1997 PLP 1956 (PTD)

Capital gains

Transfer

Assets destroyed by fire

Compensation paid icy insurers

Damaged assets taken over by insurers

No transfer

Excess of compensation over cost of assets

Not taxable as capital gains

Indian Income Tax Act, 1961, Ss. 2(47) &

45. Where assets belonging to the appellant were destroyed by tire, and the appellant received compensation from the insurers under policies of fire insurance, the insurers taking away the salvaged property: Held, that there was no transfer of property for the purpose of capital gains under section 45 of the Income Tax Act, 1961, and the excess of the compensation over the cost of the assets in question could not be brought to tax as capital gains

[Marybong and Kyel Tea Estates Ltd. v, CIT (1981) 129 ITR 661 reversed]. Vania Silk Mills P. Ltd. v. CIT (1991) 191 ITR 647 (SC) fol. Marybong and Kyel Tea Estates Ltd. v. CIT (1981) 129 ITR 661 reversed. CIT v. Vania Silk Mills (P.) Ltd. (1977) 107 ITR 300 (Guj.) ref. G. C. Sharma, Senior Advocate (Ms. Shipra Ghose Jain, Rahul P. Dave and D. N. Gupta, Advocates with him) for Appellant. K. N. Shukla, Senior Advocate (B. Krishna Prasad, K. N. Nagpal and C. Radha Krishnan, Advocates, with him for Respondent. In these appeals, the appellants (assessees) had received compensation from the insurers under policies for insurance against fire and the question that was referred for the opinion of the High Court (see (1981) 129 ITR 661) was whether there was a "transfer" as defined in section 2(47) of the Income-tax Act, 1961, and the excess sum of compensation after deducting the original cost of the assets destroyed by fire had been properly brought to tax as capital gains under section 45 of the Income-tax Act, 1961. By the impugned judgment in Civil Appeal No.3909 of 1983, the Calcutta High Court has answered the said question against the assessee and has placed reliance on the decision of the Gujarat High Court in CIT v. Vania Silk Mills (P.) Ltd.(1977) 107 ITR

300. The said decision in Civil Appeal No. 3909 of 1983 was followed by the said High Court in the judgment which is under challenge in Civil Appeal No.3910 of 1983. The decision of the Gujarat High Court in CIT v. Vania Silk Mills (P.) Ltd. (1977) 107 ITR 300 came up in appeal before this court and has been reversed in Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR 647, wherein it has been held that in cases where an insurance company pays for the total loss or damage of the property and takes over the property or whatever is left of it there is no transfer for the purpose of capital gain under section 45 of the income-tax Act. This matter is thus fully covered by the said decision of this court reported in Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR

647. For the reasons given in the said judgment, the appeals are allowed and the question referred in both the cases is answered in favour of the assessee arid against the Revenue. No order as to costs. M.B.A./1364/FC???????????????????????????????????????????????????????????????????????????????? Appeals allowed.