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

1. This is an appeal from the High Court at Bombay in an Income-tax Reference under S. 66(1), 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 as the Raghuvanshi Mills Ltd., of Bombay. The assessment year with which we are concerned isThe 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 wasRs. 37,75,000 on account of loss of profits and standing charges, andRs. 2,25,000 on account of agency commission, making a total of Rs. 40,00,000.On 18-1-1944 a fire broke out and the mills were completely destroyed. The various insurance companies therefore paid the assessee Company an aggregate of Rs. 14,00,000 on account in the year with which we are concerned under these policies. This was paid in two sums as follows: Rs. 8,25,000 on 8-9-1944 and Rs. 5,75,000 onThese payments have been treated as part of the assessees income and the Company has beed taxed accordingly.

Reasoning: 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.