Judgement

Bose J.- This is an appeal from the High Court at Bombay in an Income-tax Reference under S. 66(1), Income-tax Act of 1922.

The reference was made to the Bombay High Court by the Bombay Bench of the Income-tax Appellate Tribunal in the following circumstances.

2. The appellant-assessee is a Company known as the Raghuvanshi Mills Ltd., of Bombay. The assessment year with which we are concerned is 1945-46. The assessee had insured its buildings, plant and machinery with various insurance companies and also took out, besides those policies, four policies of a type known as a "Consequential Loss Policy." This kind of policy insures against loss of profit, standing charges and agency commission. The total insured against under the latter heads was

Rs. 37,75,000 on account of loss of profits and standing charges, and

Rs. 2,25,000 on account of agency commission, making a total of Rs. 40,00,000.

On 18-1-1944 a fire broke out and the mills were completely destroyed. The various insurance companies therefore paid the assessee Company an aggregate of Rs. 14,00,000 on account in the year with which we are concerned under these policies. This was paid in two sums as follows: Rs. 8,25,000 on 8-9-1944 and Rs. 5,75,000 on 22-12-1944. These payments have been treated as part of the assessee s income and the Company has beed taxed accordingly. The question is whether these sums are or are not liable to tax.

3. Before we set out the question referred, it will be necessary to state that the whole of this Rs. 14,00,000 has been treated as paid on account of loss of profits. The learned solicitor-General, who appeared for the appellant-assessee, contended that that was wrong because the portion of it assignable to Standing Charges and Agency Commission could not on any construction be liable to tax.

This contention is new and involes question of fact and travels beyond the scope of the question referred. We are consequently not able to entertain it. It has been assumed throughout the proceedings, right up to this Court, that the whole of the Rs. 14,00,000 was assignable to loss of profits. There is nothing on the record to show that it was ever split up among the other heads or that it was ever treated as having been split up either by the insurance companies or by the assessee, nor is there any material on which we would be able to apportion it. Our decision therefore proceeds on the assumption that the whole sum is assignable to loss of profits and we make it clear that we decide, nothing about other moneys which may be distributable among other heads.

4. The question has been referred in these terms:

Whether in the circumstances of the case, the sum of Rs. 14,00,000 was the assessee company s income within the meaning of S. 2 (6C), Income-tax Act and liable to pay income-tax under the Indian Income-tax Act.

5. We are concerned in this case with four policies of insurance with four different insurance companies. The clauses relevant to the present matter are the same in all four cases though the sum insured against by each insurance company differs. They are as follows :

"Policy No. C. L. 10018. . . .. . . . . .. .. .

Rupees 10 Lacs only.

On Loss of Profits, Standing Charges and Agency Commission of the above Co. s M1lls, situate at Haines Road, Mahaluxmi, Bombay following fire. . . . . . . . . .

The total amount declared for insurance is Rs.40,00,000/and for 18 months benefits, only as under:

Rs. 37,75,000/- on Loss of Profits and Standing Charges.

Rs. 2,25,000/- on Agency Commission.

Rs. 40,00,000/- out of which this policy covers Rs. 10 lacs only..............

Schedule attached to and forming part of Policy No. C. L. 10018. The Company will pay to the assured:

The loss of Gross Profit due to (a) Reduction in Output and (b) Increase in Cost of Working and the amount payable as indemnity hereunder shall. . . . .

"Definitions of those two terms follow. We need not reproduce them. Then come the following definitions: ,

"Gross profit:- The sum produc