Holding

The devaluation surplus received on settlement of the insurance claim is a casual, non‑recurring receipt not arising from the assessee's business and is excluded from total income under Section 10(3).

Summary

Universal Radiators, a manufacturer of automobile radiators, purchased copper ingots from the United States to be rolled in Bombay and used as raw material. While the ingots were at sea, the vessel was seized during hostilities between India and Pakistan and the loss was compensated by the insurer, resulting in a rupee amount higher than the original payment due to devaluation. The assessee claimed the excess was a casual, non‑recurring receipt and sought exemption under Section 10(3) of the Income Tax Act, but the tax authorities treated it as taxable business income. The Tribunal held the surplus to be a capital receipt because the ingots never became stock‑in‑trade, a view reversed by the Madras High Court which treated it as revenue receipt. The Supreme Court allowed the appeal, holding that the devaluation surplus did not arise from the assessee's business, was not a receipt arising from business under Section 10(3)(ii), and therefore was excluded from total income. Consequently, the excess amount is not taxable.

Issues considered

The excess amount received due to rupee devaluation is taxable as income under Section 10(3) of the Income Tax Act.
Whether the receipt constitutes a revenue receipt arising from the assessee's business or a capital receipt.
Whether the copper ingots constitute stock‑in‑trade of the assessee.
Whether the receipt falls within the exception of Section 10(3)(ii) as a receipt arising from business.

Legislation cited

Income Tax Act, 1961s. 10(3), s. 13, s. 2(24), s. 4

Subjects

Income TaxSection 10(3)casual receiptnon‑recurring receiptdevaluation surpluscapital receiptstock‑in‑tradeinsurance claimforeign exchangebusiness incometax exemption

Judgment

i-
,

--J,.. .
UNIVERSAL RADIATORS, COIMBATORE A
v.
COMMISSIONER OF INCOME TAX, TAMIL NADU

)'- MARCH 30, 1993

[DR. T.K. THOMMEN AND R.M. SAHA!, JJ.) B

- Income Tax Act, 1961 : Sections 4 and 10(3).

Assessee-Manufacturer of automobile radiators-Copper ingots
booked from America-To be rolled in Bombay as and sheets and despatched c
-( to assessee for manufactu~Ship carrying goods seized by Pakistatt-ln-
surance company paying value of goods in do/lars-Devalua_tion. of Indian
rnpee-171e difference of the Indian rnpee before devaluation and that
received. after devaluation-Excess held a capital receipt-Not business
receipt-Receipt of casual nature-Sterilization of stock in trade.
D
Words and Phrases-Meaning of 'lnconie'-'Casuar.

The appellant-assessee a manufacturers of radiators for
_}.__ automobiles booked copper ingots from a corporation In the United States
of America for being brought to Bombay where it was to be rolled into
E
strips and sheets and then despatched to the assessee for being used for
manufacture. While the Ingots were at sea, hostilrtles broke out between

- India and Pakistan and, the vessel carrying the goods was seized by the
authorities in Pakistan. The claim of the assessee for the price paid by it
for the goods was ultimately settled in its favour by the insurer in America.
F
The Indian Rupee in the meanwhile had been devalued and, there-
fore, in terms of rupees the appellant firm got Rs. 3,43,556/- as against
their payment of Rs. 2,00,164/- al the old rates. The dilTernece was credited
to profit on devaluation in the Profit and Loss Account. The claim of the
appellant that the difference being a causal receipt and non-recurring in
nature, and as such was not liable to tax, was not accepted by the Income·
G
r- Tax Officer.

The Appellate Assistant Commissioner rejected the appeal of the
assessee, being of the opinion that the receipt was one which did not arise
directly from carrying on business by the assessee but was the incidental H
775
776 SUPREME COURT REPORTS [1993] 2 S.C.R.

A to it, and not finding any merit in the submission that the ultimate
realisation was in the nature of capital gains and not revenue recipt.

In further appeal by the assessee, the Tribunal held that when the '.
goods were seized by the Pakistan authorities "the character of the goods
changed and it became sterilized and, therefore, it ceased to be stock-in- --r
B trade of the assessee, that the devaluation surplus was in nature of capital
receipt and not a profit made by the assessee in the course of business, .:.
that the money which came to the assessee was as a result of the settlement
of the insurance claim and, therefore, the profit that resulted from it could
""""11!1
not be considered in the normal course of business.
c The High Court in its advisory jurisdiction at the instance of the'
Department negatived the claim of the assessee for two reasons, one the
difference in the cost price and the sale price, and the other that it was
revenue receipt, and did not agree with the Tribunal as according to it if
the assessee had got the goods imported into India and sold ihem it would
D have got higher amount as a result of devaluation, and held that there
could be no dispute that the assessee was liable to pay tax on the difference
of the sale price and the cost. It further held that the nature of the amount
which came in the hands of the assessee was a revenue receipt, and did not
agree that the payment ·made to the assessee was otherwise than for
E business, as the whole transaction was part and parcel of the business >-~
carried on by the assessee and could not be described as extraneous to it.

In the assesse's appeal to this Court, on the question whether the
excess amount paid to the assessee due to fluctuation in exchange rate was
taxable or not.
F
Allowing the appeal, this Court,

HELD : 1. The word 'income', ordinarily in normal sense, connotes
any earning or proi1t or gain periodically, regularly or even daily in •
whatever manner and from whatever source. It is thus a word of very wide
G import. Section 2(24) of the Income Tax Act is legislative, recognition of
its elasticity. Its scope has even widened from time to time by extending it
---~
to varied nature of income. Even before it was defined as including profits,
gains,.dividends and contributions received by a trust it was held to be a
word, 'of broadest connotation' which could not be 'understood in
H restricted or technical sense.' (781 D-E]
UNIVERSAL RADIATORS v. C.l.T. 777

Raghuvanshi Mills Ltd.,· Bombay v. Commissioner of Income Tax, A
Bombay City, (1952) 22 !TR 484, referred to. [781 EJ

2. 'Casual' means accidental or irregnlar. Ir the irregnlar or the
·r- accidental income arose as a result or business activity, them even if it was
non-recurring, it may not have fallen outside the revenue net. The real test,
is therefore, what was the nature and character or the income which B

- accrued to the assessee. The causal nature or it or non-recurring 1111ture
were only aids to decide if the nature of income was In the course or
business or otherwise. [782 FJ

Barendra Prasad Ray and Ors. v. Income Tax Officer, (1981) 129 !TR c
295; S.G. Mercantile Corporation Pvt. Ltd. v. Commissioner of Income Tax,
(1972) 83 ITR 700; Commissioner of Income Tax v. Calcutta National Bank,
(1959) 37ITR171 and Commissioner of fllcome Tax, Mysore v. Canara Bank
Ltd. (1967) LXIII ITR 328, referred to. [782 G, H, 783 BJ

3. An income which was casual in nature could be brought in the D
revenue net only if it arose from business. lo other words the receipt or
profit of the nature covered by Section 10(3) could be brought to tax if it
was the result of any business activily carried on by the assessee. (783 DJ
. ..4..
· In the instant case, the assessee carried on business .of manufactur·
E
ing radiators and not ingots. The ingots were imported. to be converted

- into strips and sheets at Bombay. The link which could create direct
relationship between the finished goods and the raw material was snapped
even before it reached Bombay. Payment m~de for loss of such goods did
not bear any nexus with the assessee's business. May be that if it would
....... have reached, it could have been ·after conversion into strips and sheets F
used as raw material. But so long as it did not reach Bombay and was not
converted into raw material, the connection it bore with the assessee's
business was remote. And any payment made in respect or it could not be
said to accrue from business. (783 EJ

Strong and Company of Ramsey, Limited v. Woodifield (Survevor of
G
Y Taxes), 5 Tax Cases p.215, referred to. (783 FJ

4. An income directly or ancillary to the business may be an income
•
from business, but any income to an assessee carrying on business does
not become an income from business unless the necessary relationship H
778 SUPREME COURT REPORTS (1993] 2 S.C.R. )'--

A between the two is established. [784 Bl
In the i.nstant case, what was lost was not raw material, but some·
thing which was capable of being converted into raw material. The neces·
sary nexus between ingots and radiators which could have resulted in
income from ingots never came into being. Thus any devaluation surplus
--r
B arising out of payment paid for loss of ingots could not be treated as

-
income from business of the a~sessee. (784 CJ

5. Income from goods purchased for business is not an income from
business. In the. instant case buying ingots by the assessee was not a part
of its trading activity. [784 F]
c
State Bank of India v. Commissioner of Income Tax, Enraku/am,
(1986) 157 ITR 67, distinguished. [784 Fl

6. Taxability on profit or deduction for loss depends on whether
profit or loss arises in the course of business. The courts have maintained
D
a diStinction between insurance against loss of goods and insurance
against loss of profits. The latter is undoubtedly taxable. Taxability of the
amount paid on settlement of claim by the insurance company depends
both on the nature of payment and purpose of insurance. [785 D-E]

E 7. Any payment being accretion from business, the excess or surplus
accruing for any reason may be nothing but profit. But where payment is
made to compensate for loss of use of any goods in which the asses see does
not carry on any business or the payment is a just equivalent of the cost
incurred by the assessee, but excess accrues due lo fortuitous circumstances
-
or is a windfall, then the accrual may be a receipt, but it would not be income
F arising from business, and, therefore, not taxable under the Act. [785 F-G]

Commissioner of Inland Revenue v. William's Executors, 26 Tax Cases
p.23, referred to. [785 HJ

In the instant case, the assessee did not carry on business of buying
G and selling of ingots. The compensation paid to the assessee was not for
....,,,..
any trading or business activity, but just equivalent in money of the goods
'
lost by the assessee which it was prevented from using. The excess arose
on such payment in respect of goods in which the assessee did not carry
on any business. Due to fortuitous circumstances of devaluation of curren-
H cy, but not due to any business or trading activiiy the amount could not
~ UNIVERSAL RADIATORS v. C.I.T. (SAHA!, J.] 779

be brought to tax. [786 C-D) A
Commissioner of Income Tax v. Union Engineering Works, (1976) 105
ITR 311, approved. [786 G]
~
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5897 of
1983. B
~

- From the Judgment and Order dated 25.7.1979 of the Madras High
Court in Tax Case No. 54/76 (Reference No. 35/76.)

T.A. Ramachandran and Janki Ramachandran for the Appellant.
c
J. Ramamurthy, P. Parmeswaran (NP), Ranbir Chandra (NP), T.V.
~
Ratnam and Ms. A. Subhashini (NP) for the Respondent.

The Judgment of the Court was delivered by

R.M. SAHAI, J. Legal issues that arise for consideration in this D
appeal, directed against the decision of the High Court in Commissioner
of Income Tax, Tamil Nadu v. Universal Radiators, (1979) 120 ITR 906 on
questions of law referred to it in a reference· under the Income Tax Act
. ..J., (in brief 'the Act') are, if the excess amount paid to the assessee due to
fluctuation in exchange rate was taxable either because the payment being E
related to trading activity it could not be excluded under Section 10(3) of

- the Act even if it was casual and non-recurring in nature or it was
stock-in-trade, therefore, taxable as revenue receipt or in any case the
compensation for the loss of goods could not be deemed anything but
profit.
F
~.
Shorn of details the assessee, a manufacturer of radiators for
automobiles booked copper ingots from a corporation in the United States
of America for being brought to Bombay·where it was to be rolled into
r strips and sheets and then despatched to assessee for being used for
manufacture. While the ingots were at sea, hostilities broke·out between
G
India and Pakistan and, the vessel carrying the goods was seized by the
y- authorities in Pakistan. The claim of the assessee for the price paid by it
for the goods was ultimately settled in its favour by the insurer in America.

Meanwhile the Indian Rupee had been devalued and, therefore, in
terms of rupees the appellant firm got Rs. 3,43,556 as against their payment H
780 SUPREME COURT REPORTS (1993) 2 $.C.R. }'-

A of Rs. 2,00,164 at the old. rate. The difference was credited to profit on
devaluation in the Profit and Loss Account. The claim of the appellant that
the difference being a casual receipt and non-recurring in nature, it was
not liable to tax, was not accepted by the Income Tax Officer. In appeal
the Appellate Assistant Commissioner was of opinion that the receipt was ...,
one which did not arise directly from carrying on business by the assessee
B
but was incidental to it. But he did not find any merit. in the submission
that the ultimate realisation was in nature of capital gains and not revenue
receipt. In further appeal the Tribunal held that when the goods were ,
seized by the Pakistan authorities the character of the goods changed and
it became sterlised and, therefore, it ceased to be stock-in-trade of the
·-
c assessee. The Tribunal held that the devaluation surplus was in nature of.
capital receipt and not a profit made by the assessee in course of business. ,,...
It further found that the money which came to the assessee-was as a result
of the settlement of the insurance claim and, therefore, the profit that
resulted from it could not. be considered to have arisen in normal course
of business. When the matter came to the High Court, in its advisory
D
jurisdiction, at the instance of the department, on the following questions
of law,

(i) Weiher, on the facts and in the circumstances of the
'
case, the Appellate Tribunal was right in law, in holding ..>-
E that the devaluation surplus earned by the assessee con-
sequent to the settlement of the claim by the insurance
company is not assessable as revenue receipt for the
assessment year 1%7-68 ? -
F (ii) Whether on the facts and in the circumstances of the
case, the Appellate Tribunal was right in holding that the
,,,,
profit earned by the assessee on account of devaluation
of Indian Currency was not in the course of carrying on
of the business or incidental to the business ?

G It did not agree with the Tribunal as according tci it if the assessee had got
the goods imported into India and sold them it would have got higher -~

amount as a result of devaluation. Therefore, it held that there could be
no dispute that the assessee was liable to pay tax on difference of the sale
price and the cost. The High Court further held that the nature of the
H amount which came in the hands of the assessee was revenue receipt. It
UNIVERSAL RADIATORS v. C.I.T.(SAHAI,J.] 781

did not agree that the payment made to the assessee was otherwise than A
for business, as the whole transaction was part and parcel of the business
carried on by the assessee and could not be described as extraneous to it.

·..,..- The High Court thus negatived the claim of assessee for two reasons,
one, the difference in the cost price and the sale price, and the other, that
it was revenue receipt. In observing that, 'If the assessee had got the goods
B
imported into India and had sold them at a higher rate, which would have
-
' increased as a result of devaluation, then there can be no dispute that the
assessee would be liable to tax on the difference between the sale price
and the cost', the High Court oversimplified the issue. May be any profit
or gain accruing to an assessee as a result of difference between the sale c
"( price and the cost price in a year is income. And by that yardsti~k the
devaluation surplus, irrespective of any other consideration, may be receipt
which in common parlance may be income. But liability to pay tax under
the Act arises on the income accruing to an assessee in a year. The word
'income', ordinarily in normal sense, connotes any earning or profit or gain
D
periodically, regularly or even daily in whatever manner and from whatever
source. Thus it is a word of very wide import. Clause (24) of Section 2 of
the Act is legislative recognition of its elasticity. Its scope has been widened
,.(_ from time to time by extending it to varied nature of income. Even before
it was defined as including profits, gains, dividends and contributions
received by a trust it was held to be a word, 'of broadest connotation' which E
could not be 'understood in restricted or technical sense'. The wide mean-

-· ing of the word was explained by this Court. in Raghuvanshi Mills Ltd.,
Bombay v. Commissioner of Income Tax, Bambay City, (1952) 22 JTR 484
and it was emphasised that the expression, 'from whatever source derived'
widened the net. But exigibility to !ax is not the same as liability to pay tax.
-~ F
The former depends on charge created by the Act and latter on computa-
tion in accordance with the provisions in the Act and the rules. Surplus in
consequence of devaluation of the currency was undoubtedly receipt, but
the liability to pay tax on it could arise only if it was income for purposes
of the Act and was not liable to be excluded from computation under any
of the provisions of the Act or the rules framed thereunder. Section 10 of G
( the Act provided for exclusion of certain income from computation. One
of its sub-section, which is relevant for this appeal, during the period under
dispute, stood as under,

"In computing the total income of a previous year of any H
782 SUPREME COURT REPORTS [1993] 2 S.C.R. ..\..-

A person, any income falling within any of the following
clauses shall not be included - .................

(3) any receipts which are of a casual and non-recurring
nature, unless they are -

B (i) ..................

(ii) receipts arising from business or the exercise of a
profession or occupation; or. -
("')
Ill "
c
OOOOOOMOOOO•OOOOOO

In substantive clause, an income which was casual and non-recurring in
-y-
nature was excluded from being charged as income of the assessee. Due
to use of word, 'and', existence of both the conditions was mandatory.
Absence of any disentitled the assessee from claiming any benefit under
D the clause. 'Casual' according to dictionary means 'accidental or irregular'.
this meaning was approved by this Court in Ramanathan Chettiar v. Com-
missioner of Income Tax, Madras, (1967) 63 ITR 458. Non-recurring is one
which is not likely to occur again in a year. But an income even after
satisfying the two conditions-may still not have been liable to be excluded
if it fell in one of the exceptions carved out by the proviso. In other words,
>---
E the receipt should not only have been casual and non-recurring only but it
should not have been 'receipts arising from business'. To put it th~ other
way, if an income arose in the usual course of business, then it would not
have been liable for exclusion even if it was casual or non-recurring in
nature. 'Casual', as explained earlier, means accidental or irregular. But if
F the irregular or the accidental income arose as a result of business activity, ....__
then even if it was non-recurring, it may not have fallen outside the revenue
net The real test, therefore, was the nature and character of income which
accrued to the assessee. The casual nature of it or non-recurring nature
were only aids to decide if the nature of income was in the course of
business or otherwise. In Raghuvanshi Mills Ltd. (Supra) it was held by this
G Court that a receipt even if it was casual and non-recurring in nature would
~-
be liable to tax if it arose from business. 'Business' has b_een defined in
Clause' 13 of Section 2 of the Act as including 'any trade, commerce or
manfacture or any adventure or concern in the nature of trade, commerce
or manufacture'. In Barendra Prasad Ray and Ors. v. Income Tax Officer,
H (1981) 129 ]TR 295 it has been held, by this Court, that the expression,
UNIVERSAL RADIATORS v. C.l.T. [SAHA!, J .] 783

'business' is of very wide import and it means an activity carried on A
continuously and systematically by a person by the application of his labour
and skill with a view to earning the income. The width of the definition has
been recognised, by this Court, even in S. G. Mercantile Corporation Pvt.
Ltd. v. Commissioner of Income Tax (1972) 83 !TR 700 and Commissioner
,... of Income Tax v. Calcutta National Ba11k, (1959) 37 !TR 171. And even a B
single venture has been held to amount to business and the profit arising
out of such a venture has been held to be taxable as income arising from

- business. In Commissioner of Income Tax, Mysore v. Canara Bank Ltd.,
(1%7) LXIII !TR 328 it was held, by this Court, that where money was
lying idle and the blocked balance was not employed for internal operation
or for business by the bank the profit accruing (o the assessee on the C
blo~ked capital due to fluctuation in exchange rate could not be held to be
·"( income arising out of business activity or trading operation. The ratio
reflects the rationale implicit in sub-section (3) of Section 10 of the Act.
An income which was casual in nature could be brought in the revenue net
only if it arose from business. In other worc;Is the receipt or profit of the D
nature covered by Section 10(3) could be brought to tax if it was result of
any business activity carried on by the assessee.

The assessee carried on business of manufactui:ing radiators and not
...J.,, ingots. They were imported to be converted into strips and sheets at
- Bombay. The link which could create direct relationship between the E
\
finished goods and raw material was snapped even before it reached
Bombay. Payment made for loss of such goods did not bear any nexus with
the assessee's business. May be that if it would have reached, it could have
been after conversion into strips and sheets used as raw material. But so
long it did not reach Bombay and was not converted into raw material, the F
connection it bore with the assessee's business was remote. And any
~payment made in respect of it could not be said to accrue from business.
In Strong and Company of Romsay, Limited v. Woodifield (Surveyor of
Taxes), 5 Tax Cases p.215, a converse case where the assessee claimed
deduction of certain payments made to a customer, for the injury caused
to him by falling off a chimney due to the assessee's servant's negligence, G
it was held,
y-
"it does not follow that if a loss is in any sense connected
with the trade, it must always be allowed as a deduction;
for it may be only remotely connected with the trade or H
784 SUPREME COURT REPORTS [1993] 2 S.C.R.

A it may be connected with something else quite as much as
or even more than with the trade. I think only such losses
can be deducted as are connected with it in the sense that
they are really incidental to the trade itself.''

The word 'from' according to dictionary means 'out or. The income '(
B thus should have accrued out of the business carried on by the assessee.
An income directly or ancillary to the business may be an income from
business, but any income to an assessee carrying on business does not

c
become an inoome from business unless the necessary relationship between
the two is established. What was lost on the seas was not raw material, but
something which was capable of being converted into ra"'. material. The
-
necessary nexus between ingots and radiators which could have resulted in
income from ingots never came into being. Thus any devaluation surplus y
arising out of payment paid for loss of ingots could not be treated as
income from business of the assessee.
D
For deciding the next aspect, namely, if the excess payment due to
devaluation could be treated as r·evenue receipt, two questions arise, One,
if the ingots were stock-in-trade and other the effect in law of its being
blocked or sterlised. Stock-in-trade is goods or commodity in ~hich the
assessee deals in course of business activity. Good or commodity may be
E capital or r.evenue depending on if it is ·bought ·or sold or is used or )-._
exploited by the assessee. Since the ingots by itself were not raw material
and were not usable by the assessee for the business of manufacturing

F
radiators, u.nless they were converted into strips and sheets, they could not
be treated as stock-in-trade. The buying of the ingots by the assessee was
not a part of its trading activity. Income from goods purchased for business
-
is not an income from business. Ratio in State Bank of India v. Commis-
,;._
sioner of Income Tax, Emakulam, (1986) 157 !TR 67 relied on behalf of
department is not helpful as the Bank of Cochin, as part of its banking
business, had been purchasing cheque payment orders, mail transfers,
demand cl.rafts etc. drawn in foreign currencies which were sold or en-
G cashed through assessee correspondent banks in foreign currencies con-
cerned and proceeds credited to the current account of the assessee and
therefore the foreign exchange was held to be stocl<-in-trade of the asses- ~/

see, and any increase in value of foreign currency resulting in excess
credited to the assessee's account as a result of devaluation was held to be
H in consequence of assessee's business activity.
,
UNIVERSAL RADIATORSv. C.I.T. [SAHA!, l.] 785
~
Even assuming it was stock-in-trade, it was held by this Court in A
Commissioner of Income Tax v. Canara Bank Ltd., (supra) that stock-in-
trade, if it gets blocked and sterlised and no trading activity could be
carried. with it, then it ceased to be stock-in-trade, and any devaluation
surplus arising on such capital due to exchange rate would be capital and
r not revenue. Applying the ratio of this case, the copper ingots, which even
if assumed to be stock-in-trade, were blocked and sterlised due to hos-
B
tilities between India and Pakistan, and, therefore, it ceased to be stock-

- in-trade and any surplus arising due to exchange ratio in the circumstances
was capital receipt only.

Coming to the issue whether devaluation surplus earned by the c
assessee consequent on the settlement of the claim by the insurance
-~ ·. company could be treated as revenue receipt, it may be stated that
taxability on profit or deduction for loss depends on whether profit or loss
arises in course of business. The courts have maintained a distinction
between insurance against loss of goods and insurance against loss of D
profits. The latter is undoubtedly taxable as is clear from the decision in
Ragliuvanslti Mills (supra) where any amount paid by the insurance com-
pany 'on account of loss of profit' was held taxable. But what happens
where the insurance company pays any amount against loss of goods. Does
it by virtue of compensation become profit and is taxable as such. Taxability
-~ of the amount paid on settlement of claim by the insurance company E
depends both on the nature of payment and purpose of insurance.
Ragltuvanslti Mills' decision is an authority for the proposition where the

- very purpose of insurance itself is profit or gain. Result may be the same
where the payment is made for goods in which the assessee carried on
business. Any payment being accretion from business, the excess or surplus F
accruing for any reason may be nothing but profit. (see Tlie King v. B.C.
. ....i.___ Fir and Cedar Lumber Company, Ltd. 1932 AC 441, Green (HM Inspector
of Taxes) v. J. Gliksten & Son, Ltd. Reports of Tax Gases Vol.14 p.365,
Commissioner of Income-Tax, Bombay City-Ill v. Popular Metal Works &
Rolling Mills (1983) ITR Vol. 142 p.361. But where payment is made to
compensate for loss of use of any goods in which the assessee does not G
carry on any business or the payment is a just equivalent of the cost
t- incurred by the a$sessee, but excess accrues due to fortuitous circumstan-
ces or is a windfall, then the accrual may be a receipt, but it would not be
income arising from business, and, therefore, not taxable under the Act. In ....,
Commissioner of Inland Revenue v. William •s' Executors, 26 Tax Cases p.23, H
786 SUPREME COURTREPOFTS (1993] 2 S.C.R.

A the distinction was explained thus,

"A manufacturer can, of c6urse, insure his factory against
fire. The receipts from that insurance will obviously be
capital receipts. But supposing he goes further, as the
manufacturer did in that case, and insures himself against
B the loss of profits which he will suffer while his factory is
out of action; it seems to me it is beyond question that
sums received in respect of that insurance against loss of

C
profits must be of a revenue nature.11

The assessee did not carry on business of buying and selling ingots.
-
The compensation paid. to the assessee was not for any trading or business
activity, but just equivalent in money of the goods lost by the assessee which
it was prevented from using. The excess arose on such payment in respect
..r
of goods in which the assessee did not carry on any business. Due to
fortuitous circumstances of devaluation of currency, but not due to any
D business or trading activity the amount could not be brought lo tax.

The Appellate Tribunal in the instant case had found,

"the profit on account of devaluation is not business profit
or income as it has nothing to do with the business or
E trading activity of the assessee. The profit arose since the
' claim was settled by the Insurance Company and the
Indian rupee was devalued. Even without paying for the
goods contracted for, the assessee by an extraordinary set
of fortuitous circumstances earned a profit which by its
-
F very nature is causal and non-recurring. In this view of the
matter the profit cannot be charged to tax."

The High Court of Kerala in Commissioner of Income Tax v. Union
Engineering Works, (1976) 105 !TR 311 held :
G "In the' instant case, the excess profit, as found by the
Tribunal, was- not a receipt arising from business; _nor was
it, as admitted on both sides, capital gains. This was part .
of the compensation received by the assessee from the
·".
insurer for damage caused to its goods. Tl.e claim for the
H compensation for damage caused to the goods had.-been
UNIVERSAL RADIATORS v. CJ.T. (SAHAI, J.}

settled with the insurer and the sum so Settled did not A
include any excess profit. The excess profit arose entirely
due to the devaluation. This excess amount was in the
nature of a windfall, being the unexpected fruit of devalua~
tion, and it can.not, therefore, be regarded as a receipt
arising from business though it may be said in a sense to
be a receipt in the course of business. We hold that the B
Tribunal had correctly held that the sum of Rs.1-3,455.75
received by the assessee was not a recipt arising from its
business · within the meaning of section 10(3)(ii) of the
Income Tax Act, 1961."

We are of the view that on the facts of that case, the High Court oE
c
Kerala was right in law in upholding the findings of the Tribunal, .while on
the facts found in the instant case, the High Court of Madras was wrong
in law in reversing .the well-considered order of the Tribunal.

For reasons stated by us this appeal suceeds and is allowed. Both the D
questions referred by the Tribunal to the High Court are answered in the
affirmative, i.e., in favour of assessee and against the department. The
assessee shall be entitled to its costs.

N.V.K. Appeal allowed.