RAGHUVANSHI MILLS LTD. vs. COMMISSIONER OF INCOME-TAX, BOMBAY CITY

CIVIL APPEAL No. 55/1950Supreme Court[1953] 1 S.C.R. 17703 November 1952Bench: 4 JudgesAuthor: MEHR CHAND MAHAJAN, SUDHI RANJAN DAS, VIVIAN BOSE, GHULAM HASAN8 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the sums of money received under the consequential loss policies were "income" within the meaning of Section 2(6C) of the Indian Income-tax Act and were therefore liable to income-tax. The Court reasoned that while the receipt might not be a "profit" in the strict sense, it represented profits and was intended to take their place, making it income in a normal sense. The Court emphasized the wide wording of Section 4, including "income from other sources," and found that the receipts were inseparably connected with the ownership and conduct of the business and arose from it. Therefore, they were not exempt under Section 4(3)(vii) as receipts arising from business. The Court distinguished the definition of "income" in Shaw Wallace & Co.'s case, stating it must be read with reference to the particular facts. The Court also noted that the argument regarding apportionment to standing charges and agency commission was new and not entertained. The appeal was dismissed.

What were the facts?

The appellant, Raghuvanshi Mills Ltd., was assessed for the year 1945-46. The company had insured its buildings, plant, and machinery, and also held four "consequential loss policies" covering loss of profits, standing charges, and agency commission. Following a fire on January 18, 1944, which completely destroyed the mills, the company received Rs. 14,00,000 under these policies. This amount was paid in two installments in 1944. The revenue treated these receipts as part of the assessee's income and taxed them. The High Court of Bombay affirmed this decision. The appeal to the Supreme Court was made by special leave.

What were the issues?

1. Whether, in the circumstances of the case, the sum of Rs. 14,00,000 was the assessee company's income within the meaning of Section 2(6C) of the Indian Income-tax Act and liable to income-tax. Assessee's Contention: The appellant argued that the sum received under the consequential loss policies was not "income" or "profits" because it was paid only in the event of a loss and represented an indemnity rather than earned money. They contended that money received from an outside source under such circumstances was not income. The Solicitor-General also raised a new contention that the portion of the sum attributable to standing charges and agency commission could not be taxed, but this was deemed beyond the scope of the referred question. Revenue's Contention: The revenue contended that the sums received were income and taxable. They relied on the broad wording of Section 4 of the Act and the definition of "income" as encompassing receipts that swell the credit side of an account. They also argued that the receipts were inseparably connected with the business and arose from it, thus not being exempt under Section 4(3)(vii).

Which sections of the Income-tax Act were involved?

Section 2(6C),Section 4,Section 4(3)(vii)

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.. .. . ' • S.C.R. SUPREME COURT REPORTS 177 RAGHUVANSHI MILLS LTD. 'V· COMMISSIONER OF INCOME-TAX, BOMBAY CITY. • [MEHR CHAND MAHAJAN, DAs, VIVIAN BosE and GHULAM HASAN JJ.] Incmne-tax-Moneys received under "consequential loss policies" -Whether incmne-Assessability-Dejinition of "incmne"-Exemp- tion of receipt not arising out of business-Indian Income-tax Act, (XI of 1922), ss. 2 (6C), 4 (3) (vii).

The appellant mills had insured its building, plant and machinery with various insurance companies against fire and had aiso taken out some policies of the type known as "consequenffial loss policies" which insured against loss of profits, standing charges, and agency commission.

The mills were completely destroyed by fire and the appellant received certain sums of money under the consequential loss policies.

Held, that sums of money received under these policies were "income" within the meaning of s. 2 (60) of the Indian Income-tax Act, and as they were inseparably connected with the ownership and conduct of the business of the company and arose from it, they were not exempt under s. 4 (3) (vii), and were therefore assessable to income-tax under the Indi

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