{"id":171800,"date":"1993-03-30T00:00:00","date_gmt":"1993-03-29T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/universal-radiators-coimbatore-vs-commissioner-of-income-tax-tamil-on-30-march-1993"},"modified":"2017-02-13T02:35:40","modified_gmt":"2017-02-12T21:05:40","slug":"universal-radiators-coimbatore-vs-commissioner-of-income-tax-tamil-on-30-march-1993","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/universal-radiators-coimbatore-vs-commissioner-of-income-tax-tamil-on-30-march-1993","title":{"rendered":"Universal Radiators, Coimbatore vs Commissioner Of Income Tax, Tamil … on 30 March, 1993"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Universal Radiators, Coimbatore vs Commissioner Of Income Tax, Tamil … on 30 March, 1993<\/div>\n
Equivalent citations: 1993 AIR 2254, \t\t 1993 SCR (2) 775<\/div>\n
Author: R Sahai<\/div>\n
Bench: Sahai, R.M. (J)<\/div>\n
           PETITIONER:\nUNIVERSAL RADIATORS, COIMBATORE\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER OF INCOME TAX, TAMIL NADU\n\nDATE OF JUDGMENT30\/03\/1993\n\nBENCH:\nSAHAI, R.M. (J)\nBENCH:\nSAHAI, R.M. (J)\nTHOMMEN, T.K. (J)\n\nCITATION:\n 1993 AIR 2254\t\t  1993 SCR  (2) 775\n 1993 SCC  (2) 629\t  JT 1993 (3)\t150\n 1993 SCALE  (2)393\n\n\nACT:\nIncome Tax Act, 1961 : Sections 4 and 10(3).\nAssessee--Manufacturer\t of   automobile   radiators--Copper\ningots\tbooked from America--To be rolled in Bombay  as\t and\nsheets\tand  despatched to  assessee  for  manufacture--Ship\ncarrying goods seized by Pakistan--Insurance company  paying\nvalue of goods in dollars--Devaluation\tof Indian rupee--The\ndifference  of the Indian rupee before devaluation and\tthat\nreceived   after   devaluation--Excess\t held\ta    capital\nreceipt--Not\tbusiness    receipt--Receipt\tof    casual\nnature--Sterilization of stock in trade.\nWords and Phrases--Meaning of 'Income'--'Casual'.\n\n\n\nHEADNOTE:\nThe  appellant\tassessee a manufacturers  of  radiators\t for\nautomobiles  booked copper ingots from a corporation In\t the\nUnited\tStates of America for being brought to Bombay  where\nit  was\t to  be\t rolled Into  strips  and  sheets  and\tthen\ndespatched  to the assessee for being used for\tmanufacture.\nWhile the ingots were at sea, hostilities broke out  between\nIndia  and Pakistan and, the vessel carrying the  goods\t was\nseized\tby  the authorities in Pakistan.  The claim  of\t the\nassessee  for  the  price  paid by  it\tfor  the  goods\t was\nultimately settled in its favour by the Insurer in America.\nThe  Indian  Rupee In the meanwhile had been  devalued\tand,\ntherefore,  in\tterms of rupees the appellant firm  got\t Rs.\n3,43,556\/- as against their payment of Rs. 2,00,164\/- at the\nold  rates.   The  differnece  was  credited  to  profit  on\ndevaluation  in the Profit and Loss Account.  The  claim  of\nthe appellant that the difference being a causal receipt and\nnon-recurring In nature, and as such was not liable to\ttax,\nwas not accepted by the IncomeTax Officer.\nThe Appellate Assistant Commissioner rejected the appeal  of\nthe assessee, being of the opinion that the receipt was\t one\nwhich  did not arise directly from carrying on\tbusiness  by\nthe assessee but was the incidental\n776\nto it, and not finding any merit in the submission that\t the\nultimate realisation was in the nature of capital gains\t and\nnot revenue recipt.\nIn  further appeal by the assessee, the Tribunal  held\tthat\nwhen  the goods were seized by the Pakistan authorities\t the\ncharacter of the goods changed and it became sterilized and,\ntherefore,  it ceased to be stock-intrade of  the  assessee,\nthat  the  devaluation\tsurplus was  in\t nature\t of  capital\nreceipt and not a profit made by the assessee in the  course\nof  business, that the money which came to the assessee\t was\nas  a result of the settlement of the insurance\t claim\tand,\ntherefore,  the\t profit that resulted from it could  not  be\nconsidered in the normal course of business.\nThe High Court in its advisory jurisdiction at the  instance\nof  the' Department negatived the claim of the assessee\t for\ntwo  reasons, one the difference in the cost price  and\t the\nsale  price, and the other that it was revenue receipt,\t and\ndid  not agree with the Tribunal as according to it  if\t the\nassessee had got the goods imported into India and sold them\nit would have got higher amount as a result of\tdevaluation,\nand  held that there could be no dispute that  the  assessee\nwas  liable to pay tax on the difference of the\t sale  price\nand the cost.  It further held that the nature of the amount\nwhich  came  in\t the hands of the  assessee  was  a  revenue\nreceipt,  and  did not agree that the payment  made  to\t the\nassessee  was  otherwise  than for business,  as  the  whole\ntransaction  was part and parcel of the business carried  on\nby the assessee and could not be described as extraneous  to\nit.\nIn  the\t assesses  appeal to this  Court,  on  the  question\nwhether\t the  excess  amount paid to  the  assessee  due  to\nfluctuation in exchange rate was taxable or not.\nAllowing the appeal, this Court,\nHELD  :\t 1. The word 'income', ordinarily in  normal  sense,\nconnotes  any  earning\tor  profit  or\tgain   periodically,\nregularly or even daily in whatever manner and from whatever\nsource.\t  It  is thus a word of very wide  import.   Section\n2(24)  of the Income Tax Act is legislative, recognition  of\nits  elasticity.   Its scope has even widened from  time  to\ntime  by  extending  it to varied nature  of  income.\tEven\nbefore it was defined as including profits, gains, dividends\nand  contributions received by a trust it was held to  be  a\nword,\t'of  broadest  connotation'  which  could   not\t  be\nunderstood in restricted or technical sense.' [781 D-E]\n777\nRaghuvanshi  Mills  Ltd., Bombay v. Commissioner  of  Income\nTax, Bombay City,<\/a> (1952) 22 ITR 484, referred to. [781 E]\n2.   'Casual'\tmeans  accidental  or  irregular.   If\t the\nirregular  or  the accidental income arose as  a  result  of\nbusiness activity, them even if it was non-recurring, it may\nnot have fallen outside the revenue net.  The real test,  is\ntherefore,  what was the nature and character of the  income\nwhich  accrued to the assessee.\t The causal nature of it  or\nnon-recurring nature were only aids to decide if the  nature\nof  income was in the course of business or otherwise.\t[782\nF]\nBarendra  Prasad Ray and Ors. v. Income Tax Officer,<\/a>  (1981)\n129  ITR  295; S. G. Mercantile Corporation  Pvt.   Ltd.  v.\nCommissioner of Income Tax, (1972) 83 ITR 700;\tCommissioner\nof  Income Tax v. Calcutta National Bank,<\/a> (1959) 37 ITR\t 171\nand  Commissioner of Income Tax, Mysore v. Canara Bank\tLtd.<\/a>\n(1967) LXIII ITR 328, referred to. [782 G, H, 783 B]\n3.   An\t income which was casual in nature could be  brought\nIn the revenue net only if it arose from business.  In other\nwords the receipt or profit of the nature covered by Section\n10(3)  could be brought to tax if it was the result  of\t any\nbusiness activity carried on by the assessee. [783 D]\nIn  the\t instant case, the assessee carried on\tbusiness  of\nmanufacturing  radiators  and not ingots.  The\tingots\twere\nimported  to be converted into strips and sheets at  Bombay.\nThe link which could create direct relationship between\t the\nfinished goods and the raw material was snapped even  before\nit reached Bombay.  Payment made for loss of such goods\t did\nnot  bear  any nexus with the assessee's business.   May  be\nthat  if  it would have reached, it could have\tbeen  'after\nconversion into strips and sheets used as raw material.\t But\nso  long  as it did not reach Bombay and was  not  converted\ninto   raw  material,  the  connection\tit  bore  with\t the\nassessee's  business  was remote.  And any payment  made  in\nrespect\t of  it could not be said to accrue  from  business.\n[783 E]\nStrong\t and  Company  of  Romsey,  Limited  v.\t  Woodifieid\n(Survevor of Taves), 5 Tax Cases p.215, referred to. [783 F]\n4.   An income directly or ancillary to the business may  be\nan  income  from  business, but any income  to\tan  assessee\ncarrying on business does not become an income from business\nunless the necessary relationship\n778\nbetween the two is established. [784 B]\nIn the Instant case, what was lost was not raw material, but\nsomething  which  was capable of being\tconverted  into\t raw\nmaterial.  The necessary nexus between ingots and  radiators\nwhich  could have resulted in income from ingots never\tcame\ninto  being.   Thus any devaluation surplus arising  out  of\npayment\t paid  for loss of ingots could not  be\t treated  as\nincome from business of the assessee. [784 C]\nS.   Income  from  goods purchased for business\t is  not  an\nincome from business.  In the instant case buying ingots  by\nthe assessee was not a part of its trading activity. [784 F]\nState\tBank  of  India\t v.  Commissioner  of  Imcome\tTax,\nErnakulam, (1986) 157 ITR 67, distinguished. [784 F]\n6.   Taxability\t on profit or deduction for loss depends  on\nwhether\t profit\t or loss arises in the course  of  business.\nThe  courts have maintained a distinction between  insurance\nagainst loss of goods and insurance against loss of profits.\nThe latter is undoubtedly taxable.  Taxability of the amount\npaid on settlement of claim by the insurance company depends\nboth on the nature of payment and purpose of insurance. [785\nD-E]\n7.   Any  payment being accretion from business, the  excess\nor  surplus  accruing  for any reason  may  be\tnothing\t but\nprofit.\t But where payment is made to compensate for loss of\nuse of any goods in which the assessee does not carry on any\nbusiness  or  the payment is a just equivalent of  the\tcost\nincurred  by  the  assessee,  but  excess  accrues  due\t  to\nfortuitous circumstances or is a windfall, then the  accrual\nmay  be a receipt, but it would not be income  arising\tfrom\nbusiness, and, therefore, not taxable under the Act. [785 F-\nG]\nCommissioner  of Inland Revenue v. William's  Executors,  26\nTax Cases p.23, referred to. [785 H]\nIn the instant case, the assessee did not carry on  business\nof  buying and selling of ingots.  The compensation paid  to\nthe  assessee was not for any trading or business  activity,\nbut  just  equivalent  in money of the\tgoods  lost  by\t the\nassessee  which\t it was prevented from\tusing.\t The  excess\narose  on  such\t payment in respect of goods  in  which\t the\nassessee  did not carry on any business.  Due to  fortuitous\ncircumstances of devaluation of currency, but not due to any\nbusiness or trading activity the amount could not\n779\nbe brought to tax. [786 C-D]\nCommissioner  of  Income Tax v.\t  Union\t Engineering  Works,<\/a>\n(1976) 105 ITR 311, approved. [786 G]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5897 of 1983.
\nFrom  the Judgment and Order dated 25.7.1979 of\t the  Madras
\nHigh Court in Tax Case No. 54\/76 (Reference No. 35\/76.)
\nT.A. Ramachandran and Janki Ramachandran for the Appellant.
\nJ.   Ramamurthy,  P. Parmeswaran (NP), Ranbir Chandra  (NP),
\nT.V. Ratnam and Ms. A. Subhashini (NP) for the Respondent.
\nThe Judgment of the Court was delivered by
\nR.M. SAHAI, J. Legal issues that arise for consideration  in
\nthis appeal, directed against the decision of the High Court
\nin  Commissioner  of  Income Tax, Tamil\t Nadu  v.  Universal
\nRadiators,  (1979) 120 ITR 906 on questions of law  referred
\nto it in a reference under the Income Tax Act (in brief ‘the
\nAct’) are, if the excess amount paid to the assessee due  to
\nfluctuation in exchange rate was taxable either because\t the
\npayment\t being related to trading activity it could  not  be
\nexcluded  under\t Section  10(3) of the Act even\t if  it\t was
\ncasual and non-recurring in nature or it was stock-in-trade,
\ntherefore,  taxable  as revenue receipt or in any  case\t the
\ncompensation  for  the\tloss of goods could  not  be  deemed
\nanything but profit.\n<\/p>\n
Shorn  of details the assessee, a manufacturer of  radiators
\nfor  automobiles booked copper ingots from a corporation  in
\nthe  United  States of America for being brought  to  Bombay
\nwhere  it was to be rolled into strips and sheets  and\tthen
\ndespatched  to\tassessee  for being  used  for\tmanufacture.
\nWhile the ingots were at sea, hostilities broke out  between
\nIndia  and Pakistan and, the vessel carrving the  goods\t was
\nseized\tby  the authorities in Pakistan.  The claim  of\t the
\nassessee  for  the  price  paid by  it\tfor  the  goods\t was
\nultimately settled in its favour by the insurer in America.
\nMeanwhile the Indian Rupee had been devalued and, therefore,
\nin  terms of rupees the appellant firm got Rs.\t3,43,556  as
\nagainst their payment
\n780<\/span>
\nof  Rs.\t 2,00,164  at  the old\trate.\tThe  difference\t was
\ncredited  to  profit on devaluation in the Profit  and\tLoss
\nAccount.   The\tclaim of the appellant that  the  difference
\nbeing  a casual receipt and non-recurring in nature, it\t was
\nnot  liable  to\t tax, was not accepted\tby  the\t Income\t Tax
\nOfficer.  In appeal the Appellate Assistant Commissioner was
\nof  opinion  that the receipt was one which  did  not  arise
\ndirectly  from carrying on business by the assessee but\t was
\nincidental  to\tit.  But he did not find any  merit  in\t the
\nsubmission  that the ultimate realisation was in  nature  of
\ncapital\t gains and not revenue receipt.\t In  further  appeal
\nthe  Tribunal  held that when the goods were seized  by\t the
\nPakistan authorities the character of the goods changed\t and
\nit  became  sterlised  and,  therefore,\t it  ceased  to\t  be
\nstock-in-trade of the assessee.\t The Tribunal held that\t the
\ndevaluation  surplus was in nature of. capital\treceipt\t and
\nnot a profit made by the assessee in course of business.  It
\nfurther found that the money which came to the assessee\t was
\nas  a result of the settlement of the insurance\t claim\tand,
\ntherefore,  the\t profit that resulted from it  could  not-be
\nconsidered  to\thave arisen in normal  course  of  business.
\nWhen  the  matter came to the High Court,  in  its  advisory
\njurisdiction,  at  the instance of the\tdepartment,  on\t the
\nfollowing questions of law,\n<\/p>\n
\t      (i)   Wether,   on  the  facts  and   in\t the
\n\t      circumstances  of\t the  case,  the   Appellate
\n\t      Tribunal was right in law, in holding that the
\n\t      devaluation  surplus  earned by  the  assessee
\n\t      consequent  to the settlement of the claim  by
\n\t      the  insurance  company is not  assessable  as
\n\t      revenue receipt for the assessment year  1967-
\n\t      68 ?\n<\/p>\n
\t      (ii)Whether   on\t the  facts   and   in\t the
\n\t      circumstances  of\t the  case,  the   Appellate
\n\t      Tribunal was right in holding that the  profit
\n\t      earned   by   the\t assessee  on\taccount\t  of
\n\t      devaluation of Indian Currency was not in\t the
\n\t      course  of  carrying  on of  the\tbusiness  or
\n\t      incidental to the business ?\n<\/p>\n
It did not agree with the Tribunal as according to it if the
\nassessee had got the goods imported into India and sold them
\nit would have got higher amount as a result of\tdevaluation.
\nTherefore,  it held that there could be no dispute that\t the
\nassessee  was  liable to pay tax on difference of  the\tsale
\nprice  and the cost.  The High Court further held  that\t the
\nnature of the amount which came in the hands of the assessee
\nwas revenue receipt.  It
\n781<\/span>
\ndid  not  agree that the payment made to  the  assessee\t was
\notherwise  than for business, as the whole  transaction\t was
\npart  and parcel of the business carried on by the  assessee
\nand could not be described as extraneous to it.
\nThe High Court thus negatived the claim of assessee for\t two
\nreasons, one, the difference in the cost price and the\tsale
\nprice,\tand  the  other, that it was  revenue  receipt.\t  In
\nobserving that, ‘If the assessee had got the goods  imported
\ninto  India and had sold them at a higher rate, which  would
\nhave increased as a result of devaluation, then there can be
\nno  dispute that the assessee would be liable to tax on\t the
\ndifference  between the sale price and the cost’,  the\tHigh
\nCourt  oversimplified the issue.  May be any profit or\tgain
\naccruing  to an assessee as a result of\t difference  between
\nthe sale price and the cost price in a year is income.\t And
\nby  that yardstick the devaluation surplus, irrespective  of
\nany  other  consideration, may be receipt  which  in  common
\nparlance may be income.\t But liability to pay tax under\t the
\nAct arises on the income accruing to an assessee in a  year.
\nThe word ‘income’, ordinarily in normal sense, connotes\t any
\nearning\t or  profit or pin periodically, regularly  or\teven
\ndaily in whatever manner and from whatever source.  Thus  it
\nis a word of very wide import.\tClause (24) of Section 2  of
\nthe  Act is legislative recognition of its elasticity.\t Its
\nscope has been widened from time to time by extending it  to
\nvaried\tnature\tof income.  Even before it  was\t defined  as
\nincluding   profits,  gains,  dividends\t and   contributions
\nreceived  by a trust it was held to be a word, ‘of  broadest
\nconnotation’ which could not be ‘understood in restricted or
\ntechnical  sense’.   The  wide\tmeaning\t of  the  word\t was
\nexplained by this Court in Raghuvanshi Mills Ltd., Bombay v.
\nCommissioner  of Income Tax, Bombay<\/a> city, (1952) 22 ITR\t 484
\nand  it was emphasised that the expression,  ‘from  whatever
\nsource derived’ widened the net.  But exigibility to tax  is
\nnot the same as liability to pay tax.  The former depends on
\ncharge\tcreated\t by  the Act and latter\t on  computation  in
\naccordance  with  the provisions in the Act and\t the  rules.
\nSurplus\t in consequence of devaluation of the  currency\t was
\nundoubtedly  receipt,  but the liability to pay\t tax  on  it
\ncould  arise only if it was income for purposes of  the\t Act
\nand was not liable to be excluded from computation under any
\nof the provisions of the Act or the rules framed thereunder.
\nSection\t 10  of the Act provided for  exclusion\t of  certain
\nincome\tfrom computation.  One of its subsection,  which  is
\nrelevant  for this appeal, during the period under  dispute,
\nstood as under,
\n\t      In  computing the total income of\t a  previous
\n\t      year of any
\n\t      782<\/span>
\n\t      person,  any income failing within any of\t the
\n\t      following clauses shall not be included
\n\t      (3)   any\t receipts which are of a casual\t and
\n\t      non-recurring nature, unless they are\n<\/p>\n
\t      (i)\n<\/p>\n
\t      (ii)receipts  arising  from  business  or\t the
\n\t      exercise of a profession or occupation; or\n<\/p>\n
\t      (iii)
\nIn  substantive clause, an income which was casual and\tnon-
\nrecurring  in  nature  was excluded from  being\t charged  as
\nincome\tof  the\t assessee.   Due  to  use  of  word,  ‘and’,
\nexistence of both the conditions was mandatory.\t Absence  of
\nany disentitled the assessee from claiming any benefit under
\nthe  clause.   C  Casual’  according  to  dictionary   means
\n‘accidental or irregular’. this meaning was approved by this
\nCourt  in Ramanathan Cheuiar v. Commissioner of Income\tTax,
\nMadras,\t (1967) 63 ITR 458.  Non-recurring is one  which  is
\nnot  likely  to occur again in a year.\tBut an\tincome\teven
\nafter satisfying the two conditions may still not have\tbeen
\nliable\tto be excluded if it fell in one of  the  exceptions
\ncarved\tout  by the proviso.  In other\twords,\tthe  receipt
\nshould not only have been casual and non-recurring only\t but
\nit  should not have been ‘receipts arising  from  business’.
\nTo  put\t it the other way, if an income arose in  the  usual
\ncourse\tof business, then it would not have been liable\t for
\nexclusion even if it was casual or non-recurring in  nature.
\n‘Casual’,   as\texplained  earlier,  means   accidental\t  or
\nirregular.   But if the irregular or the  accidental  income
\narose as a result of business activity, then even if it\t was
\nnon-recurring,\tit may not have fallen outside\tthe  revenue
\nnet.  The real test, therefore, was the nature and character
\nof income which accrued to the assessee.  The casual  nature
\nof  it or non-recurring nature were only aids to  decide  if
\nthe  nature  of\t income was in the  course  of\tbusiness  or
\notherwise.  In Raghuvanshi Mills Ltd. (Supra) it was held by
\nthis  Court  that a receipt even if it was casual  and\tnon-
\nrecurring in nature would be liable to tax if it arose\tfrom
\nbusiness.   ‘Business’\thas been defined in  Clause’  13  of
\nSection\t 2 of the Act as including ‘any trade,\tcommerce  or
\nmanfacture  or\tany adventure or concern in  the  nature  of
\ntrade, commerce or manufacture’.  In Barendra Prasad Ray and
\nOrs.  v. Income Tax Officer,<\/a> (1981) 129 ITR 295 it has\tbeen
\nheld, by this Court, that the expression,
\n783<\/span>
\n‘business’  is of very wide import and it means an  activity
\ncarried\t on continuously and systematically by a  person  by
\nthe  application  of  his labour and skill with\t a  view  to
\nearning\t the income.  The width of the definition  has\tbeen
\nrecognised,   by  this\tCourt,\teven  in   S.G.\t  Mercantile
\nCorporation  Pvt. Ltd. v. Commissioner of Income Tax  (1972)
\n83  ITR\t 700  and Commissioner of  Income  Tax\tv.  Calcutta
\nNational Bank,<\/a> (1959) 37 ITR 171.  And even a single venture
\nhas  been held to amount to business and the profit  arising
\nout of such a venture has been held to be taxable as  income
\narising\t from  business.   In Commissioner  of\tIncome\tTax,
\nMysore\tv.  Canara Bank Ltd.,<\/a> (1967) LXIII ITR\t328  it\t was
\nheld, by this Court, that where money was lying idle and the
\nblocked\t balance was not employed for internal operation  or
\nfor business by the bank the profit accruing to the assessee
\non  the blocked capital due to fluctuation in exchange\trate
\ncould  not  be\theld to be income arising  out\tof  business
\nactivity  or  trading  operation.  The\tratio  reflects\t the
\nrationale  implicit in sub-section (3) of Section 10 of\t the
\nAct.  An income which was casual in nature could be  brought
\nin the revenue net only if it arose from business.  In other
\nwords the receipt or profit of the nature covered by Section
\n10(3)  could  be  brought to tax if it\twas  result  of\t any
\nbusiness activity carried on by the assessee.
\nThe assessee carried on business of manufacturing  radiators
\nand  not  ingots.  They were imported to be  converted\tinto
\nstrips\tand sheets at Bombay.  The link which  could  create
\ndirect\trelationship  between  the finished  goods  and\t raw
\nmaterial was snapped even before it reached Bombay.  Payment
\nmade for loss of such goods did not bear any nexus with\t the
\nassessee’s business.  May be that if it would have  reached,
\nit  could have been after conversion into strips and  sheets
\nused  as raw material.\tBut so long it did not reach  Bombay
\nand  was not converted into raw material, the connection  it
\nbore  with  the\t assessee’s business was  remote.   And\t any
\npayment\t made in respect of it could not be said  to  accrue
\nfrom  business. In Strong and Company of Romsay, Limited  v.
\nWoodifield  (Surveyor  of  Taxes),  5  Tax  Cases  p.215,  a
\nconverse  case\twhere  the  assessee  claimed  deduction  of
\ncertain\t payments made to a customer, for the injury  caused
\nto  him\t by  falling off a chimney  due\t to  the  assessee’s
\nservant’s negligence, it was held,
\n\t      “it  does not follow that if a loss is in\t any
\n\t      sense connected with the trade, it must always
\n\t      be allowed as a deduction; for it may be\tonly
\n\t      remotely connected with the trade or
\n\t      784<\/span>
\n\t      it may be connected with something else  quite
\n\t      as  much as or even more than with the  trade.\n<\/p>\n
\t      I\t think only such losses can be\tdeducted  as
\n\t      are  connected with it in the sense that\tthey
\n\t\t\t    are really incidental to the trade itself.”
\nThe  word ‘from’ according to dictionary means ‘out of.\t The
\nincome thus should have accrued out of the business  carried
\non by the assessee.  An income directly or ancillary to\t the
\nbusiness  may be an income from business, but any income  to
\nan  assessee carrying on business does not become an  income
\nfrom business unless the necessary relationship between\t the
\ntwo  is established.  What was lost on the seas was not\t raw
\nmaterial, but something which was capable of being converted
\ninto  raw material.  The necessary nexus between ingots\t and
\nradiators  which could have resulted in income\tfrom  ingots
\nnever came into being.\tThus any devaluation surplus arising
\nout of payment paid for loss of ingots could not be  treated
\nas income from business of the. assessee.\n<\/p>\n
For deciding the next aspect, namely, if the excess  payment
\ndue to devaluation could be treated as revenue receipt,\t two
\nquestions arise, one, if the ingots were stock-in-trade\t and
\nother  the effect in law of its being blocked or  sterlised.
\nStock-in-trade\tis goods or commodity in which the  assessee
\ndeals in course of business activity.  Good or commodity may
\nbe capital or revenue depending on. if it is bought or\tsold
\nor  is used or exploited by the assessee.  Since the  ingots
\nby  itself were not raw material and were not usable by\t the
\nassessee for the business of manufacturing radiators, unless
\nthey  were converted into strips and sheets, they could\t not
\nbe  treated as stock-in-trade.\tThe buying of the ingots  by
\nthe assessee was not a part of its trading activity.  Income
\nfrom  goods  purchased for business is not  an\tincome\tfrom
\nbusiness.   Ratio in State Bank of India v. Commissioner  of
\nIncome Tar, Emakultam, (1986) 157 ITR 67 relied on behalf of
\ndepartment is not helpful’ as the Bank of Cochin, as part of
\nits  banking  business, had been purchasing  cheque  payment
\norders, mail transfers, demand drafts etc. drawn in  foreign
\ncurrencies  which were sold or en- cashed  through  assessee
\ncorrespondent  banks  in foreign  currencies  concerned\t and
\nproceeds credited to the current account of the assessee and
\ntherefore the foreign exchange was held to be stock-in-trade
\nof  the\t assessee,  and any increase  in  value\t of  foreign
\ncurrency  resulting  in excess credited to  the\t a’ssessee’s
\naccount\t as  a\tresult\tof devaluation was  held  to  be  in
\nconsequence of assessee’s business activity.\n<\/p>\n
785<\/span><\/p>\n
Even  assuming\tit was stock-in-trade, it was held  by\tthis
\nCourt  in  Commissioner of Income Tax v.  Canara  Bank\tLid,<\/a>
\n(supra) that stock-intrade, if it gets blocked and sterlised
\nand  no trading activity could be carried-with it,  then  it
\nceased\tto  be stock-in-trade, and any\tdevaluation  surplus
\narising\t on  such  capital due to  exchange  rate  would  be
\ncapital\t and not revenue.  Applying the ratio of this  case,
\nthe  copper  ingots, which even if assumed to  be  stock-in-
\ntrade, were blocked and sterlised due to hostilities between
\nIndia and Pakistan, and, therefore, it ceased to be stockin-
\ntrade  and any surplus arising due to exchange ratio in\t the
\ncircumstances was capital receipt only.\n<\/p>\n
Coming\tto the issue whether devaluation surplus  earned  by
\nthe  assessee consequent on the settlement of the  claim  by
\nthe  insurance company could be treated as revenue  receipt,
\nit may be stated that taxability on profit or deduction\t for
\nloss  depends on whether profit or loss arises in course  of
\nbusiness.  The courts have maintained a distinction  between
\ninsurance  against loss of goods and insurance against\tloss
\nof  profits.  The latter is undoubtedly taxable as is  clear
\nfrom  the  decision in Raghuvanshi Mills (supra)  where\t any
\namount paid by the insurance company ‘on account of loss  of
\nprofit’\t was  held  taxable.  But  what\t happens  where\t the
\ninsurance  company  pays any amount against loss  of  goods.
\nDoes  it  by  virtue of compensation become  profit  and  is
\ntaxable\t  as  such.   Taxability  of  the  amount  paid\t  on
\nsettlement of claim by the insurance company depends both on
\nthe nature of payment and purpose of insurance.\t Raghuvanshi
\nMills’\tdecision is an authority for the  proposition  where
\nthe  very  purpose of insurance itself is  profit  or  gain.
\nResult\tmay be the same where the payment is made for  goods
\nin  which  the assessee carried on  business.\tAny  payment
\nbeing  accretion  from\tbusiness,  the\texcess\tor   surplus
\naccruing for any reason may be nothing but profit. (see\t the
\nKing v. B. C Fir and Cedar Lumber Company, Ltd. 1932 AC 441,
\nGreen  (HM  Inspector of Taxes) v. J. Gliksten\t&  Son,\t Ltd
\nReports\t of Tax Gases Vol.14 p.365, Commissioner of  Income-
\nTax, Bombay City-III v. Popular Metal Works & Rolling  Mills<\/a>
\n(1983)\tITR  Vol. 142 p.361. But where payment\tis  made  to
\ncompensate  for\t loss  of  use of any  goods  in  which\t the
\nassessee does not carry on any business or the payment is  a
\njust  equivalent of the cost incurred by the  assessee,\t but
\nexcess\taccrues\t due  to fortuitous circumstances  or  is  a
\nwindfall,  then the accrual may be a receipt, but  it  would
\nnot  be\t income arising from business, and,  therefore,\t not
\ntaxable under the Act.\tIn Commissioner of Inland Revenue v.
\nWilliam’s Executors, 26 Tax Cases p.23,
\n786<\/span>
\nthe distinction was explained thus,
\n\t      “A  manufacturer\tcan, of course,\t insure\t his
\n\t      factory against fire.  The receipts from\tthat
\n\t      insurance will obviously be capital  receipts.
\n\t      But   supposing  he  goes\t further,   as\t the
\n\t      manufacturer  did\t in that case,\tand  insures
\n\t      himself  against the loss of profits which  he
\n\t      will  suffer  while  his\tfactory\t is  out  of
\n\t      action;  it seems to me it is beyond  question
\n\t      that   sums  received  in\t respect   of\tthat
\n\t      insurance against loss of profits must be of a
\n\t      revenue nature.”\n<\/p>\n
The assessee did not carry on business of buying and selling
\ningots.\t  The compensation paid to the assessee was not\t for
\nany  trading  or business activity, but just  equivalent  in
\nmoney  of  the\tgoods  lost by the  assessee  which  it\t was
\nprevented  from using.\tThe excess arose onsuch\t payment  in
\nrespect of goods in which the assessee did not carry on\t any
\nbusiness.  Due to fortuitous circumstances of devaluation of
\ncurrency,  but not due to any business or  trading  activity
\nthe amount could not be brought to tax.\n<\/p>\n
The Appellate Tribunal in the instant case had found,
\n\t      “the  profit on account of devaluation is\t not
\n\t      business profit or income as it has nothing to
\n\t      do  with the business or trading\tactivity  of
\n\t\t\t    the assessee.  The profit arose since the clai
\nm
\n\t      was  settled by the Insurance Company and\t the
\n\t      Indian  rupee  was  devalued.   Even   without
\n\t      paying  for  the\tgoods  contracted  for,\t the
\n\t      assessee by an extraordinary set of fortuitous
\n\t      circumstances  earned  a profit which  by\t its
\n\t      very  nature is causal and non-recurring.\t  In
\n\t      this  view of the matter the profit cannot  be
\n\t      charged to tax.”\n<\/p>\n
The  High Court of Kerala in Commissioner of Income  Tax  v.
\nUnion Engineering Works,<\/a> (1976) 105 ITR 311 held :\n<\/p>\n
\t      “In  the instant case, the excess\t profit,  as
\n\t      found  by\t the  Tribunal, was  not  a  receipt
\n\t      arising from business; nor was it, as admitted
\n\t      on  both sides, capital gains.  This was\tpart
\n\t      of  the compensation received by the  assessee
\n\t      from  the\t insurer for damage  caused  to\t its
\n\t      goods.   The  claim for the  compensation\t for
\n\t      damage caused to the goods had.-been
\n\t      787<\/span>
\n\t\tsettled\t with the insurer, and\tthe  sum, so
\n\t      settled did am include any excess profit.\t The
\n\t      excess  profit  arose entirely  due  to  the-,
\n\t      devaluation.   This excess amount was  in\t the
\n\t      nature  of  a windfall, being  the  unexpected
\n\t      fruit   of  devaluation,\tand  it\t  can\tnot,
\n\t      therefore,  be regarded as a  receipt  arising
\n\t      from business though it may be said in a sense
\n\t      to  be a receipt in the course,  of  business.
\n\t      We hold that  the Tribunal had correctly\theld
\n\t      that  the sum of Rs.13,455.75 received by\t the
\n\t      assessee\twas  not a recipt arising  from\t its
\n\t      business\t within\t the  meaning\tof   section
\n\t      10(3)(ii) ‘of the\t Income Tax Act, 1961.”\n<\/p><\/blockquote>\n
We are of the view that on the facts of that case, the\tHigh
\nCourt  of Kerala was right in law in upholding the  findings
\nof  the\t Tribunal while on the facts found  in\tthe  instant
\ncase,  the  High  Court,  of Madras  was  wrong\t in  law  in
\nreversing the well-considered order of the Tribunal.
\nFor reasons stated by us this appeal suceeds and is allowed.
\nBoth  the  questions referred by the Tribunal  to  the\tHigh
\nCourt  are  answered in the affirmative, i,e, in  favour  of
\nassessee  and against the department.  The   assessee  shall
\nbe entitled to its costs.\n<\/p>\n
N. V. K.\n<\/p>\n
Appeal allowed.\n<\/p>\n
788<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Universal Radiators, Coimbatore vs Commissioner Of Income Tax, Tamil … on 30 March, 1993 Equivalent citations: 1993 AIR 2254, 1993 SCR (2) 775 Author: R Sahai Bench: Sahai, R.M. (J) PETITIONER: UNIVERSAL RADIATORS, COIMBATORE Vs. RESPONDENT: COMMISSIONER OF INCOME TAX, TAMIL NADU DATE OF JUDGMENT30\/03\/1993 BENCH: SAHAI, R.M. (J) BENCH: SAHAI, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-171800","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nUniversal Radiators, Coimbatore vs Commissioner Of Income Tax, Tamil ... on 30 March, 1993 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/universal-radiators-coimbatore-vs-commissioner-of-income-tax-tamil-on-30-march-1993\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Universal Radiators, Coimbatore vs Commissioner Of Income Tax, Tamil ... on 30 March, 1993 - 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