Important Point
The word ‘money’ used in Section 41(2) of the Income Tax Act has to be interpreted only as actual money or cash and not as any other thing or benefit which could be evaluated in terms of money.

Headnote:Income Tax Act, 1961-Section 41(2)-Profits chargeable to tax-Banancing charge-Assessee’s Aircraft insured-Insurer had option to replace aircraft in the ovent of loss or damage thereto in accident-Aircraft met with accident and became a complete wreck-Insurer exercising option under contract purchased similar aircraft and made it available to assessee-ITO applying Section 41(2) brought to tax difference between original cost and written down value-Not sustainable-No question of ‘money payable’ under contract-Contract was contract for replacement-Word ‘money’ used in Section 41(2) has to be interpreted only as actual money or cash and not any other benefit which could be evaluated in terms of money-Section 41(2) not applicable to facts of case.
       Held : It is obvious that the Legislature has deliberately used the word ‘moneys’. Wherever the Legislature intended to refer to payment in kind other than cash or money, it has taken care to provide specifically therefor. For example in Section 41(1) itself, the Legislature has used the expression “Whether in cash or in any other manner whatsoever”. There are several sections in the Act which refer to benefits other than cash though the value thereof can be ascertained in terms of cash or benefits which are convertible in cash. See Sections 17, 23(3), 28(iv), 40A(2a), 93(3)(c)(i). For example, Section 28(iv) speaks of the value of any benefit or perquisite whether convertible into money not, arising from business or profession. In Section 93(4)(c), ‘benefit’ is defined as a payment of any kind for the purposes of the section. (Para 10)
       In Shorter Oxford English Dictionary, ‘money’ has been defined as a “Current coin; metal stamped in pieces as a medium of exchange and measure of value.b. Hence, anything serving the same purposes as coin, later ME. c. In mod. use applied indifferently to coin and to such promissory documents representing coin (esp. bank-notes) as are currently accepted as a medium of exchange”. Hence, the word ‘money’ used in Section 41(2) of the Act has to be interpreted only as actual money or cash and not as any other thing or benefit which could be evaluated in terms of money. (Para 11)
       We have already set out the relevant provisions in the policy of insurance giving an option to the insurer to replace or make good accidental loss or damage to the aircraft. The insurer exercised the option in this case. The effect of exercise of such option has been recognised to bring an end to the obligation to pay money and make the contract one to reinstate the subject-matter of insurance. Thus, there is no doubt that on the exercise of the option by the insurer over which the insured has no sway, the contract should be considered only as a contract for reinstatement and not as a contract for money. There is no question of any ‘money payable’ under the contract. There is a fallacy in the contention that the money became payable on the occurrence of the accident and the exercise of the option thereafter by the insurer would not alter the nature of the contract. The contract itself gives the right to the insurer to exercise the option and the legal effect of such exercise is to make the contract one for reinstatement only from the inception. It is analogous to the ‘doctrine of relation back’. Such exercise of option could only be after the occurrence of the accident and not at any time earlier. Consequently, the expression ‘moneys payable’ in Section 41(2) will not apply in this case. (Paras 15 & 18)

Judgment

Srinivasan, J.-The respondent is a public limited company carrying on business of publishing a newspaper “The Hindu”. It purchased a Dakota aircraft at a cost of Rs. 3,31,455/- for the purpose of ensuring quicker and speedier transport and delivery of the newspaper. The aircraft was insured with the British Aviation Insurance Ltd., Calcutta for a sum of Rs. 4,00,000/-.

2. The terms of the insurance policy enabled the insurer to opt for replacement of the aircraft in the event of loss or damage thereto in an accident. The relevant clauses in the policy are in the following terms:

“Section 1

Loss or Damage to Aircraft

Subject to the terms conditions and limits hereof the company will at their option pay or replace or make good accidental loss of or damage to the aircraft as described in the Schedule hereto (hereinafter referred to as “the aircraft”) including standard component parts thereof temporarily detached in connection with overhaul or repair while in the custody or control of the Insured (unless other similar component parts have been substituted) whilst the aircraft is

In flight

Taxying

On the ground

Moored”

Conditions 7 and 8 of the “General Conditions” read as follows:

“7. In the event of the Company exercising their option under Section 1 to replace the aircraft the replacement shall unless otherwise mutually agreed be by an aircraft of the same make and type and in reasonably like condition.

8. The aircraft shall at all times remain the property of the Insured two shall have no right of abandonment to the Company. In the event of payment of a total loss or replacement of the aircraft by the company under the terms of the policy the Company may at their option elect to take over the remains of the aircraft as salvage.”

3. The respondent’s aircraft met with an accident on 25.12.67 and became a total wreck. The Insurer exercised its option in terms of the policy and purchased a similar aircraft for Rs. 3,50,000/- and after incurring an additional expenditure of Rs. 25,000/- made it available to the respondent in the place of the damaged one.

4. The assessment of the respondent for the year 1969-70 which was completed on 31.1.72 was reopened by the Income-tax Officer under Section 147(b) of the Income-tax Act (hereinafter referred to as the ‘Act’). In the reassessment proceedings, the I.T.O. applied the provisions of Section 41(2) of the Act and worked out the profits at the difference between the original cost and the written down value, viz. Rs. 1,58,122/-. He rejected the contention of the assessee that in view of the exercise of the option of the Insurer to replace the aircraft, no money was payable to the assessee under the policy of insurance and thus the provisions of Section 41(2) of the Act were not attracted. Aggrieved by the order of the I.T.O., the assessee preferred an appeal before the Appellate Assistant Commissioner who took the view that Explanation to Section 41(2) read with Explanation to Section 32(1) of the Act made it clear that the expression “money payable” used in the Section included any amount received from an insurance company in any form. In that view of the matter, the Appellate Assistant Commissioner dismissed the appeal of the assessee. On further appeal to the Tribunal, the latter opined that the Insurer had an option to replace the aircraft and exercised it. Notwithstanding the same, it remained to be a contract of insurance to pay money and the exercise of the option was only to substitute the mode of discharge of the liability under the said contract. According to the Tribunal, the subject-matter of the contract remained one for payment of money which would attract the provisions of Section 41(2) of the Act. Consequently, the order of the Income-tax Officer as affirmed by the appellate authority was upheld by the Tribunal.

5. At the instance of the assessee, the matter was referred to the High Court for answering the following question :

“Whether, on the facts and circumstances of t

Click Here to Read the rest of this document

1999 Supreme(SC) 328

Important PointThe word ‘money’ used in Section 41(2) of the Income Tax Act has to be interpreted only as actual money or cash and not as any other thing or benefit which could be evaluated in terms of money.

Cases Referred (1)

Important Point
The word ‘money’ used in Section 41(2) of the Income Tax Act has to be interpreted only as actual money or cash and not as any other thing or benefit which could be evaluated in terms of money.