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2003 DIGILAW 483 (KER)

Kerala Shipping Corporation Ltd. v. CIT

2003-07-28

K.K.DENESAN, S.SANKARASUBBAN

body2003
Judgment :- 1. This I.T.R. under S.256(1) of the Income Tax Act (hereinafter referred to as 'the Act') is at the instance of the assessee. The assessment year in question is 1980-81. The question of law referred to us is as follows: "Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was right in law and facts in holding that the ship which has disappeared could be considered as destructed and consequently the provisions of S.41(2) of the Income Tax Act, 1961, could be attracted?" The facts of the case are as follows:? 2. The assessee is a public limited Company engaged in the business of operating ships. The assessee - Company owned a ship by name "Kairali" which was reported to be missing from 3.7.1979 when on highseas. Neither the ship nor the crew were traced till date. A committee of Lloyd's London on its meeting held on 20.8.1979 passed a resolution posting the ship as missing. Presuming total loss as provided in S.58 of the Marine Insurance Act (Indian Act), the Company lodged a claim with Director, Kerala State Insurance Department on 13.9.1979 for an amount of Rs. 6.40 crores being the insurance value on the hull and the machinery policy. The Kerala State Insurance Department agreed for a conditional settlement of the claim of the Company giving an undertaking in favour of the Kerala State Insurance Department to the effect that the insurance money will be refunded back in the event the ship is recovered and the insured gets legal possession thereof. The Assessing Officer assessed the difference between the original cost and the written down value of the ship under S.41(2) of the Act. It was further held that the actual total loss presumed under S.58 of the Marine Insurance Act would amount to "destruction" as the term has been used in S.41(2) of the Act. This was upheld by the Tribunal. The Tribunal held that the disappeared ship which was not recovered till date could be considered as destructed and the provisions of S.41(2) of the Act are attracted. It is in the above circumstances, that the question of law has been referred to us. 3. This was upheld by the Tribunal. The Tribunal held that the disappeared ship which was not recovered till date could be considered as destructed and the provisions of S.41(2) of the Act are attracted. It is in the above circumstances, that the question of law has been referred to us. 3. S.41(2) of the Act is as follows: "Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purpose of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written downvalue, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business of profession of the previous year in which the moneys payable for building, machinery, plant or furniture became due". The Tribunal has now held that the ship has been destroyed. The question is whether this interpretation made is correct. 4. There is no dispute that the ship is missing. But that does not mean that the ship is destroyed. A reading of S.41(2) of the Act will show that there will be physical act of destruction. Then only the Section will apply. The word "destroy" is referred to in the Webster's New 20th Century Dictionary, 2nd edition and the Shorter Oxford Dictionary, 3rd edition, which reads as follows: "Destroy: 1. to demolish, to tear down; as, to destroy a house, to destroy a city. 2. to ruin; to bring to naught; to spoil completely; as to destroy a scheme, to destroy a government, to destroy one's happiness. 3. to take away the utility of; to make useless ....". Merely because the ship is missing, it cannot be said that it is destroyed. In the decision reported in Commissioner of Income Tax v. Bengal Assam Steamship Co. Ltd., 161 ITR 576, the facts of the case are as follows: "During the hostilities between India and Pakistan, 18 vessels of the assessee, a stramship company, were captured and confiscated by Pakistan. Fourteen of the vessels had been insured by the assessee for a sum of Rs. Ltd., 161 ITR 576, the facts of the case are as follows: "During the hostilities between India and Pakistan, 18 vessels of the assessee, a stramship company, were captured and confiscated by Pakistan. Fourteen of the vessels had been insured by the assessee for a sum of Rs. 31,10,342 under the Emergency Risks Insurance Scheme promulgated under the Emergency Risks (Factories) Insurance Act, 1962. Under that insurance, 80% of the loss suffered by the assessee (insured) was agreed to be indemnified by the insurer. The assessee claimed a sum of Rs. 24,47,150 which was paid by the Government (insurer). In its return for the assessment year 1969-70, the assessee disclosed a profit of Rs. 17,24,591 under S.41(2) of the Income-tax Act, 1961, on the basis that the insurance amount received by the assessee had exceeded the written down value of the 14 vessels". When the matter came before the High Court, the High Court held as follows: "the assessee did not sell or discard its assets. The concept of sale or discard involved exercise of volition on the part of the assessee which was totally absent. The expression "sold" in S.41(2) must be given its meaning under the general law. The property of the assessee was not acquired by any authority compulsorily under the provisions of any particular law in force in India nor was compensation received by the assessee on account of such acquisition. The expression "demolished" or "destroyed" in S.41(2) referred to physical demolition or destruction. Though the assessee had not the use of the assets entirely, yet that was not the same thing as physical destruction of the assets....". According to us, here also it cannot be said that the ship was destroyed as there is no evidence for that. Missing does not mean destroyed. 5. In the above view of the matter, we answer the question of law referred to us in the negative and in favour of the assessee. ITR is disposed of as above.