1966 PLP 318 (PTD)

HASAN, J.‑The assessee purchased some M. S. rods from Karachi and the same were shipped to Chittagong. The goods were covered by insurance under a policy of Eastern Federal Union Insurance Company Limited. When the goods arrived at Chittagong, 338 bundles of rod were found to be short and a short landing certificate was granted by the Port Authorities at Chittagong. When the balance of the goods arrived at Dacca, a further shortage of 31 bundles was noticed. According to the assessee the total shortage thus came to 74 tons and in consequence of which according to the assessee, the assessee suffered total loss amounting to Rs.60,

697. The assessee wanted the loss to be realised from the Insurance Company under their policy No. D/8A03/1256, dated 18th December 1956, but the Insurance Company refused to make payment to the assessee for the loss in question. Similarly their claim for the loss was also turned down by Messrs James Finalay & Co. Ltd. the authorised agent for East & West Steamship Company, Karachi. Being thus placed in such a position, the assessee filed a suit in the 3rd Court of Subordinate Judge, Dacca, against the Eastern Federal Union Insurance Co. Ltd. and others. When the assessee was going to be assessed for the assessment year, 1958‑59, it was submitted on behalf of the assessee that the loss was actually sustained and the same was to be set off against the income of the assessee from their business. The Income‑tax Officer rejected this prayer with the observation that the assessee would be entitled to claim the same for deduction from the total income when the assessee would be unable to recover the loss. On appeal at the instance of the assessee, the order passed by the Income‑tax Officer was revised and it was directed by the Appellate Assistant Commissioner of Income‑tax that the loss claimed should be treated as admissible reduction from the year of assessment. As against that order the Commissioner of Income‑tax preferred an appeal before the Appellate Tribunal which, however, restored the order of the Income‑tax Officer with the following observation:‑ "It is true that an expenditure incurred in a particular year should be debitable in that year but what the assessee claims is not an expenditure incurred but loss of stock covered by insurance which he has excluded from the trading account. The insurance money would represent replacement of stock if and when recovered. We are of the opinion that the Appellate Assistant Commissioner by allowing this loss has committed an error and that the Income‑tax Officer's disallowance should be maintained. So far as the order of the Income‑tax Officer goes it appears that he did not doubt the fact of loss in transit. We are of the opinion that when the matter reaches finality the assessee should be entitled to bring forward his claim if the facts proved justify." Where upon the assessee filed an application under section 66 (1) of the Income‑tax Act for reference to the High Court but as the prayer of the assessee was refused, an application was filed by the assessee under section 66 (2) of the Income‑tax Act for directing the Appellate Tribunal to refer the matter. The High Court directed the Appellate Tribunal to state the facts and refer the following question for the High Court's opinion:‑ "Whether on the facts and circumstances of the case the Tribunal was justified in not allowing the loss of Rs. 60,697 in the assessment for the year in which the loss had occurred?" It is contended on behalf of the assessee that in view of the provision of section 10 (2A), the assessee is entitled to get the rebate in the assessment year under consideration. On the other hand Mr. Afzalul Huq, the learned Advocate for the Department, has contended that the loss as alleged by the assessee is not such a loss for which the assessee is entitled to get any reduction. It has been further contended that the loss as contemplated by the Income‑tax Act is a loss which is irrecoverable or which has been written off but as in the present case, the goods are covered by insurance, the loss can be recovered from the Insurance Company which is liable to pay for the loss of the goods and as such it cannot be said that it is irrecoverable or a bad debt or a questionable debt. In support of this contention reliance has been placed on the cases of Indermani Jatia v. Commissioner of Income‑tax, U. P. (35 I T R 298), Associated Banking Corporation of India Ltd. v. Commissioner of Income‑tax, Bombay City (40 I T R), Jadavji Narsidas & Co. v. Commissioner of Income‑tax, Bombay City (47 I T R 411), G. Manavala Naidu v. Commissioner of Income‑tax/Excess Profits Tax, Madras (41 I T R 725) and Commissioner of Income‑tax v. Srimati Singari Bai (13 I T R 224). The learned Advocate for the assessee has relied on sections 10 (2A) and 13 of the Income‑tax Act. Section 10 (2A) provides:‑ "Where for the purpose of computing profits or gains under this section, an allowance or deduction has been made on the assessment for any year in respect of any loss, expenditure or deduction has been made in the assessment for any year in respect of any loss, expenditure or trading liability incurred by the assessee and, subsequently during any previous year, the assessee has received, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure, has obtained some benefit in respect of such trading liability by way of remission or cessation thereof, the amount received by him, or the value of the benefit accruing to him, shall be deemed to be profits and gains of business, profits and gains of business, profession or vocation and to have accrued or arisen during that previous year." And section 13 runs:‑ "Income, profits and gains shall be computed, for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee." The learned Advocate for the assessee has not relied on the proviso or explanation to this section. If reference is made to the provisions of section 10 (2A), it will be seen that it does not refer to any rebate for loss but only makes a provision that when an allowance or deduction has been made in the assessment for any year in respect of any loss, etc. subsequently during any previous year, the assessee has received whether in cash or in any other manner whatsoever any amount in respect of such loss, etc. the amount so received by him or the value of the benefit accruing to him, shall be deemed to be profits and gains of business, profession or vocation and to have accrued or arisen during that previous year. The portion of section 13 on which reliance has been placed only refers to that income, profits and gains which shall be computed, for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee and nothing more. We have gone through the provisions of the Income‑tax Act and we do not find any definition of loss, though the word "loss" has been used. So the meaning that we can give to the word "loss" is to be the dictionary meaning that is generally understood by the public in general. In the present case, the rods which have‑not been delivered to the assessee are covered by the Insurance policy. It is contended by the assessee that the assessee is unable to realise from the Insurance Company on the basis of the insurance. On the other hand, it is contended by the learned Advocate for the Department that two suits have been instituted by the assessee, one in Dacca and another in Karachi, against the Insurance Company and also against: the carriers; and that it has not been decided in those suits whether this amount has become a bad or doubtful debt. We do find some substance in the contention of the learned Advocate for the Department. In our opinion, the loss con?templated in the Income‑tax Act is a loss which is irrecoverable or its equivalent in cash or in kind is unavailable but when the goods lost can be covered or the equivalent either in cash or in kind can be realised, then in that case such loss is not a loss within the meaning of the Income‑tax Act. In the present case the goods lost are covered by the Insurance and the suits are pending and a such the assessee is apparently entitled to get equivalent in cash from the Insurance Company. Furthermore, if the assessee can prove that the Carrier‑Company is also liable, in that case the assessee can also recover the damages from the Carrier‑Company in the suits instituted by the assessee. This view of ours is also supported by the provision of section 10 (2A) quoted before. The loss that has been referred to in section 10 (2A) is a loss which is apparently irrecoverable but if subsequently any amount in respect of such loss, etc. can be obtained by way of remission o cessation thereof, the amount received by the assessee would be treated as profits and gains of the business. If the intention of the Legislature was that the loss mentioned in the Income‑tax Act for which rebate was allowable, is a loss which is recoverable, then in that case, the provision of section 10 (2A) would have been otherwise and not in the way it has been provided. Hence in our opinion the assessee is not entitled to rebate of this sum in the assessment year under consideration but the assessee's case may be placed before the Income‑tax Authority when the assessee becomes unsuccessful in the suits to recover either from the Insurance Company or the Carrier. So we answer the question in the affirmative. Having regard to the facts and circumstances of the case, we direct the parties to bear their respective costs of this Court. A. S. CHOWDHURY, J.‑I agree. S. Q.??????????????????????????????????????????????????????????????? Reference answered in the affirmative.