Case: Raghuvanshi Mills Ltd Vs. Commissioner Of Income-Tax,Bombay City

profits which would have been made had the Mills been working in its norma1 way.6. We turn next to the Income-tax Act. Under S. 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 falls under any one or more of those heads. In our opinion, it is "income" and so is taxable.7. It was argued on behalf of the assessee that it cannot be called profits because the money is only payable 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 on 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 amount is either an income or a profit or a gain.8. No attempt has been made in the Act to define "income" except to say in S. 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 qualified in the Section itself. The words which follow, namely, "from-whatever source derived", show how wide the net is spread. So also in S.6. After setting out the various heads of taxable income it brings in the all-embracing phrase "income from other sources".9. 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 amoung the provisions are a series of exception and limitations. Most of them are set out in S.4 itself but none of them apply here. The nearest approach for present purposes is S. 4(3) (vii):"Any receipts ............... not being receipts arising from business ...............which are of causal and nonrecurring nature."But the sting, so far as the assessee is concealed, lies in the words "not being receipts arising from business."10. The assesses 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 on 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 inseparably connected with the ownership and conduct of the business and arises from it. Accordingly, it is not exempt.11. 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. v. The King, 1931 Canada L. R. 435. But the Court did not examine the wider position whether it is "income" and in any event the decision was reversed on an appeal to the Privy Council. 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 v. Williams Executors, 26 Tax Cases28. In so far as these decisions do not turn on 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.12. It is true the Judicial Committee attempted a narrower definition in Commissioner of Income tax v. Shaw Wallace and CO., 59 I. A. 206, 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 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 Co., The King v. B. C. Fir and Cedar Lumbar and Co., 1932 A. C. 441 at p. 448 and we do not think their Lordships had in mind a case of this nature when they decided Shaw Wallace and Companys case, 59 I. A. 206.13. The learned Solicitor-General relies Strongly on 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 restart 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 neither Income nor profits, nor was it again within the meaning of the section. We are unable so see how these receipts cease to be income simply because certain things must be done before the moneys can be claimed.1

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]This contention is new and involes question 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, right up to this Court, that the whole of the Rs. 14,00,000 was assignable to loss of profits. There is nothing on the record to show that it was ever split up among the other heads or that it was ever treated as having been split up either by the insurance companies or by the assessee, nor is there any material on which we would be able to apportion it. Our decision therefore proceeds on 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 otherS. 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 falls under any one or more of those heads. In our opinion, it is "income" and so is taxable.In so far as these decisions do not turn on 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 Commissionerof Income tax v. Shaw Wallace and CO., 59 I. A.206, 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 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 Co., TheKing v. B. C. Fir and Cedar Lumbar and Co., 1932 A. C. 441 at p.448 and we do not think their Lordships had in mind a case of this nature when they decided Shaw Wallace and Companys case, 59 I. A. 206.The learned Solicitor-General relies Strongly on 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 restart 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 neither Income nor profits, nor was it again within the meaning of the section. We are unable so see how these receipts cease to be income simply because certain things must be done before the moneys can be claimed.