1. This appeal is directed against the order of the CIT (Appeals) whereby he has confirmed the action of the ITO in passing an order under Section 155(5) of the Income-tax Act, 1961, withdrawing the development rebate allowed to the appellant at the time of the original assessment proceedings.
2. The accepted facts of the case are that in assessment year 1976-77 development rebate amounting to Rs. 1,19,462 had been allowed on a ship "Pushkaraj" constructed by the assessee. The said ship met with an accident and sunk in the sea on 2-2-1979. The assessee received insurance money of Rs. 1 lakh from the Insurance company in assessment year 1981-82. The ITO being of the view that since the aforesaid events had taken place within a period of 8 years from assessment year 1976-77 the development rebate originally allowed required to be withdrawn. For this purpose he issued a show-cause notice to the assessee within the meaning of Section 155(5).
3. In reply the assessee contended that the said ship had neither been sold or transferred since it met with an accident and sank in the sea due to an act of God. It was thereby argued that the development rebate could not be withdrawn.
4. The ITO rejected the contentions of the assessee and held that the insurance money of Rs. 1 lakh was received by the assessee in lieu of extinguishing his right in the ship and therefore, the development rebate was required to be withdrawn. He accordingly passed an order and recomputed the taxable income.
5. The CIT (Appeals) after referring to the provisions of Section 155(5) as also the decisions in the cases of CIT v. Vania Silk Mills (P.) Ltd.  107 ITR 300 (Guj.), Marybong & Kyel Tea Estates Ltd. v. CIT  129 ITR 661 (Cal.) and CIT v. Sirpur Paper Mills Ltd.  112 ITR 776 (SC), opined that there had been a transfer/extinguishment of the assessee's right in favour of the Insurance Company.
6. The learned counsel for the assessee at the outset stated that the provisions of Section 155(5) were not applicable since there had been no sale or transfer of any asset within the meaning of the said Section According to him the ship had been lost by a natural act and not due to any deliberate act on the part of the assessee. It was further submitted that the reliance placed by the tax authorities on the provisions of Section 2(47) were misplaced since the definition contained therein although an exhaustive one was meant to cover transactions resulting in capital gains. According to the learned counsel the provisions of Section 155(5) were required to be considered in a narrower compass since they referred to the term sold or otherwise transferred". It was his case thereafter that nothing had been sold or transferred since this was a case of a total loss of an asset owned by the appellant there even being no salvage.
7. The learned counsel for the assessee also referred to the decisions relied upon by the CIT(A) in confirming the order of the ITO with the submission that these were distinguishable on facts and not applicable.
The decision in the case of Marybong & Kyel Tea Estates Ltd. (supra) according to him related to the question of capital gains arising as a result of assets being damaged by fire, the salvage being taken over by the Insurance Company and the amount paid by the said company to the appellant being in excess of the balancing charge. According to him, on the aforesaid facts the Hon'ble High Court opined that there was a capital gain assessable to tax. It was thereafter stated that in the present case the question being considered was not one of capital gains and that there was no salvage recovered in respect of the ship since it wasacase ofa total loss. In respect of the decision in the case of Sirpur Paper Mills Ltd. (supra) the learned counsel stated that this also related to the question whether the compensation received from the Insurance Company over and above the amount spent for restoring the damaged plant and machinery to a working condition was taxable as a revenue receipt or Under Section 41(2). These issues, according to him, were not being considered in the present appeal. In respect of the decision in the case of Vania Silk Mills (P.) Ltd. (supra) the learned counsel stated that this was considering the wider aspect of transfer within the meaning of Section 2(47) and not with the narrower question vis-a-vis Section 155(5). The learned counsel finally made an impassioned plea for the cancellation of the order passed by the ITO.8. The learned DR on the other hand strongly supported the orders of the tax authorities and the subsequent arguments advanced by him were in fact a reiteration of the reasons recorded by these authorities in rejecting the viewpoint canvassed by the appellant. A reference was once again made to the provisions of Section 2(47) with a special stress on the term "extinguishment". It was the submission thereafter that in the present case there had been such an extinguishment of the assessee's right in favour of the Insurance Company and the action of the ITO required to be confirmed. In reply, the learned counsel for the assessee contended that the definition contained in Section 2(47) was not meant to cover situations which arose for consideration under Section 155(5).
9. We have examined the rival submissions and have given due attention to the authorities cited at the bar on behalf of the Revenue. In our opinion the order passed by the ITO Under Section 155(5) would require to be set aside inasmuch as the opinion expressed therein is not correct in law. As rightly pointed out by the learned counsel the question to be considered Under Section 155(5) is much narrower than the wider consideration which would have to be given to a transaction within the meaning of Section 2(47), the same being primarily related to the taxability of income under the head "Capital gains". Section 155(5) refers to an asset "sold or otherwise transferred". In the present case the ship has neither been sold nor transferred to the Insurance Company since it has sunk in the sea and the unchallenged statement at the bar by the learned counsel is that there is no salvage. A sale or a transfer postulates two ingredients viz. a consideration and the existence of a transferor and a transferee. In the present case it cannot be said that the sum of Rs. 1 lakh received from the Insurance Company is a consideration. Similarly the relationship between the assessee and the Insurance Company cannot be that of a transferor and a transferee since no asset has changed hands between the two.
10. We are also of the view that the provisions of Section 155(5) are required to be applied in a situation where an assessee after availing the benefit of development rebate tries to dispose of the asset within the statutory period of 8 years and that also by a deliberate act. It could never have been the intention of the legislature to rope in a case where an asset gets destroyed by a natural act which is beyond the control of a human being and this being the position in the present case.
11. At this stage we may refer to the provisions of the Section itself, viz., 155(5) wherein it is stated that the same would be applicable only in case the asset "is sold or otherwise transferred" by the assessee to any person other than the Govt., local authority, a corporation established by a Central, State or Provincial Act, or a Government company as defined in Section 617 of the Companies Act, 1956. It is an accepted fact between the parties that the sum of Rs. 1 lakh has been received as a compensation from the Insurance Company.
Even assuming for the sake of argument that the present transaction constitutes a "transfer" the same would otherwise not attract the provisions of Section 155(5) since the Insurance Companies after their nationalisation have become Govt. companies.
12. The various decisions cited at the bar by the Revenue are distinguishable on the facts of the case as rightly pointed out by the learned counsel for the assessee. These do not advance the revenue's case as made out by the tax authorities and canvassed before us by the D.R. In the final analysis we set aside the order passed by the ITO under Section 155(5) and restore the relief in respect of the development rebate allowed at the time of the original assessment.