Case: Commissioner Of Income-Tax, Calcutta Vs. M/S. Moon Mills Ltd

2. The facts leading up to the said reference may briefly be stated. Messrs Moon Mills Ltd., the respondent herein, hereafter referred to as the Company, is a joint stock limited company and it owns a factory at Bombay. On August 6, 1948, a fire broke out in the factory premises of the assessee resulting in the destruction of the stock-in-trade, machinery and buildings. The assets of the Company were covered by several insurance policies, issued by the General Assurance Society Ltd. in respect of (i) general specification policies, (ii) specific stock policies, and (iii) consequential loss policies, for an aggregate sum of Rs. 1,48,92,390. The Company received Rs. 65 lakhs from the insurance company in full settlement of its claim under the said policies. The said amount was received by the Company only on March 27, 1950. Out of the said amount the sum of Rs. 27,06,593 represented the loss in respect of the building and machinery - Rs. 4,24,205 in respect of the buildings and Rs. 22,82,388 in respect of the machinery. For the assessment year 1949-50, the Company did not include the said amount in its return as it was received by it only on March 27, 1950. The Income-tax Officer, on the ground that the said amount became receivable by the Company on December 13, 1948 included the same in the taxable income of the assessee Company for the assessment year 1949-50. On appeal, the Appellate Assistant Commissioner came to the conclusion that the said amount could only be assessed to tax under the fourth proviso to Cl.(vii) of sub -s. (2) of S. 10 of the Act when the Company actually received it. On appeal preferred by the Revenue against the said Order, the Income-tax Appellate Tribunal agreed with that view. Thereafter, the Appellate Tribunal referred the aforesaid question to the High Court for its decision and the said Court upheld the view of the Appellate Tribunal. The Revenue on a certificate issued by the High Court has preferred the present appeal.

Reasoning: 12. The legal position may be stated thus: The profit and loss of a business concern is ascertained on commercial principles Section 13 of the Act, subject to the proviso, imposes a duty on the Revenue to compute the profits of a business in accordance with the methods of accounting adopted by an assessee under the said principles. But the concept of assessable income under the Act is different from profit and loss in a commercial sense. Though profit and loss ascertained under the system adopted by an assessee is the basis, the assessable income is arrived at by adopting rules, some artificial, incorporated in S. 10 (2) of the Act. Prima facie, the allowances, deductions and deemed profits shall be ascertained in terms of the statutory provisions, unless the statute itself accepts the principles of commercial accountancy in a particular case13. In the present case, the compensation to the extent mentioned in the proviso received only in the accounting year was by fiction treated as profit. There is, therefore, no scope for holding that the expression received means receivable14. For the aforesaid reasons, we hold that, as the compensation for the loss of machinery and buildings by fire was not actually received by the Company during the accounting year, the said amount could not be assessed during the assessment year.