolution on tariff to be inserted here LARGE INDUSTRIES For demand of 125 KVA and above for supply at 11 KV at i Rs550 paise per KVA per month plus ii Rs008 paise per KWH per month subject to an overall maximum rate of Rs009 paise per KWH and 863 without prejudice to payment of minimum charge of 75 per cent of the contract demand at the above rate of Rs550 paise per KVA per month and subject further to absolute minimum payment on 125 KVA in the first part of the tariff
For less than 250 KVA the demand may be metered in KW and charged for at Rs600 per KW per month
Besides the charges for KWH consumed at the rate specified above
For supply at MT less than 11 KVA and MT less that 11 KVA and MT the above rate will be increased by 10
 The reasons for such a stipulation and its justifiability are duly and fully explained by this Court in the aforesaid decision
It is not necessary for us to reiterate the same
The appeal is accordingly allowed
The Judgment of the High Court is set aside
The judgment and decree of the Trial Court is restored
No costs
TNA Appeal allowed


Summary:
The appellant assessee a manufacturers of radiators for automobiles booked copper ingots from a corporation In the United States of America for being brought to Bombay where it was to be rolled Into strips and sheets and then despatched to the assessee for being used for manufacture
While the ingots were at sea hostilities broke out between India and Pakistan and the vessel carrying the goods was seized by the authorities in Pakistan
The claim of the assessee for the price paid by it for the goods was ultimately settled in its favour by the Insurer in America
The Indian Rupee In the meanwhile had been devalued and therefore in terms of rupees the appellant firm got Rs 343556 as against their payment of Rs 200164 at the old rates
The differnece was credited to profit on devaluation in the Profit and Loss Account
The claim of the appellant that the difference being a causal receipt and non recurring In nature and as such was not liable to tax was not accepted by the IncomeTax Officer
The Appellate Assistant Commissioner rejected the appeal of the assessee being of the opinion that the receipt was one which did not arise directly from carrying on business by the assessee but was the incidental 776 to it and not finding any merit in the submission that the ultimate realisation was in the nature of capital gains and not revenue recipt
In further appeal by the assessee the Tribunal held that when the goods were seized by the Pakistan authorities the character of the goods changed and it became sterilized and therefore it ceased to be stock intrade of the assessee that the devaluation surplus was in nature of capital receipt and not a profit made by the assessee in the course of business that the money which came to the assessee was as a result of the settlement of the insurance claim and therefore the profit that resulted from it could not be considered in the normal course of business
The High Court in its advisory jurisdiction at the instance of the  Department negatived the claim of the assessee for two reasons one the difference in the cost price and the sale price and the other that it was revenue receipt and did not agree with the Tribunal as according to it if the assessee had got the goods imported into India and sold them it would have got higher amount as a result of devaluation and held that there could be no dispute that the assessee was liable to pay tax on the difference of the sale price and the cost
It further held that the nature of the amount which came in the hands of the assessee was a revenue receipt and did not agree that the payment made to the assessee was otherwise than for business as the whole transaction was part and parcel of the business carried on by the assessee and could not be described as extraneous to it
In the assesses appeal to this Court on the question whether the excess amount paid to the assessee due to fluctuation in exchange rate was taxable or not
Allowing the appeal this Court HELD  1
The word income  ordinarily in normal sense connotes any earning or profit or gain periodically regularly or even daily in whatever manner and from whatever source
It is thus a word of very wide import
Section 224 of the Income Tax Act is legislative recognition of its elasticity
Its scope has even widened from time to time by extending it to varied nature of income
Even before it was defined as including profits gains dividends and contributions received by a trust it was held to be a word of broadest connotation  which could not be understood in restricted or technical sense  781 D E 777 Raghuvanshi Mills Ltd Bombay vs Commissioner of Income Tax Bombay City  referred to
781 E 2 Casual  means accidental or irregular
If the irregular or the accidental income arose as a result of business activity them even if it was non recurring it may not have fallen outside the revenue net
The real test is therefore what was the nature and character of the income which accrued to the assessee
The causal nature of it or non recurring nature were only aids to decide if the nature of income was in the course of business or otherwise
782 F Barendra Prasad Ray and Ors
vs Income Tax Officer  section G Mercantile Corporation Pvt Ltd vs Commissioner of Income Tax  Commissioner of Income Tax vs Calcutta National Bank and Commissioner of Income Tax Mysore vs Canara Bank Ltd 1967 LXIII ITR 328 referred to
782 G H 783 B 3
An income which was casual in nature could be brought In the revenue net only if it arose from business
In other words the receipt or profit of the nature covered by Section 103 could be brought to tax if it was the result of any business activity carried on by the assessee
783 D In the instant case the assessee carried on business of manufacturing radiators and not ingots
The ingots were imported to be converted into strips and sheets at Bombay
The link which could create direct relationship between the finished goods and the raw material was snapped even before it reached Bombay
Payment made for loss of such goods did not bear any nexus with the assessee s business
May be that if it would have reached it could have been after conversion into strips and sheets used as raw material
But so long as it did not reach Bombay and was not converted into raw material the connection it bore with the assessee s business was remote
And any payment made in respect of it could not be said to accrue from business
783 E Strong and Company of Romsey Limited vs Woodifieid Survevor of Taves 5 Tax Cases p215 referred to
783 F 4
An income directly or ancillary to the business may be an income from business but any income to an assessee carrying on business does not become an income from business unless the necessary relationship 778 between the two is established
784 B In the Instant case what was lost was not raw material but something which was capable of being converted into raw material
The necessary nexus between ingots and radiators which could have resulted in income from ingots never came into being
Thus any devaluation surplus arising out of payment paid for loss of ingots could not be treated as income from business of the assessee
784 C section Income from goods purchased for business is not an income from business
In the instant case buying ingots by the assessee was not a part of its trading activity
784 F State Bank of India vs Commissioner of Imcome Tax Ernakulam  distinguished
784 F 6
Taxability on profit or deduction for loss depends on whether profit or loss arises in the course of business
The courts have maintained a distinction between insurance against loss of goods and insurance against loss of profits
The latter is undoubtedly taxable
Taxability of the amount paid on settlement of claim by the insurance company depends both on the nature of payment and purpose of insurance
785 D E 7
Any payment being accretion from business the excess or surplus accruing for any reason may be nothing but profit
But where payment is made to compensate for loss of use of any goods in which the assessee does not carry on any business or the payment is a just equivalent of the cost incurred by the assessee but excess accrues due to fortuitous circumstances or is a windfall then the accrual may be a receipt but it would not be income arising from business and therefore not taxable under the Act
785 F G Commissioner of Inland Revenue vs William s Executors 26 Tax Cases p23 referred to
785 H In the instant case the assessee did not carry on business of buying and selling of ingots
The compensation paid to the assessee was not for any trading or business activity but just equivalent in money of the goods lost by the assessee which it was prevented from using
The excess arose on such payment in respect of goods in which the assessee did not carry on any business
Due to fortuitous circumstances of devaluation of currency but not due to any business or trading activity the amount could not 779 be brought to tax
786 C D Commissioner of Income Tax vs Union Engineering Works  approved
786 G