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PETITIONER: UNIVERSAL RADIATORS, COIMBATORE

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, TAMIL NADU

DATE OF JUDGMENT30/03/1993

BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) THOMMEN, T.K. (J)

CITATION:  1993 AIR 2254            1993 SCR  (2) 775  1993 SCC  (2) 629        JT 1993 (3)   150  1993 SCALE  (2)393

ACT: 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 to  assessee  for  manufacture--Ship carrying goods seized by Pakistan--Insurance company  paying value of goods in dollars--Devaluation  of Indian rupee--The difference  of the Indian rupee before devaluation and  that received   after   devaluation--Excess   held   a    capital receipt--Not    business    receipt--Receipt    of    casual nature--Sterilization of stock in trade. Words and Phrases--Meaning of ’Income’--’Casual’.

HEADNOTE: 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  strips  and  sheets  and  then despatched  to the assessee for being used for  manufacture. While the ingots were at sea, hostilities 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. The  Indian  Rupee In the meanwhile had been  devalued  and, therefore,  in  terms of rupees the appellant firm  got  Rs. 3,43,556/- as against their payment of Rs. 2,00,164/- at the old  rates.   The  differnece  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 IncomeTax 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 776 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

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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-intrade 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  not  be considered in the normal course of business. 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 them it would 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 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  assesses  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. Allowing the appeal, this Court, HELD  :  1. The word ’income’, ordinarily in  normal  sense, connotes  any  earning  or  profit  or  gain   periodically, regularly or even daily in whatever manner and from whatever source.   It  is thus a word of very wide  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 restricted or technical sense.’ [781 D-E] 777 Raghuvanshi  Mills  Ltd., Bombay v. Commissioner  of  Income Tax, Bombay City, (1952) 22 ITR 484, referred to. [781 E] 2.   ’Casual’   means  accidental  or  irregular.   If   the irregular  or  the accidental income arose as  a  result  of 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 of the  income which  accrued to the assessee.  The causal 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.  [782 F] Barendra  Prasad Ray and Ors. v. Income Tax Officer,  (1981) 129  ITR  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) 37 ITR  171 and  Commissioner of Income Tax, Mysore v. Canara Bank  Ltd. (1967) LXIII ITR 328, referred to. [782 G, H, 783 B] 3.   An  income which was casual in nature could be  brought In the revenue net only if it arose from business.  In 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 activity carried on by the assessee. [783 D] In  the  instant case, the assessee carried on  business  of manufacturing  radiators  and not ingots.  The  ingots  were

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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 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  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  of  it could not be said to accrue  from  business. [783 E] Strong   and  Company  of  Romsey,  Limited  v.   Woodifieid (Survevor of Taves), 5 Tax Cases p.215, referred to. [783 F] 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 778 between the two is established. [784 B] In the Instant case, what was lost was not raw material, but something  which  was capable of being  converted  into  raw material.  The necessary nexus between ingots and  radiators which  could have resulted in income from ingots never  came into  being.   Thus any devaluation surplus arising  out  of payment  paid  for loss of ingots could not  be  treated  as income from business of the assessee. [784 C] S.   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] State   Bank  of  India  v.  Commissioner  of  Imcome   Tax, Ernakulam, (1986) 157 ITR 67, distinguished. [784 F] 6.   Taxability  on profit or deduction for loss depends  on whether  profit  or loss arises in the course  of  business. The  courts have maintained 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] 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 assessee does not carry on any business  or  the payment is a just equivalent of  the  cost incurred  by  the  assessee,  but  excess  accrues  due   to fortuitous circumstances 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. [785 F- G] Commissioner  of Inland Revenue v. William’s  Executors,  26 Tax Cases p.23, referred to. [785 H] In the instant case, the assessee did not carry on  business of  buying 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 currency, but not due to any business or trading activity the amount could not 779 be brought to tax. [786 C-D] Commissioner  of  Income Tax v.   Union  Engineering  Works, (1976) 105 ITR 311, approved. [786 G]

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JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5897 of 1983. 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. 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 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 (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 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. 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 strips and sheets  and  then despatched  to  assessee  for being  used  for  manufacture. While the ingots were at sea, hostilities broke out  between India  and Pakistan and, the vessel carrving 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. 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 780 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 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 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 jurisdiction,  at  the instance of the  department,  on  the following questions of law,               (i)   Wether,   on  the  facts  and   in   the               circumstances  of  the  case,  the   Appellate               Tribunal was right in law, in holding that the

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             devaluation  surplus  earned by  the  assessee               consequent  to the settlement of the claim  by               the  insurance  company is not  assessable  as               revenue receipt for the assessment year  1967-               68 ?               (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 ? It did not agree with the Tribunal as according to 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 amount which came in the hands of the assessee was revenue receipt.  It 781 did  not  agree that the payment made to  the  assessee  was otherwise  than 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  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 price and the cost price in a year is income.   And by  that yardstick 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 pin 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 could not be ’understood in restricted or technical  sense’.   The  wide  meaning  of  the  word   was explained by this Court in Raghuvanshi Mills Ltd., Bombay v. Commissioner  of Income Tax, Bombay city, (1952) 22 ITR  484 and  it was emphasised that the expression,  ’from  whatever source derived’ widened the net.  But exigibility to tax  is not the same as liability to pay tax.  The former depends on charge  created  by  the Act and latter  on  computation  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 the Act provided for  exclusion  of  certain income  from computation.  One of its subsection,  which  is

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relevant  for this appeal, during the period under  dispute, stood as under,               In  computing the total income of  a  previous               year of any               782               person,  any income failing 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               (i)               (ii)receipts  arising  from  business  or  the               exercise of a profession or occupation; or               (iii) In  substantive clause, an income which was casual and  non- recurring  in  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 the  clause.   C  Casual’  according  to  dictionary   means ’accidental or irregular’. this meaning was approved by this Court  in Ramanathan Cheuiar v. Commissioner 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,  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 the 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 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  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 been 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, (1981) 129 ITR 295 it has  been held, by this Court, that the expression, 783 ’business’  is of very wide import and it means an  activity carried  on 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  ITR  700  and Commissioner of  Income  Tax  v.  Calcutta National Bank, (1959) 37 ITR 171.  And even a 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., (1967) LXIII ITR  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 to the assessee on  the blocked capital due to fluctuation in exchange  rate

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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 words the receipt or profit of the 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 manufacturing  radiators and  not  ingots.  They were imported to be  converted  into strips  and sheets at Bombay.  The link which  could  create direct  relationship  between  the 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 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, it was held,               "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               784               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 of.  The income 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 become an  income 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  raw material.  The necessary nexus between ingots  and radiators  which could have resulted in income  from  ingots never came into being.  Thus any devaluation surplus arising out of payment paid for loss of ingots could not be  treated as income from business of the. assessee. For deciding the next aspect, namely, if the excess  payment due to devaluation could be treated as revenue 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 which the  assessee deals in course of business activity.  Good or commodity may be capital or revenue 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 radiators, unless 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. Commissioner  of Income Tar, Emakultam, (1986) 157 ITR 67 relied on behalf of

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department is not helpful’ as the Bank of Cochin, as part of its  banking  business, had been purchasing  cheque  payment orders, mail transfers, demand drafts etc. drawn in  foreign currencies  which were sold or en- cashed  through  assessee correspondent  banks  in foreign  currencies  concerned  and proceeds credited to the current account of the assessee and therefore the foreign exchange was held to be stock-in-trade of  the  assessee,  and any increase  in  value  of  foreign currency  resulting  in excess credited to  the  a’ssessee’s account  as  a  result  of devaluation was  held  to  be  in consequence of assessee’s business activity. 785 Even  assuming  it was stock-in-trade, it was held  by  this Court  in  Commissioner of Income Tax v.  Canara  Bank  Lid, (supra) that stock-intrade, 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 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 hostilities between India and Pakistan, and, therefore, it ceased to be stockin- 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  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  profits.  The latter is undoubtedly taxable as is  clear from  the  decision in Raghuvanshi Mills (supra)  where  any amount paid by the insurance company ’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 depends both on the nature of payment and purpose of insurance.  Raghuvanshi 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 accruing for any reason may be nothing but profit. (see  the King v. B. C 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-III 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 carry on any business or the payment is  a just  equivalent of the cost incurred by the  assessee,  but excess  accrues  due  to fortuitous circumstances  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, 786 the distinction was explained thus,               "A  manufacturer  can, of course,  insure  his               factory against fire.  The receipts from  that               insurance will obviously be capital  receipts.               But   supposing  he  goes  further,   as   the

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             manufacturer  did  in that case,  and  insures               himself  against 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 profits must be of a               revenue nature." 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 onsuch  payment  in respect 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 business or  trading  activity the amount could not be brought to 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 trading  activity  of                             the assessee.  The profit arose since the clai m               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               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 ITR 311 held :               "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.   The  claim for the  compensation  for               damage caused to the goods had.-been               787                 settled  with the insurer, and  the  sum, so               settled did am 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  devaluation,  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 Tribunal had correctly  held               that  the sum of Rs.13,455.75 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  of 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  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.

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N. V. K. Appeal allowed. 788