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PETITIONER: THE COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: KASTURI AND SONS LTD.

DATE OF JUDGMENT:       06/03/1999

BENCH: D.P.Wadhwa, M.Srinivasan

JUDGMENT:

SRINIVASAN, J.

     The respondent is a public limited company carrying on business   of  publishing  a   newspaper  "The  Hindu".   It purchased  a Dakota aircraft at a cost of Rs.3,31,455/-  for the  purpose of ensuring quicker and speedier transport  and delivery  of  the newspaper.  The aircraft was insured  with the  British Aviation Insurance Ltd., Calcutta for a sum  of Rs.4,00,000/-.   2.   The  terms  of  the  insurance  policy enabled  the insurer to opt for replacement of the  aircraft in  the event of loss or damage thereto in an accident.  The relevant clauses in the policy are in the following terms:

     " Section 1

     Loss or Damage to Aircraft

     Subject  to the terms conditions and limits hereof the company  will  at their option pay or replace or  make  good accidental loss of or damage to the aircraft as described in the  Schedule  hereto  (hereinafter   referred  to  as  "the aircraft")   including  standard   component  parts  thereof temporarily  detached in connection with overhaul or  repair while in the custody or control of the Insured (unless other similar  component  parts have been substituted) whilst  the aircraft is

     In flight Taxying On the ground

     Moored"

     Conditions 7 and 8 of the "General Conditions" read

     as follows:

     "7.   In  the  event of the Company  exercising  their option  under  Section  1  to   replace  the  aircraft   the replacement  shall unless otherwise mutually agreed be by an aircraft  of  the same make and type and in reasonably  like condition.

     8.   The  aircraft  shall  at  all  times  remain  the property  of  the  Insured  who   shall  have  no  right  of

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abandonment  to  the Company.  In the event of payment of  a total  loss  or replacement of the aircraft by  the  company under  the  terms  of the policy the Company  may  at  their option  elect  to take over the remains of the  aircraft  as salvage."

     3.   The respondent’s aircraft met with an accident on 25.12.67  and  became a total wreck.  The Insurer  exercised its  option  in terms of the policy and purchased a  similar aircraft for Rs.3,50,000/- and after incurring an additional expenditure   of  Rs.25,000/-  made  it  available  to   the respondent  in  the  place  of the  damaged  one.   4.   The assessment  of the respondent for the year 1969-70 which was completed  on 31.1.72 was reopened by the Income-tax Officer under  S.147(b) of the Income-tax Act (hereinafter  referred to  as  the  ‘Act’).  In the reassessment  proceedings,  the I.T.O.   applied  the provisions of S.41 (2) of the Act  and worked  out  the  profits  at  the  difference  between  the original   cost   and   the   written   down   value,   viz. Rs.1,58,122/-.   He rejected the contention of the  assessee that in view of the exercise of the option of the Insurer to replace  the aircraft, no money was payable to the  assessee under  the  policy of insurance and thus the  provisions  of Section  41 (2) of the Act were not attracted.  Aggrieved by the  order  of the I.T.O., the assessee preferred an  appeal before  the  Appellate Assistant Commissioner who  took  the view that Explanation to Section 41(2) read with Explanation to  Section  32(1)  of  the  Act  made  it  clear  that  the expression  "money payable" used in the Section included any amount  received from an insurance company in any form.   In that   view   of  the   matter,  the   Appellate   Assistant Commissioner  dismissed  the  appeal of  the  assessee.   On further  appeal to the Tribunal, the latter opined that  the Insurer  had an option to replace the aircraft and exercised it.   Notwithstanding the same, it remained to be a contract of insurance to pay money and the exercise of the option was only  to  substitute the mode of discharge of the  liability under  the  said contract.  According to the  Tribunal,  the subject-matter  of the contract remained one for payment  of money which would attract the provisions of Section 41(2) of the  Act.  Consequently, the order of the Income-tax Officer as  affirmed  by the appellate authority was upheld  by  the Tribunal.   5.  At the instance of the assessee, the  matter was  referred to the High Court for answering the  following question:

     "Whether,  on the facts and circumstances of the case, there  was any profit assessable under Section 41 (2) of the Income-tax Act, 1961 by the Insurance Company exercising its option under the policy to replace the damaged aircraft with an aircraft of same make and type?"

     The  High Court after a detailed consideration of  the matter  concluded  that  the   expression  "money   payable" occurring  in  Section 41 (2) of the Act could not  be  made applicable  to  the  present  case.   Holding  that  on  the exercise  of  the option by the Insurer, the contract  could not  be considered to be one for payment of money, the  High Court  answered the reference in favour of the assessee  and against  the  Revenue.  It is the said judgment of the  High Court  which is in challenge in this appeal filed on Special Leave.   6.  The learned Attorney General appearing for  the appellant  formulated  his  propositions  in  the  following manner:   " A contract of insurance is in essence a contract for  money  and  money  only.   On  the  occurrence  of  the

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accident,  money became payable under the said contract.  If instead  of money being paid,if the insured gets the money’s worth  by payment in specie it does not alter the  character of  the  contract  which continues to be one  of  insurance. Such  payment  in specie being the money’s worth would  only amount  to a substituted mode of discharge.  Once the  money become  payable under the contract on the occurrence of  the accident,  the  exercise  of the option by  the  Insurer  to discharge his liability by payment in a different mode other than  money  will  not alter the situation  that  money  was payable under the contract.  In as much as Section 41 (2) of the Act uses the expression "moneys payable" and not "moneys paid",  there  is  no doubt as to the applicability  of  the Section to the case"

     7.   Per  contra, Shri K.  Parasaran,  learned  senior counsel appearing for the assessee has contended that when a fiscal  statute uses advisedly a specific expression, it  is not  for  the  Court  to  substitute  the  same  by  another expression  even if it may be considered to be equivalent to the  expression used by the Legislature.  When the  contract of  insurance contains a specific provision for the exercise of  an  option by the Insurer without any reference  to  the Insurer  and  with  regard to which the Insurer had  no  say whatever,  the moment such option is exercised, the contract should  be treated only as one providing for replacement  of the  aircraft from the inception thereof.  In that event, it cannot  be considered to be a contract for payment of  money at  any  time.  Consequently, when the contract is  one  for replacement  of  aircraft from its inception, there  was  no money  payable under the contract to the Insurer at any time because  of the legal effect of the option exercised by  the Insurer.    Hence,  Section  41  (2)  of  the  Act  has   no application  to  the present case and the view taken by  the High  Court is in accordance with law and unassailable.   8. Before proceeding to consider the respective contentions, it is necessary to advert to the relevant provisions in the Act at  the  relevant time.  Section 41 (2) in so far as  it  is relevant is in the following terms:

     "41  (2)  Where  any  building,  machinery,  plant  or furniture  which  is owned by the assessee and which was  or has  been used for the purposes of business or profession is sold,  discarded,  demolished  or destroyed and  the  moneys payable  in  respect of such building, machinery,  plant  or furniture,  as the case may be, together with the amount  of scrap  value, if any, exceed the written down value, so much of  the excess as does not exceed the difference between the actual  cost and the written down value shall be  chargeable to income-tax as income of the business or profession of the previous  year in which the moneys payable for the building, machinery, plant or furniture became due:

     The   expression  "moneys  payable"   found   in   the sub-section  has been defined to have the same meaning as in sub-section  (1A)  of  Section  32 (vide  Explanation  2  to Section  41  (2A)).   The  Explanation to  Section  32  (1A) defines "moneys payable" in the following terms:

     (i)  "moneys payable", in respect of any structure  or work, includes:

     (a)  any  insurance or compensation moneys payable  in respect thereof;

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     (b) where the structure or work is sold, the price for which it is sold;  ..."

     9.   The  principle  that a taxing statute  should  be strictly  construed  is  well  settled.   In  Principles  of Statutory  Interpretation  by  Justice  G.P.   Singh,  Sixth edition 1966, the law is stated thus:-

     "The  well-established  rule in the familiar words  of LORD  WENSLEYDALE,  reaffirmed  by LORD  HALSBURY  and  LORD SIMONDS,  means:   "The subject is not to be  taxed  without clear  words  for that purpose;  and also that every Act  of Parliament   must   be  read   according  to   the   natural construction  of  its  words".  In a  classic  passage  LORD CAIRNS  stated the principle thus:  "If the person sought to be  taxed  comes  within the letter of the law  he  must  be taxed, however great the hardship may appear to the judicial mind  to  be.   On the other hand, if the Crown  seeking  to recover  the tax, cannot bring the subject within the letter of  the law, the subject is free, however apparently  within the spirit of law the case might otherwise appear to be.  In other  words, if there be admissible in any statute, what is called  an  equitable,  construction,   certainly,  such   a construction is not admissible in a taxing statute where you can  simply  adhere to the words of the statute".   VISCOUNT SIMON  quoted  with  approval  a passage  from  ROWLATT,  J. expressing  the  principle  in the following words:   "In  a taxing  Act one has to look merely at what is clearly  said. There  is  no room for any intendment.  There is  no  equity about a tax.  There is no presumption as to tax.  Nothing is to  be read in, nothing is to be implied.  One can only look fairly  at  the language used".  Relying upon  this  passage LORD  UPJOHN said:  "Fiscal measures are not built upon  any theory of taxation".

     10.    It   is  obvious   that  the  Legislature   has deliberately   used  the  word   ‘moneys’.    Wherever   the Legislature  intended to refer to payment in kind other than cash  or  money, it has taken care to  provide  specifically therefor.    For  example  in   Section  41(1)  itself,  the Legislature  has used the expression "Whether in cash or  in any other manner whatsoever".  There are several sections in the  Act which refer to benefits other than cash though  the value  thereof  can  be  ascertained in  terms  of  cash  or benefits  which  are convertible in cash.  See Sections  17, 23(3),  28(iv), 40A(2a), 93(3)(c)(i).  For example,  Section 28(iv)  speaks  of  the value of any benefit  or  perquisite whether convertible into money not, arising from business or profession.   In Section 93(4)(c), ‘benefit’ is defined as a payment  of  any kind for the purposses of the  section.   A converse  case  arose  before  the Calcutta  High  Court  in Commissioner  of  Income-tax,  West Bengal-II  versus  Kanan Devan  Hills  Produce Company Ltd.  1979 Vol.119 ITR 431  in which the words "which results directly or indirectly in the provision  of  any benefit or amenity or perquisite  whether convertible  into money or not" in cl.  (c) (iii) of Section 40  of  the Act came up for interpretation and the  Division Bench  of the High Court held that those words excluded cash paid  directly  to an employee as there was no  question  of convertibility  to  money  where cash was  paid.   When  the Legislature  has instead of using any word such as ‘benefit’ used  only  the term ‘money’, it can refer only to money  as understood in the ordinary common parlance.

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     11.  In Shorter Oxford English Dictionary, ‘money’ has been defined as a "Current coin;  metal stamped in pieces as a  medium  of  exchange and measure of  value.   b.   Hence, anything serving the same purposes as coin, late ME.  c.  In mod.   use  applied  indifferently  to   coin  and  to  such promissory documents representing coin (esp.  bank-notes) as are currently accepted as a medium of exchange".  Hence, the word  ‘money’  used  in Section 41(2) of the Act has  to  be interpreted  only  as  actual money or cash and not  as  any other  thing or benefit which could be evaluated in terms of money.   12.  The learned Attorney General has argued that a contract  of  insurance  is only a contract for  payment  of money  and money only, In support of this contention he  has drawn  our  attention  to  Rayner vs.   Preston  1880-81  18 Chancery Division L.R.page 1.  Brett Lord Justice observed:

     "The  subject-matter of insurance is a different thing from  the subject-matter of the contract of insurance.   The subject-matter of insurance may be a house or other premises in  a  fire  policy, or may be a ship or goods in  a  marine policy.   These are the subject-matter of insurance, but the subject-matter  of  the contract is money, and  money  only. The  only  result  of the policy, if an  accident  which  is within  the insurance happens, is a payment of money.  It is true that under certain circumstances in a fire policy there may  be  an  option  to spend the money  in  rebuilding  the premises,  but  that does not alter the fact that  the  only liability  of  the insurance company is to pay  money.   The contract,  therefore,  is  a  contract with  regard  to  the payment  of  money  and  it is  contract  made  between  two persons, and two persons only, as a contract".

     13.   He has also referred to the judgment in  Medical Defence  Union  versus Dept.of Trade (1979) 2  W.L.R.   686. The  question  in that case was whether the contract  was  a Contract  of  Insurance at all.  The relevant facts in  that case  were  as  follows:   The Medical  Defence  Union  Ltd. claimed that it was not an insurance company carrying on any class  of  insurance  business  within the  meaning  of  the Insurance  Companies  Act,  1974.  The members  were  paying subscription  to  the  company   and  their  membership  was governed  by contract with each of them .  Among its objects were  the  conduct  of the legal proceedings  on  behalf  of members,  indemnifying  them against claims for damages  and costs  and  giving  advice  on  various  problems  including employment,   defamation  and   professional  and  technical matters.  The articles gave power to the Council of Union at its  discretion  (1) to undertake the conduct or defence  of any matter or proceedings concerning a member’s professional character  or interests, and (2) to grant to any member from Union  funds or indemnity regarding any action,  proceeding, claim  or  demand concerning his professional  character  or interest.   In  every case, an indemnity could  be  granted, restricted or declined in the Council’s absolute discretion. The  question  was whether the contract between each  member and  the union was a contract of insurance for the  purposes of  the Act of 1974.  The same was answered in the negative. The  Court  observed  that one of the three  elements  of  a contract  of  insurance  was that the assured  would  become entitled to something on the occurrence of some event;  that that  "something" must normally be of the nature of money or its  equivalent  and not some other benefit.  It  should  be noticed that though the court was prepared to extend "money" to  "eqivalent of money" it refused to extend the meaning of the  expression ‘money’ to ‘benefit’.  Thus the decision can

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even  be used against the appellant and it is not helpful to him.   14.   Reliance  is placed upon the judgment  of  this court  in  C.I.T.   Gujarat  Vs.   Artex  Manufacturing  Co. (1997)  6 S.C.C.  437.  The Bench referred to the provisions of  Section  41(2)  of  the  Act  and  while  analysing  the rationale  of the section quoted the following passage found in an earlier judgment reported in 41 I.T.R.  290.

     "In  CIT  v.  Bipinchandra Maganlal & Co.  Ltd.   this Court  has  thus  explained the reason for  introducing  the fiction in the second proviso to Section 10(2)(vii):

     "...The reason for introducing this fiction appears to be  this.  Where in the previous years, by the  depreciation allowance, the taxable income is reduced for those years and ultimately the asset fetches on sale an amount exceeding the written   down   value,  i.e.,   the  original   cost   less depreciation  allowance, the Revenue is justified in  taking back  what  it  had allowed in recoupment against  wear  and tear,  because in fact the depreciation did not result.  But the  reason of the rule does not alter the real character of the receipt.  Again, it is the accumulated depreciation over a number of years which is regarded as income of the year in which the asset is sold.  The difference between the written down  value  of  an  asset and the price  realized  by  sale thereof  though  not  profit earned in the  conduct  of  the business of the assessee is notionally regarded as profit in the  year  in  which the asset is sold, for the  purpose  of taking back what had been allowed in the earlier years".

     The  Bench  proceeded to refer to the position in  law prior  to the amendment introduced by Act 67 of 1949 and the subsequent  position.   Learned Attorney General  has  urged that  when  the Section intended recoupment of  the  benefit allowed to the assessee in the previous years by the Revenue it  does  not matter whether the benefit is received by  the assessee  in terms of money or actual cash or any kind.   It is  contended that if an assessee who receives the money  in kind  instead of actual cash, is excluded from the ambit  of S.41 (2), the Section would be rendered useless as everybody would resort to such practice and deprive the Revenue of the tax  payable.   15.   We have already set out  the  relevant provisions  in  the policy of insurance giving an option  to the  insurer  to  replace or make good  accidental  loss  or damage to the aircraft.  The insurer exercised the option in this  case.  The effect of exercise of such option has  been recognised  to  bring an end to the obligation to pay  money and make the contract one to reinstate the subject-matter of insurance.   It has been held that such a conversion relates back  to the inception of the contract.  The proposition was first  laid  down  by Lord Campbell, C.J.  in  Brown  versus Royal  Insurance  Co.   (1859)1 E & E 853 in  the  following words:

     "The  case stands as if the policy had been simply  to reinstate  the  premises in case of fire;  because, where  a contract  provides  for  an election, the party  making  the election  is  in the same position as if he  had  originally contracted to do the act which he has elected to do."

     16.    Till  this  date,   the   proposition   remains undisturbed  and it has been followed in several cases.  Mr. K.  Parasaran, learned senior counsel for the respondent has placed  before  us  xerox copies of the  relevant  pages  in

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Halsbury’s Laws of England, (4th ed.) and several text books wherein Brown’s case has been cited without reference to any contrary  decision.   In Halsbury’s Laws of England,  Fourth Edn.  Vol.25 paras 634, 635 and 636 read as under:

     "  634.   Option as to reinstatement.  By the form  of policy  in  general use, the insurers reserve to  themselves the  option  of reinstating the property instead  of  making payment  in  money.(*)  This  option  is  reserved  for  the insurers’  benefit,  and it is for them to elect whether  to reinstate;   the assured is not entitled to require them  to reinstate.  (**) Nor may he prevent them from reinstating if they elect to do so.  (***)

     (*)  In  a fire policy the option is embodied  in  the undertaking of the insurers:  see 20 Forms & Precedents (5th Edn.) 29, Form 2 cl.2.

     (**) Anderson v Commercial Union Assurance Co.  (1885) 55 LjQB 146 at 149, CA per Bowen Lj.

     (***)  Bisset v Royal Exchange Assurance Co.  (1821) 1 Sh.174, Ct.  of Sess.

     635.   Exercise  of option to reinstate.  An  election for  or against reinstatement is final once it is made,  and cannot  afterwards be withdrawn.  (*) No formal election  is necessary;   an election by conduct is sufficient,  provided that  the  conduct is clear and unequivocal.   The  insurers will  be taken to have elected against reinstatement and  in favour  of  a  payment in money if the  negotiations  for  a settlement have been conducted by the insurers throughout on the footing that the loss is to be made good by a payment in money (**), or if they have proceeded to arbitration for the purpose  of  ascertaining  the amount to be paid  under  the policy.  (***) On the other hand, they are not bound, in the absence  of  specific  provision,  to  exercise  the  option immediately  (****);  they are entitled before exercising it to  investigate the loss and to ascertain what its amount is likely  to be.  Therefore a merely provisional assessment of the  amount,  even if made in conjunction with the  assured, does not debar them from electing to reinstate.  (*****)

     * Sutherland v Sun Fire Office (1852) 14 Dunl 775, Ct. of SEss.

     **  Scottish Amicable Heritable Securities Association v Northern Assurance Co.  (1883) II R 287, Ct.  of Sess.

     *** Sutherland v Sun Fire Office (1852) 14 Dunl 775 at 777.  Ct.  of SEss, per lord Anderson.

     ****  A  time may, however, be specified within  which the  option  is  to be exercised:  Bisset v  Royal  Exchange Assurance Co.  (1821) 1 Sh 174, Ct.  of Sess.

     *****  Sutherland v Sun Fire Office (1852) 14 Dunl 775 at 777, Ct.  of Sess, per Lord Anderson.

     636.   Effect  of  election  to  reinstate.   If   the insurers do not elect to reinstate, their obligation to make good  the loss by a payment in money continues;  (*) but  if they  do  elect,  the  obligation ceases  and  the  contract becomes  a  contract  to reinstate (**).  In the case  of  a building,  this  contract is sufficiently performed  if  the

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building  is put substantially into the same state as before the fire.

     * Rayner v Preston (1881) 18 Chl 1.C.A.

     **  Brown  v Royal Insurance Co.  (1859) 1 E.E 853  at 858 per Lord Compbell CJ."

     17.   It is not necessary for us to quote the passages in  each text book.  It is sufficient to give the references as follows:  (a) Chitty on Contracts 27th edn.  Vol.II Paged 927.  (b) Colinvaux’s Law of Insurance 6th edn.  pages 191 & 192.  At page 192 in Para 11.3, the relevant passage reads:

     "The  contract  of insurance becomes  enforceable,  in fact  ,  as a building contract - Davies J.  in Marrell  vs. Irving Fire (1865) 33 N.Y.  429"

     (c) General Principles of Insurance Law by E.R.  Hardy Ivamy  6th edn.  - page 485.  (d) Mac Gillivray on Insurance Law  9th edn.  Page 517 (Para 21.4.).  (e) Modern  Insurance Law  by  John  Birds  (4th  edn.) P.277.   (f)  The  Law  of Insurance Contracts by Malcolm by A.  Clarke (3rd edn.) Para 29.2.   in  Page 791.  18.  Thus, there is no doubt that  on the  exercise  of the option by the insurer over  which  the insured  has no sway, the contract should be considered only as  a  contract for reinstatement and not as a contract  for money.   There  is no question of any ‘money payable’  under the contract.  There is a fallacy in the contention that the money  became payable on the occurrence of the accident  and the  exercise of the option thereafter by the insurer  would not  alter the nature of the contract.  The contract  itself gives  the  right to the insurer to exercise the option  and the  legal  effect of such exercise is to make the  contract one  for  reinstatement  only  from the  inception.   It  is analogous to the ‘doctrine of relation back’.  Such exercise of option could only be after the occurrence of the accident and  not at any time earlier.  Consequently, the  expression ‘moneys  payable’  in S.41 (2) will not apply in this  case. 19.   We  are unable to accept the contention that the  word ‘money’  should  be  interpreted as  ‘money’s  worth’.   The reasons  given by us earlier are sufficient and we need  not add  to them.  The reason for introducing a fiction in  S.41 (2)  of the Act as explained in Bipinchandra Maganlal &  Co. Ltd.   (41  I.T.R.  290) quoted in Artex  Manufacturing  Co. (1997)  6  S.C.C.   437  that  it  is  for  the  purpose  of recoupment  by  the  Revenue of the benefit allowed  to  the assessee in the previous years does not alter the situation. 20.   In  the result, we do not find any error in  the  view expressed  by  the High Court in the judgment under  appeal. We are in agreement with the reasoning and conclusion of the High  Court in this case.  21.  The appeal fails and suffers dismissal.  There will be no order as to costs.