# Raghuvanshi Mills.Ltd v. Commissioner of Income~tax, Bombay City. Bote J

- **Citation:** [1953] 1 S.C.R. 177
- **Court:** Supreme Court of India
- **Decided:** 1953
- **Case number:** Civil Appeal No. 55 of 1950
- **Bench:** Mehr Chand Mahajan, DAs, VIVIAN BosE, Ghulam Hasan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/raghuvanshi-mills-ltd-v-commissioner-of-income-tax-bombay-city-bote-j-119
- **Pages:** 8

## Headnote

Incmne-tax-Moneys received under "consequential loss policies"
-Whether incmne-Assessability-Dejinition of "incmne"-Exemption of receipt not arising out of business-Indian Income-tax Act,
(XI of 1922), ss. 2 (6C), 4 (3) (vii).
The appellant mills had insured its building, plant and
machinery with various insurance companies against fire and had
aiso taken out some policies of the type known as "consequenffial
loss policies" which insured against loss of profits, standing
charges, and agency commission.
The mills were completely
destroyed by fire and the appellant received certain sums of
money under the consequential loss policies.
Held, that sums of money received under these policies were
"income" within the meaning of s. 2 (60) of the Indian Income-tax
Act, and as they were inseparably connected with the ownership
and conduct of the business of the company and arose from it, they
were not exempt under s. 4 (3) (vii), and were therefore assessable
to income-tax under the Indian Income-tax Act.
[Their Lordships made it clear that they proceeded orr the assumption that
the whole sum was assignable to loss of profits and that they
decided nothing about other moneys which may be distributable
amongst other heads, e.g., standing charges or agency commission.]
The definition of "income" in Shaw Wallace rt Co.'s case [(1932)
59 I.A. 206] as a "periodical monetary return 'coming in' with some
sort of regularity, or expected regularity, from definite sources"
must be read with reference to the particular facts of that case and
is not applicable to receipts of this nature.
The Kin(], v. B. C. Fir and Cedar Lumber Co. (1932] A.O. 441
and Cmnmissioners of Inland Revenue v. Williams's Executors (1944)
26 Tax Oas. 23 applied.
Cmnmissioner of Incmne-tax, Bengal v.
Shaw Wallace rt Co. (1932) 59 I.A. 206, commented upon.
Judgment of the Bombay High Court affirmed,

## Text

..
..
.
'
•
S.C.R.
SUPREME COURT REPORTS
177
RAGHUVANSHI MILLS LTD.
'V·
COMMISSIONER OF INCOME-TAX,
BOMBAY CITY.
•
[MEHR CHAND MAHAJAN, DAs, VIVIAN BosE and
GHULAM HASAN JJ.]
Incmne-tax-Moneys received under "consequential loss policies"
-Whether incmne-Assessability-Dejinition of "incmne"-Exemption of receipt not arising out of business-Indian Income-tax Act,
(XI of 1922), ss. 2 (6C), 4 (3) (vii).
The appellant mills had insured its building, plant and
machinery with various insurance companies against fire and had
aiso taken out some policies of the type known as "consequenffial
loss policies" which insured against loss of profits, standing
charges, and agency commission.
The mills were completely
destroyed by fire and the appellant received certain sums of
money under the consequential loss policies.
Held, that sums of money received under these policies were
"income" within the meaning of s. 2 (60) of the Indian Income-tax
Act, and as they were inseparably connected with the ownership
and conduct of the business of the company and arose from it, they
were not exempt under s. 4 (3) (vii), and were therefore assessable
to income-tax under the Indian Income-tax Act.
[Their Lordships made it clear that they proceeded orr the assumption that
the whole sum was assignable to loss of profits and that they
decided nothing about other moneys which may be distributable
amongst other heads, e.g., standing charges or agency commission.]
The definition of "income" in Shaw Wallace rt Co.'s case [(1932)
59 I.A. 206] as a "periodical monetary return 'coming in' with some
sort of regularity, or expected regularity, from definite sources"
must be read with reference to the particular facts of that case and
is not applicable to receipts of this nature.
The Kin(], v. B. C. Fir and Cedar Lumber Co. (1932] A.O. 441
and Cmnmissioners of Inland Revenue v. Williams's Executors (1944)
26 Tax Oas. 23 applied.
Cmnmissioner of Incmne-tax, Bengal v.
Shaw Wallace rt Co. (1932) 59 I.A. 206, commented upon.
Judgment of the Bombay High Court affirmed,
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 55 of 1950. Appeal by special leave from the
Judgment and Order elated March 18, 1949, of the
High Court of Judicature at Bombay (Chagla C. J.
1952
Nov.$.
1982
Raghuvanshi
Mills.Ltd.
v.
Commissioner of
Income~tax,
Bombay City.
Bote J,
178
SUPREME COURT REPORTS
(19.53]
and Tendolkar J.) in Income-tax Reference No. 5 of
1948, arising out of Order dated September 27, 1947,
of the Income-tax Appellate Tribunal,
Bombay
Bench 'A', in LT.A. No. 2205 of 1946-47.
C. K. Daphtary, Solicitor-General for India, (K. T.
Desai and A.M. Mehta, with him) for the appellant.
M. C. Setalvad, Attorney-General for India, (G. N.
Joshi, with him) for the respondent.
1952.
November 3.
'l'he Judgment of the Court
was delivered by
BosE J.~This is an appeal from the High Court
at Bombay in an Income-tax Reference under section 66 (1) of the Indian Income-tax Act of 1922.
'l'he reference was made to the Bombay High Court
by the Bombay Bench of the Income-tax Appellate
Tribunal in the following circumstances.
The appellant-assessee is a company kuown as the
Raghuvanshi Mills T"td., of Bombay. Tbe assessment
year with which we are concerned is 1945-46.
Tbe
assessee had insured its buildings, plant and machinery with various insurance companies and also took
out, besides those policies, four policies of a type
knowt~ as a "Consequential I"oss Policy."'
This kind
of policy insures against loss of profit, standing
charges and agency commission. 'l'he total insured
against under the latter beads 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 the 18tb of January, 1944, a fire broke out and
the mills were completely destroyed.
'l'he various
insurance companies therefore pa\d the assessee company an aggregate of Rs, 14,00,000 on account-in the
year with which we are concerned under tbese policies.
This was
paid in two sums· as follows:-
Rs. 8,25,000 on 8th September, 1944, and Rs. 5,75,000
on 22nd December, 1944. These payments bave been
treated as part of tbe assessee's income and the
..
. '
;t--
- .
S.C.R.
SUPREME COURT REPORTS
179
com"pany has been taxed accordingly.
The question
195'13
is whether these sums are or are not liable to tax.
Raghuvrmshi
Before we set out the question referred, it wiil be
llfills Ltd
necessary to state that the who le of this Rs. 14,00,000 0
. v~
·
. d
f I
f
fi
onunissionsr of
has been treated as pa1 on account o oss o pro ts.
Jncome-t<W
The learnid Solicitor-General, who appeared for the Bombay Cit;.
appellant assessee, contended that that was wrong
because the portion of it assignable to standing
BossJ.
charges and agency commission could not on any
- construction be liable to tax.
'l1his contention is new and involves questions of
fact and travels beyond the scope of the question
referred.
\Ve 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 desiision ·
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.
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 Section 2 (60) of the
Indian Income-tax A-ct and liable to pay income-tax
under the Indian Income-tax Act."
We are concerned in this case with four policies of
insurance with four different insurance companies.
'fhe 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. O.L. 10018 ... , ... ,, ..... ,,
180
SUPREME COURT REPORTS
[1953]
195•
Rupees X La~s only
Baghuvanshi
On I.JOSS of Profits, Standing Charges and Agency
Mills Ltcl.
Contmission of the above Co. 's Mills, situate at Haines
v.
Road, Mahaluxmi, Bombay, following fire ................. .
Commissioner of
The total amount declared
for insurance is
I nco1ne-taa::,
Bombay City. Rs. 40,00,000 and for 18 months' benefi~s only as
under:-
Bose J.
Rs. 37,75,000 On I;oss of Profits and Standing
Charges.
Rs. 2,25,000 On Agency Commission.
Rs. 40,00,000
Rs. X lacs only.
•
Out of which this policy covers
•
•
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) R-eduction 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 proftt.-'fhe sum produced by adding to.
the Net Profit the amount of the Insured Standing
Charges, or if there be no Net Profit the amount of
the Insured Standing Charges, less such a proportion
of,any net trading loss as the amount of the Insured
Standing Charges bears to all the Standing Charges
of the business.
Net proftt.-The net trading profit (exclusive of
all capital receipts and accretions and all outlay properly chargeable to capital) resulting frorri the business of the Insured at the premises after due provision has been made· for all Standing and other
charges including depreciation.
Insured standing charges.-Interest on Loans and
Bank Overdrafts, Rent Rates and Taxes, Salaries to
Permanent Staff and Wages to Sk:illed Employees,
.
.
.
+
. .
--
. .
S.C.R.
SUPREME COURT REPORTS
181
Directors' Fees, Auditor's Fees, Travelling Expenses,
Insurance
Premiums, Advertising
and
Agency
Commission.
*
*
*
•
1952
R'1.ghuva.n«-hi
'1fills Ltd.
v.
Period of indemnity. --The period beginning with Commissioner of
the occurrence of the fire and ending not later than
Income-tax,
· h
t'
1 d
h
h
f
Bombay Oitw
e1g teen consecu 1ve
ca en ar mont s t erea ter
· ·
during which the results of the business shall be
Bose J.
affected in consequence of the fire.
--3t
Rate of Gross Profit.-The rate of gross profit
per unit earned on the output during the financial
year immediately before the date of the fire ......... to
which such adjustments shall be made as may be
necessary to provide for the trend of the business and
for variations in or special circumstances affecting
the business either before or after the fire or which
would have affected the business had the :fire not
occurred so that the figures thus adjusted shall represent
as nearly as may be reasonably practicable the result
whiclu, but for the fire, would have been obtained during
the relative period (ff ter the fire."
The underlined* words show that the insurance in
respect of profits was to represent as nearly as possible
the profits which would have been made, had the mills
been working in its normal way.
We turn next to the Income-tax Act.
Under section 3 the "total income of the previous year" is
liable to tax subject to the provisions of the Act.
Section 4 defines the total income to include
"all income, profits and gains from whatever
source derived."
There are certain qualifications but they do not
concern us here.
It will be seen that the taxable commodity, "total
income", embraces three elements, "income", "profits"
and "gains". Now though these may overlap in many
cases, they are nevertheless separate and severable,
and the simple question is whether the Rs. 14 lacs
*!fore italicised.
21
182
SUPREME COURT REPORTS
[1953]
1952
falls under any one or more of those heads. In our
opinion, it is "income" and so is taxable.
Raghuvanshi
Mills Lm.
It was argued on behalf of the assessee that it canv.
not 'be called profits because the money is only payOomm·issioner of able if and when there is a loss or partial loss and
Income-tam,
that something received from an outside source in
Bombay City.
·
t
l'k th
·
t
h' h ·
d
circums ances 1 e
ese 1s no money w 1c
1s earne
Bose J.
in the business and if there are no earnings and no
profits there cannot be any income.
But that only
concentrates on the. word "profits".
This may-not
be a "profit" but it is something which represents the
profits and was intended to take the place of them
and is therefore just as much income as p.rofits or
gains received in the ordinary way. Section 4 is so
widely worded that everything which is received by
a man and goes to swell the credit side of his total
account is either an income or a profit or a gain.
No attempt has been made in the Act to define "income" except to say in section 2 (60) that it includes
certain things which would possibly not have- been
regarded as income but for the special definition.
That. however does not limit the generality of its
natural meaning except as qualified in the section
itself. The words which follow, namely, "from whatever source derived", show how wide the net is spread.
So also in section 6.
After setting out the various
heads of taxable income it brings in the all-embracing
phrase "income from other sources."
There is however a distinction betwee1i "income"
and "taxable income". The Act does not purport to
subject all sources of income to tax, for the liability
is expressly made subject to the provisions of the
Act and among the provisions are a series of exceptions and limitations. Most of them are set out in
section 4 itself but none of them apply here. The
nearest approach for present
purposes is
section 4 (3) (vii):-
"Any receipts ......... not being receipts arising from
business ............ which are of a casual and non-recurring nature."
·
·
*
. .
-
S.C.R.
SUPREME COUR'r REPOR'rS
183
But the sting, so far as the assessee is concerned,
lies in the words "not being receipts arising from
1952
Ra!Jhuvan8hi
business."
•
Mills Ltd.
'fhe assessee is a business company. Its aim is to
v.
make profits and to insure against loss.
In the ordi- GommissioMr of
't d
th' b b
·
t · 1
lnconUJ·tax,
nary way I
oes
is y uy111g raw ma ena , manuBombay City.
facturing goods out of them and selling them so that
on balance there is a profit or gain to itself.
But it
also has other ways of acquiring gain, as do all
prudent businesses, namely by insuring against loss of
profits. It is indubitable that the money paid in such
circumstances is a receipt and in so far as it represents
loss of profits, as opposed to loss of capital and so
forth, it is an item of income in any normal sense of
the term.
It is equally clear that the receipt is insepar!j>bly connected with the ownership and conduct
of the business and arises from it.
Accordingly, it is
not exempt.
This question was considered by the Supreme Court
of Canada which decided that a receipt of this nature
is not a "profit" and so is. not taxable [B. C. Fir and
Cedar Lumber Co. v. The King(1)]. But the Court did
not examine the wider position whether it is "income" and in any event the decision was reversed on
appeal to th€l Privy Council(2).
Their Lordships
held it is "income".
This was followed later by the
· Court of Appeal in England and endorsed by the
House of Lords in Commissioners of Inland Revenue v.
William's Executors( 3). In so far as these decisions do
not turn on the special wording of the Acts with
which they are respectively concerned and deal with
the more general meaning of the word "income", we
prefer the view taken in England.
It is true the Judicial Committee n,ttempted a nar-
' rower definition in Commissioner of Income-tax v.
Shaw Wallace cf: Co. (4), by limiting income to "a periodical monetary return 'corning in' with some sort of
regularity, or expected
regularity,
from definite
sources" but, in our opinion, those remarks must be
11) [1931] Canada L.R. 4)5.
(2) [1932] A.C. 441 at 448.
(3) (1944) 26 Tax Cas, 23.
(4) (1932) 59 I.A. 206.
Bose J.
i84
8UPREME COURT REPOkl'8
[1953]
19s2
read with reference to the particular facts of that
case. The non-recurring aspect of this kind of receipt
Baahuvnnshi was considered by the Privy Council in The King v ·
Mill:. Ltd.
B. a. Fir and Cedar Lumber Co.(1), and we do not think
Courn>issioner of their Lordships had in mind a case of this nature
Inc0nic-tnx,
when they decided Shaw Wallace if: Compnny's case(2).
liombay Ody.
The learned Solicitor-General relies strongly on a
Bo'" J.
clause which appears in three of the four policies with
which we are concerned. That is a clause which
states that the insured must do all he can to minimise the loss in profits and until he makes an endea-
' vour to re-start the business the moneys will not be
paid. 1'his, he argued, shows that the money was paid
as an indemnity against the loss of profits and was
neither income nor profits, nor was it a gain within
the meaning of the section.
We are unable to see
how these receipts cease to be income simply because
certain things must be done before the moneys can
be c.laimed.
In our opinion, the High Court was right in
holding that the Rs. 14,00,000 is assessable to tax.
The appeal fails and is dismissed with costs.
Appeal dismissed.
Agent for the appellant: Rajinder Narain.
Agent for the respondent : P. A. l'tfehta.
Ir) f 1932J A.C. 441, at HS.
(2) [1932] 59 I.A. 206.
r
t