Case: Commissioner of Income Tax (Central), Calcutta Vs. Moon Mills Limited

2. The facts and circumstances out of which the question arose are as follows : The relevant assessment year is2 and the corresponding accounting year is the calendar year 1950. The Moon Mills Ltd., Bombay, respondent, hereinafter referred to as " the assessee ", carried on the manufacture and sale of cotton yarn and cottons in Bombay. On June 6, 1948, a devastating fire broke out in the premises of the mills of the assessee destroying the building and partially destroying and damaging the machinery and plant. The amount of compensation was settled between the insurers and the assessee at Rs. 62, 41, 177. Although the settlement took place in 1948, the amount was received by the assessee in 1950. The manufacturing operations of the mills ceased after the fire, though the other trading activities were continued throughout the years 1948, 1949 and 1950, on a restricted scale. The fixed assets of the business in respect of which compensation was claimed from the insurers having been destroyed and put out of order by the fire were not used for the purpose of business in the year 1950 in which the compensation was received but they had been so used in the year 1948 before they were destroyed by fire3. Thex Officer for the assessment year2 held that a sum of Rs. 22, 35, 181 was profit assessable under the fourth proviso to section 10(2)(vii), and included this in the total income of the assessee. Before the Appellate Assistant Commissioner it was argued by the assessee that the fourth proviso was not applicable to the case in view of the fact that the fixed assets for which compensation was received were not used for the purposes of business during the accounting year. The Appellate Assistant Commissioner rejected this contention, but reduced the amount chargeable under the fourth proviso to Rs. 19, 81, 899The Appellate Tribunal, Calcutta Bench " A ", sustained the order of the Appellate Assistant Commissioner but on different considerations. The High Court answered the question in the negative and in favour of the assessee. The Commissioner ofx having obtained special leave, the appeal is now before us

Court's reasoning:
6. It seems to us that before the excess of insurance money received over the difference between the written down value and scrap value is brought to charge it is essential that(1) during the previous year in which moneys are received the business shall have been carried on by the assessee for the part or whole of it ; and(2) the machinery shall have been used in the business in that previous year7. It is not disputed that on the facts of this case none of these conditions are satisfied. It follows from the above reasoning that the answer returned by the High Court is correct