CHAGLA, C.J. - The question that arises in this reference is whether the two sums of Rs. 8,25,000 and Rs. 5,75,000 received by the assessee, the Raghuvanshi Mills, Ltd., Bombay, on September 8, 1944, and on December 22, 1944, respectively, are subjected to tax.
The company came to receive these two sums in these circumstances. A fire broke out in the companys mills on January 18, 1944, with the result that the buildings, etc., were destroyed and there was a cesation of the manufacturing activities of the company. The company had taken out a policy with the South India Fire and General Insurance Company, Ltd., and with other insurance companies of the nature known as 'Consequential Loss Policies.' These policies idemnified the company against any loss of profits which might result as a consequence of any fire that may break out, and it is not disputed before us that these two sums were received by the assessee company as an indemnity for the loss suffered by them of their profits because of the cessation of the company activities as a manufacturing company.
Sir Jamshedjis contention that these sums are not liable to tax because they do not represent the profits earned by the assessee but they have been received on an indemnity and they should be looked upon more as a wind fall than as a something earned during the course of the business of the company. In my opinion, that contention is fallacious. These sums received by the company represent the profits which the company would have earned but for the fact of the fire having broken out. They take the place of the profits and which would normally have been earned by the company and clearly as profits which would also be available for distribution to the shareholders of the company. They do not represent a windfall because the company was careful the cautions enough in the course of its business to insure itself against the contingency of a fire breaking out. But it is unnecessary to labour this point because this very question was considered by the Privy Council in Rex v. B. C. Fir and Cedar Lumber Co., and the conclusion they came to was the same as the conclusion reached by the Income-tax Appellate Tribunal from which this reference has been preferred. In that case also the company was insured against loss of profits. A fire has broken out with the result that it made it impossible for the company to earn profits and the company received the amount of the policy from the insurance company; and their Lordships of the Privy Council took the view that the insurance receipt was the product of a revenue payment prudently made by the respondents to secure that the gains which might have been expected to accrue to them had there been no fire should not be lost, but should be replaced by a sum equivalent to their estimated amount. Their Lordships also took the view that the receipt was one of which it could fairly be said that it arose form the business of the respondents because, in their Lordships opinion, the receipt was in separately connected with the ownership and conduct of the respondent business. Had the respondents not been insured under the main fire policies, and would not have been available to them. In the case before their Lordships the policies were called 'use and occupancy policies'. Their Lordships also considered the argument advanced before us by Sir Jamshedji that the receipt should be looked upon as a windfall. They rejected that argument holding that it was an ordinary receipt in the sense, not that it would occur every year or regularly at stated intervals, but in the sense that in the case of a business prudently conducted it would ordinarily be received so often as the risk insured against materialized.
Sir Jamshedji attempted to distinguish this case on the ground that the Privy Council was considering the British Columbia Taxation Act and it would be unwide to apply those observations of the Privy Council based upon the construction of one taxation statute to the provision of a different taxation statute. But as I read the judgment of the Privy Council, it is not on the constructions of any particular section that these observations of the Privy Council are based. The Privy Council had laid downs general principle which is as much applicable to the British Columbia Taxation Act and as to our own Income-tax Act, because the definition of 'income' under our Act is a very wide one and it covers innumerable cases. I am, therefore, of the opinion that the amount received by the assessee from the insurance company is clearly a revenue receipt subject to tax.
I would only like to add that the question framed by the Income-tax Appellate Tribunal is not in proper form and we would re-formulate the question so as to read :-
'Whether in the circumstances of the case, the sum of Rs. 14,00,000 was the assessee company income within the meaning of the Indian Income-tax Act and liable to pay income-tax under the Indian Income-tax Act ?'
Having re-formulated that question, I would answer the question in the affirmative.
Assessee to pay the costs.
TENDOLKAR, J. - I agree.
Reference answered accordingly.