Appeal No 55 of 1950
Appeal by special leave from the Judgment and Order dated March 18
1949 of the High Court of Judicature at Bombay Chagla C J 178 and Ten dolkar J in Income tax Reference No 5 of
1948 arising out of order dated September 27 1947 of the Income tax Appellate Tribunal Bombay Bench A  in ITA No 2205 of 1946 47
C K Daphtary Solicitor General for India K T Desai and AM Mehta with him for the appellant
M C Setalvad Attorney General for India G N Joshi with him for the respondent
November 3
The Judgment of the Court Was delivered by Bose J This is an appeal from the High Court at Bombay in an Income tax Reference under section 66 1 of the Indian Income tax Act of 1922
The reference was made to the Bombay High Court by the Bombay Bench of the Income tax Appellate Tribunal in the following circumstances
The appellant assessee is a company known its the Raghuvanshi Mills Ltd of Bombay
The assessment year with which we are concerned is 1945 46 The assessee had insured its buildings plant and machinery with various insurance companies and also took out besides those policies four policies of a type known as a Consequential Loss Policy
 This kind of policy insures against loss of profit standing charges and agency commission
The total insured against under the latter heads was Rs 3775000 account of lossof profits and standing charges and Rs 226000 account of agency commission making a total of Rs 4000000
On the 18th of January 1944 a fire
broke out and the mill were completely destroyed
The various insurance companies therefore paid the assessee company an aggregate of Rs 1400000 account in the year with which we are concerned under these policies
This was paid in two sums as follows Rs 825000 8th September 1944 and Rs 575000 22nd December 1944
These payments have been treated as part of the assessee s income and the 179 company has been taxed accordingly
The question is whether these sums are or are not liable to tax
Before we set out the question referred it will be necessary to state that the whole of this Rs 1400 000 has been treated as paid account of loss of profits
The learned Solicitor General who appeared for the  appellant assessee contended that that was wrong because the portion of it assignable to standing charges and agency commission could not any construction be liable to tax
This contention is new and involves questions of fact and travels beyond the scope  of the question referred
We are consequently not able to entertain it
It has been assumed throughout the proceedings tight up to this Court that the whole of the Rs 1400000 was assignable to loss of profits
There is nothing the record to show that it was ever split up among the other heads or that it was ever treated a having been split upeither by the insurance com panies or by the assessee nor is there any material which we would be able to apportion it
Our decision therefore proceeds the assumption that the whole sum is assignable to loss of profits and we make it clear that we decide nothing about other moneys which may be distributable among other heads
The question has been referred in these terms Whether in the circumstances of the case the sum of Rs 1400000 was the assessee company s income within the meaning of Section 26C of the Indian Income tax Act and liable to pay income tax under the Indian Income tax Act
 We are concerned in this case with four policies of insurance with four different insurance companies
The clauses relevant to the present matter are the same in all four cases though the sum insured against by
each insurance company differs
They are as follows POLICY NO
CL 110018   180 Rupees X Lacs only Loss of Profits Standing Charges and Agency Commission of the above Co s Mills situate at Haines o Road Mahaluxmi Bombay following  
The total amount declared for insurance is Rs 4000000 and for 18 months  benefits only as under Rs 3775000 Loss of Profits and Standing Charges
Rs 225000 Agency Commission
Rs 4000000 Out of which this policy covers Rs X lacs only
Schedule attached to and forming part of Po licy No C L 10018
The company will pay to the assured The loss of Gross Profit due to a Reduction in Output and b increase in Cost of Working and the amount payable as indemnity hereunder shall 
Definitions of those two terms follow
We need not reproduce talent
Then come the following definitions Gross profit
The sum produced by adding to the Net Profit the amount of the Insured Standing Charges or if there be no Net Profit the amount of the Insured Standing Charges less such a proportion of any net trading loss as the amount of the Insured Standing Charges bears to all the Standing Charges of the business
Net profit
The net trading profit exclusive of all capital receipts and accretions and all outlay properly chargeable to capital resulting from the business of the Insured at the premises after due provision has been made for all Standing and other charges including depreciation
Insured standing charges
Interest Loans and Bank Overdrafts Rent Rates and Taxes Salaries to Permanent Staff and Wages to Skilled Employees 181 Directors  Fees Auditor s Fees Travelling Expenses Insurance Premiums Advertising and Agency Commission
Period of indemnity
The period beginning with the occurrence of the fire and ending not later than eighteen consecutive calendar months thereafter during which the results of the business shall be affected in consequence of the fire
Rate of Gross Profit
The rate of gross profit per unit earned the output during the financial year immediately before the date of the fire  to which such adjustments shall be made as may be necessary to provide for the trend of the business and for variations in or special circumstances affecting the business either before or after the fire or which would have affected the business had the fire not occurred so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the result which but for the fire would have been obtained during the relative period after the fire  The underlined words show that the insurance in respect of profits was to represent as nearly as possible the profits which would have been made had the mills been working in its normal way
We turn next to the Income tax Act
Under section 3 the total income of the previous year is liable to tax subject to the provisions of the Act
Section 4 defines the total income to include all income profits and gains from whatever source derived
 There are certain qualifications but they do not concern us here
It will be seen that the taxable commodity total income embraces three elements income profits and gains
Now though these may overlap in many cases they are nevertheless separate and severable and the simple question is whether the Rs 14 lacs Here italicised
24 182 fall under any one or more of those heads
In our opinion it is income and so is taxable
It was argued behalf of the assessee that it can not be called profits because the money is only pay able if and when there is a loss or partial loss and that something received from an outside source in circumstances like these is not money which is earned in the business and if there are no earnings and no profits there cannot be any income
But that only concentrates the word   profits
This may not be a profit but it is something which represents the profits and was intended to take the place of them and is therefore just as much income as profits or gains received in the ordinary way
Section 4 is so widely worded that everything which is received by a man and goes to swell the credit side of his total account is either an income or a profit or a gain
No attempt has been made in the Act to define income except to say in section 2 6C that it includes certain things which would possibly not have been regarded as income but for the special definition
That however does not limit the generality of its natural meaning except as qualifided in the section itself
The words which follow namely from a whatever source derived show how wide the net is spread
So also in section 6
After setting out the various heads of taxable income it brings in the all embracing phrase income from other sources
 There is however a distinction between income and taxable income
The Act does not purport to subject all sources of income to tax for the liability is expressly made subject to the provisions of the Act and among the provisions are a series of exceptions and limitations
Most of them are set out in section 4 itself but none of them apply here
The nearest approach for present purposes is section 4 3 vii Any receipts  not being receipts arising from business  which are of a casual and non recurring nature
 183 But the sting so far as the assessee is concerned lies in the words not being receipts arising from business
 The assessee is a business company
Its aim is to make profits and to insure against loss
In the ordinary way it does this by buying raw material manufacturing goods out of them and selling them so that balance there is a profit or gain to itself
But it also has other ways of acquiring gain as do all prudent businesses namely by insuring against loss of profits
It is indubitable that the money paid in such circumstances is a receipt and in so far as it represents loss of profits as opposed to loss of capital and so forth it is an item of income in any normal sense of the term
It is equally clear that the receipt is in separably connected with the ownership and conduct of the business and arises
from it
Accordingly it is not exempt
This question was considered by the Supreme Court of Canada which decided that a receipt of this nature is not a profit and so is not taxable B C Fir and Cedar Lumber Co vs The King1
But the Court did not examine the wider position whether it is income and in any event the decision was reversed appeal to the Privy Council1
Their Lordships held it is income
This was followed later by the Court of Appeal in England and endorsed by the House of Lords in Commissioners of inland Revenue vs William s Executors1 In so far as these decisions do not turn the special wording of the Acts with which they are respectively concerned and deal with the more general meaning of the word income we prefer the view taken in England
It is true the Judicial Committee attempted a narrower definition in Commissioner of income tax vs Shaw Wallace  Co1 by limiting income to a periodical monetary return coming in  with some sort of regularity or expected regularity from definite sources but in our opinion those remarks must be I 1931 Canada LR 435
2 I932 A C 441 at 448
3 I944 4 1932 59 IA 206
184 read with reference to the particular facts of that case
The non recurring aspect of this kind of receipt was considered by the Privy Council in The King vs B C Fir and Cedar Lumber Co1 and we do not think their Lordships had in mind a case of this nature when they decided Shaw Wallace  Company s case 2
The learned Solicitor General relies strongly a clause which appears in three of the four policies with which we are concerned
That is a clause which states that the insured must do all he can to minimise the loss in profits and until he makes an endeavour to re start the business the moneys will not be paid
This he argued shows that the money was paid as an indemnity against the loss of profits and was niether income nor profits nor was it a gain within the meaning of the section
We are unable to see how these receipts cease to be income simply because certain things must be done before the moneys can be claimed
In our opinion the High Court was right in holding that the Rs 1400000 is assessable to tax
The appeal fails and is dismissed with costs
Appeal dismissed
1 1032 AC 441 at 448
2 1932 59 IA 206


Summary:
The appellant mills had insured its building plant and machinery with various insurance conapanies against fire and had also taken out some policies of the type known
as  consequential loss policies  which insured against loss of profits standing charges and agency commission
The mills were completely destroyed by fire and the appellant received certain sums of money under the consequential loss policies
Held that sums of money received under these policies were income within the meaning of section 2 60 of the Indian Income tax Act and as they were inseparably connected with the ownership and conduct of the business of the company and arose I from it they were not exempt under section 4 3 vii and were therefore assessable to income tax under the Indian Income tax Act
Their Lordships made it clear that they proceeded the assumption that the whole sum was assignable to loss of profits and that they decided nothing about other moneys which may be distributable amongst other beads eg standing charges or agency commission The definition of income in Shaw Wallace  Co s case 1932 59 IA 206 as a periodical monetary return coming in  with some sort of regularity or expected regularity from definite sources  must be read with reference to the particular facts of that case and is not applicable to receipts of this nature
The King vs BC Fir and Cedar Lumber Co and Commissioners Of Inland Revenue vs Wi WiIliams s Executors applied
Commissioner of Income tax Bengal vs Shaw Wallace  Co 1932 59 IA 206 commented upon
Judgment o f the Bombay High Court affirmed