JUDGMENT
Suhas Chandka Sen, J.
1. The following question of law has been referred to this court by the Tribunal under Section 256(1) of the Income-tax Act, 1961 (“the Act”) :
” Whether, on the interpretation of Section 41(1) of the Income-tax Act, 1961, the Tribunal was right in holding that the whole of the amount of Rs. 75,500 received from the insurance company was taxable for the assessment year 1969-70 ?”
2. The assessment year involved in this reference is the assessment year 1969-70, for which the relevant period of account is 1375 B.S.
3. The facts found by the Tribunal, as stated in the statement of case, are as follows :
4. The assessee was a partnership firm deriving income from business in cloth. In this appeal, we are concerned with the assessment year 1969-70, the year ended on April 13, 1969, being the relevant previous year. The head office of the assessee was at Calcutta and it had a branch at Gauhati. On January 26, 1969, the premises of the Gauhati branch were burnt during a riot. The assessee suffered loss on account of fire. The firm was dissolved on April 3, 1968. During the previous year under consideration, i.e., April 14, 1968, to April 13, 1969, the assessee was not carrying on any business. During the assessment year 1968-69, the assessee claimed loss of Rs. 48,346 on account of damage caused to the stock-in-trade by fire on January 26, 1968. This loss was allowed by the Income-tax Officer. On May 20, 1968, the assessee was awarded a sum of Rs. 75,550 by the insurance company as monies payable under the fire insurance policy in respect of the loss suffered by the assessee on January 26, 1968. The assessee claimed before the Income-tax Officer that a sum of Rs. 20,135 only was taxable under Section 41(1) of the Act, during the assessment year 1969-70. This sum was arrived at after deducting some credits of Rs. 56,042 from the insurance receipts. The Income-tax Officer, however, rejected this claim and taxed the entire sum of Rs. 76,229 under Section 41(1).
5. The assessee appealed to the Appellate Assistant Commissioner and reiterated the contentions it took before the Income-tax Officer. The Appellate Assistant Commissioner, however, held that the entire receipt of Rs. 75,500 received from the insurance company was taxable in full during the year under consideration. He, therefore, confirmed the order of the Income-tax Officer.
6. Being aggrieved, the assessee preferred a further appeal to the Tribunal. It was urged on behalf of the assessee that the sum of Rs. 48,346 alone was allowed as a loss during the assessment year 1968-69 and, consequently, the sum of Rs. 48,346 alone could be taxed under Section 41(1) of the Act. The Tribunal looked into the records and posed the question as to what portion of the total receipts of Rs. 75,500 was taxable under Section 41(1) in the assessment for the assessment year 1969-70 in which the amounts were received from the insurance company. The Tribunal referred to the said provision of the Act and decided the issue against the assessee. The Tribunal held :
“In the case before us, the business carried on by the assessee has ceased to exist during the year under consideration in which the amounts were received from the insurance company. But, that fact is no bar to taxing the amount under Section 41(1) of the Act. Again, there is no dispute that the loss of Rs. 48,346 allowed in the assessment year 1968-69 is clearly taxable during the assessment year 1969-70 on the basis of the receipt from the insurance company. Even regarding the balance, we find that the same becomes taxable having been allowed in the earlier year. After all, the balance amount was received as compensation for loss of stock-in-trade due to fire. In the year in which the stock-in-trade was purchased, they were admittedly allowed as expenses deductible from the gross receipts of the business in order to arrive at the income from business. It is not the case of the assessee that the purchase amount of stock-in-trade was not deducted in the year in which they were purchased. Hence this amount was clearly an expenditure allowed during the year of purchase. The amount received during the year under consideration was nothing but reimbursement of the expenses incurred in the earlier year. In this view of the matter, we have no doubt in our mind that the whole of the receipts from the insurance company was taxable.”
7. Dr. Pal has argued that the Tribunal was in error in coming to this decision and the Tribunal misconstrued the scope of Section 41(1) and Section 41(2). According to Dr. Pal, the amount which could be included in the assessment of the business of the assessee, was limited to the extent of recoupment loss. This argument is entirely fallacious. Admittedly, what was destroyed by fire was the assessee’s stock-in-trade. Compensation money paid by the insurance company for this loss has to be taken as representing the replacement of the stock-in-trade and, therefore, it is to be treated as an income on revenue account. If that be so, the entire income is liable to be assessed as income of the assessee. The Tribunal has emphasised the fact that the loss of the entire stock-in-trade as claimed by the assessee was allowed as business loss. Therefore, when the said amount has been recovered, the amount is clearly liable to be taxed though the assessee has claimed and had been allowed some deduction on account of the loss in the earlier assessment year. The fire that broke out relates to the relevant previous year. Section 41(1) provides that :
“41. Profits chargeable to tax.–(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.”
8. The assessee in this case has been allowed deduction in respect of the expenditure and the amount of expenditure has been recovered from the insurance company. Therefore, the entire allowance has to be written back in this particular year of account when he received the amount from the insurance company.
9. In view of the aforesaid, the question referred is answered in the affirmative and in favour of the Revenue.
10. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
11. I agree.