JUDGMENT :

P.D. Desai, J.

1. An interesting question as to the true interpretation of the expression "the extinguishment of any rights therein ", that is in a capital asset, occurring in Section 2 (47) of the Income-tax Act, 1961, (hereinafter referred to as "the Act"), which defines the word "transfer" used in section 45 and other cognate sections, arises in this reference in the context of the following facts.

2. The assessee is a private limited company carrying on business of manufacture and sale of art-silk cloth. In the Year 1967, it purchased machinery worth Rs. 2,81,741 and gave it on hire to Messrs. Jasmine Mills Pvt. Ltd., Bombay, at an annual rent of Rs. 33,900. On August 11,1966, fire broke out in the premises of Messrs. Jasmine Mills Pvt. Ltd. causing extensive damage to the machinery hired from the assessee and other machinery belonging to Messrs. Jasmine Mills Pvt. Ltd. The assesssee's machinery was damaged to such an extent that it could not any longer be put to use as such. It appears that Messrs. Jasmine Mills Pvt. Ltd. has insured the assessee's machinery along with its own machinery and on a settlement of the insurance claim, it received certain amount out of whic