Judgment

VENKATARAMA AIYAR, J. : The respondents were the owners of a steam ship called "El Madina". That was requisitioned by the Government during the last world war, and was lost by enemy action on March 16, 1944. As compensation therefor, the Government paid the respondents Rs. 20,00,000 on July 17, 1944; Rs. 23,00,000 on December 22,1944; and Rs. 33,333 on August 10, 1946. The original cost of the ship was Rs. 24,95,016 and its written-down value at the commencement of the year of account was Rs. 15,68,484. The difference between the cost price and the written-down value viz., Rs. 9,26,532 represents the deductions which had been allowed year after year on account of depreciation. As the total compensation received exceeded the cost price, the respondents have recouped themselves all the amounts deducted for depreciation.

2. On these facts, the point in controversy between the respondents and the Department is whether the amount of Rs. 9,26,532 is liable to be included in the total income of the company for the year of assessment which is 1946-47. The provision of law under which the charge is sought to be imposed is S. 10(2) (vii) of the Indian Income-tax Act, 1922, hereinafter