CIT v. Khemka Container (P) Ltd.

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The Tax Publishers2005 TaxPub(DT) 0542 (P&H-HC) : (2005) 003 (I) ITCL 0013 : (2005) 275 ITR 0559 : (2005) 193 CTR 0427 : (2005) 144 TAXMAN 0109 Shivram Vishwanath Deshmukh v. P. Saxena, CIT & Ors. () INCOME TAX --Deduction under s. 80-I----Profit derived from industrial undertakingInsurance claim on account of loss of raw material in fire-- Catch Note: The assessee received certain sums towards insurance claim on account of loss of raw material by fire. The assessee included the said amount in profits and claimed deduction under section 80-I. The AO as well as the first appellate authority rejected this claim but the Tribunal held that the amount received had close connection with the profit derived from the industrial undertaking. It was observed that raw material, which was lost by fire, would have been used in generating income for the industrial undertaking and, therefore, compensation received for such raw material could be held to be profit derived from industrial undertaking. Held: Insurance claim received on account of raw material destroyed by fire could not be treated as an income derived from the industrial undertaking so as to qualify for the deduction under section 80-I. Therefore, income arising out of this receipt, which can be computed by deducting cost of raw material destroyed by fire from the gross receipt of insurance claim would have to be excluded while computing deduction under section 80-I. Ratio: Insurance claim received in respect of raw material destroyed by fire cannot be said to be income derived from the industrial undertaking. However, the amount left after deducting cost of raw material had to be excluded and not the entire gross receipt. Held: Amount of insurance claim received by the assessee cannot be held to be income derived from industrial undertaking so as to qualify for deduction under section 80-I. However, the amount of Rs. 1,50,733 is the amount received from the insurance company in respect of the claim of raw material destroyed in fire. However, while computing the profits of the industrial undertaking for the purposes of deduction under section 80-I, what has to be excluded is not the gross receipt but the income arising out of this receipt. Such income can only be computed by deducting the cost of raw material destroyed in fire from the gross receipt of insurance claims. The raw material had been admittedly purchased during the year under consideration and its cost debited in the purchase account of the year. In view of the observations made above, the Tribunal will compute the profit attributable to the receipt of insurance claim and exclude only such profit out of the total income for working out the deduction under section 80-I. Case Law Analysis: Relied :Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 (SC), CIT v. Andaman Timber Industries Ltd. (2000) 242 ITR 204 (Cal), North East Gases (P) Ltd. v. CIT (1996) 220 ITR 372 (Gau) and CIT v. Sterling Foods (1999) 237 ITR 579 (SC) Decision: Against the assessee. Date of Judgment: 26th August, 2004 Assessment Year: 1988-89 Income Tax Act, 1961 Section 80-I INCOME TAX --Deduction under section 80I----PROFIT DERIVED FROM INDUSTRIAL UNDERTAKINGInsurance claim on account of loss of raw material in fire--The assessee received certain sums towards insurance claim on account of loss of raw material by fire. The assessee included the said amount in profits and claimed deduction under section 80-I. The AO as well as the first appellate authority rejected this claim but the Tribunal held that the amount received had close connection with the profit derived from the industrial undertaking. It was observed that raw material, which was lost by fire, would have been used in generating income for the industrial undertaking and, therefore, compensation received for such raw material could be held to be profit derived from industrial undertaking. Held: Insurance claim received on account of raw material destroyed by fire could not be treated as an income derived from the industrial undertaking so as to qualify for the deduction under section 80-I. Therefore, income arising out of this receipt, which can be computed by deducting cost of raw material destroyed by fire from the gross receipt of insurance claim would have to be excluded while computing deduction under section 80-I. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0542 (P&H-HC) : (2005) 003 (I) ITCL 0013 : (2005) 275 ITR 0559 : (2005) 193 CTR 0427 : (2005) 144 TAXMAN 0109

Shivram Vishwanath Deshmukh v. P. Saxena, CIT & Ors. ()

INCOME TAX

--Deduction under s. 80-I----Profit derived from industrial undertakingInsurance claim on account of loss of raw material in fire--

Catch Note:

The assessee received certain sums towards insurance claim on account of loss of raw material by fire. The assessee included the said amount in profits and claimed deduction under section 80-I. The AO as well as the first appellate authority rejected this claim but the Tribunal held that the amount received had close connection with the profit derived from the industrial undertaking. It was observed that raw material, which was lost by fire, would have been used in generating income for the industrial undertaking and, therefore, compensation received for such raw material could be held to be profit derived from industrial undertaking. Held: Insurance claim received on account of raw material destroyed by fire could not be treated as an income derived from the industrial undertaking so as to qualify for the deduction under section 80-I. Therefore, income arising out of this receipt, which can be computed by deducting cost of raw material destroyed by fire from the gross receipt of insurance claim would have to be excluded while computing deduction under section 80-I.

Ratio:

Insurance claim received in respect of raw material destroyed by fire cannot be said to be income derived from the industrial undertaking. However, the amount left after deducting cost of raw material had to be excluded and not the entire gross receipt.

Held:

Amount of insurance claim received by the assessee cannot be held to be income derived from industrial undertaking so as to qualify for deduction under section 80-I. However, the amount of Rs. 1,50,733 is the amount received from the insurance company in respect of the claim of raw material destroyed in fire. However, while computing the profits of the industrial undertaking for the purposes of deduction under section 80-I, what has to be excluded is not the gross receipt but the income arising out of this receipt. Such income can only be computed by deducting the cost of raw material destroyed in fire from the gross receipt of insurance claims. The raw material had been admittedly purchased during the year under consideration and its cost debited in the purchase account of the year. In view of the observations made above, the Tribunal will compute the profit attributable to the receipt of insurance claim and exclude only such profit out of the total income for working out the deduction under section 80-I.

Case Law Analysis:

Relied :Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 (SC), CIT v. Andaman Timber Industries Ltd. (2000) 242 ITR 204 (Cal), North East Gases (P) Ltd. v. CIT (1996) 220 ITR 372 (Gau) and CIT v. Sterling Foods (1999) 237 ITR 579 (SC)

Decision:

Against the assessee.

Date of Judgment:

26th August, 2004

Assessment Year:

1988-89

Income Tax Act, 1961 Section 80-I

INCOME TAX

--Deduction under section 80I----PROFIT DERIVED FROM INDUSTRIAL UNDERTAKINGInsurance claim on account of loss of raw material in fire--The assessee received certain sums towards insurance claim on account of loss of raw material by fire. The assessee included the said amount in profits and claimed deduction under section 80-I. The AO as well as the first appellate authority rejected this claim but the Tribunal held that the amount received had close connection with the profit derived from the industrial undertaking. It was observed that raw material, which was lost by fire, would have been used in generating income for the industrial undertaking and, therefore, compensation received for such raw material could be held to be profit derived from industrial undertaking. Held: Insurance claim received on account of raw material destroyed by fire could not be treated as an income derived from the industrial undertaking so as to qualify for the deduction under section 80-I. Therefore, income arising out of this receipt, which can be computed by deducting cost of raw material destroyed by fire from the gross receipt of insurance claim would have to be excluded while computing deduction under section 80-I.