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PETITIONER: VANIA SILK MILLS (P) LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, AHMEDABAD

DATE OF JUDGMENT14/08/1991

BENCH: SAWANT, P.B. BENCH: SAWANT, P.B. KULDIP SINGH (J)

CITATION:  1991 AIR 2104            1991 SCR  (3) 577  1991 SCC  (4)  22        JT 1991 (3)   394  1991 SCALE  (2)327

ACT:     Income  Tax  Act,  1961:  Ss.  2(47),  41(2),45--Capital asset--Destruction    of--Money   received   as    insurance claim--Nature of Whether chargeable to capital gains tax.

HEADNOTE:     The   appellant   company  purchased   machinery   worth Rs.2,81,741 in the year 1957 and gave it on hire to  another company  which  insured the machinery. In the year  1966,  a fire  broke  out  in the lendee  company  causing  extensive damage to the machinery of the appellant. On a settlement of the insurance claim the lendee company paid to the appellant a  sum of Rs.6,32,533 on account of the destruction  of  its machinery.  The  difference between the actual cost  of  the machinery   and  its  written  down  value  worked  out   to Rs.2,62,781 which the appellant (the asses-I see) showed  in its  income  tax  return for the  relevant  year  as  profit chargeable to tax under s. 41(2) of the Income-Tax Act.  The lncomeTax  Officer  subjected  to tax  also  the  additional amount  of Rs.3,50,792 the difference between the amount  of insurance    claim   and   the   original   cost   of    the machinery---treating  the same as capital  gains  chargeable under  section 45 of the Act, and rejected the case  of  the appellant  that the capital gains tax was not  attracted  to the amount received on account of the insurance claim  since there  was no transfer of capital asset as was  contemplated by s. 45 read with s. 2(47) of the Act.     The  appeal of the assessee was dismissed by the  Appel- late  Assistant Commissioner, but its claim was accepted  by the Income Tax Appellate Tribunal which held that the amount was not received on account of transfer of the capital asset but on account of damage to it and that s. 45 was  attracted only when there was a transfer of the capital asset.     The  reference  at the instance of the revenue  was  an- swered by the High Court against the assessee. Aggrieved the assessee filed the appeal before this Court on a certificate granted by the High Court.     On the question: whether the money received towards  the insurance claim on account of the damage to. or  destruction of the capital 578

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asset  was  so received on account of the  transfer  of  the asset within the meaning of s. 45 of the Act and was, there- fore,  chargeable  to the capital gains tax under  the  said section, Allowing the appeal, this Court, HELD:  1.1 The money received under the insurance policy  is by way of indemnity or compensation for the damage, loss  or destruction  of the property. It is not in consideration  of the  transfer of the property for the transfer of any  right in it in favour of the insurance company. It as by virtue of the  contract of insurance or of indemnity, and in terms  of the conditions of the contract. [584C-D]     1.2  In  the  case of damage, partial  or  complete,  or destruction for loss of property there is no transfer of  it in  favour of a third party. The fact that while paying  for the  total loss of or damage to the property, the  insurance company takes over such property or whatever is left of  it, does  not change the nature of the insurance claim which  is indemnity  or  compensation  for the loss.  The  payment  of insurance  claim  is not in consideration  of  the  property taken over by the insurance company, for. one is not consid- eration for the other. The insurance claim is not the  value of the damaged property. The claim is assessed on the  basis of the damage sustained by the property or the amount neces- sary  to restore it to its original conditions. It is not  a consideration for the damaged property. [584C, F-G]     1.3  In  the instant case, the amount  received  by  the assessee was the one received by it as damages on account of the loss of its machinery. The lendee company, as a  bailee, had insured the machinery hired from the assessee, since  it was  liable  to make good the loss of the machinery  to  the assessee.  This  was implied under a  contract  of  bailment unless  it was provided to the contrary. The lendee  company paid the insurance amount pro rata to the assessee. [587D-G]     1.4 The insurance was on reinstatement basis which meant that  the  property was to be restored to the  condition  in which  it was, before the fire. The insurance  company  paid the amount for the restoration of the machinery which had to be  on the basis of its value at the time of the  fire.  The machinery in question was purchased in the year 1957 and the fire broke’ out on. August 11, 1966. Taking into  considera- tion  the  ordinary course of events, it was  legitimate  to presume  that the cast of machinery had gone up  during  the intervening  period  and  the assured  and,  therefore,  the assessee, was entitled to recover on the basis of the 579 increased value of the machinery. [584H; 585A-B] Halsbury’s  Laws,of  England, Fourth Edition, Vol.  25,  re- ferred to.     2.1  The capital gains is attracted by transfer and  not merely  by extinguishment of right howsoever brought  about. The transfer may be effected by various modes and one of the modes  is  the extinguishment of right on  transfer  of  the asset  itself or on account of the transfer of the right  or rights in it. The extinguishment of right or rights must  in any case be on account of its or their transfer in order  to attract  the  provisions of Section 45  which  speaks  about capital gains arising out of "transfer" of asset and not  on account  of  "extinguishment of right" by  itself.  [583G-H; 584A]     If  extinguishment  of  right or rights is  not  due  to transfer and is on account of the destruction or loss of the asset, it is not a transfer and does not attract the  provi- sions  of  s. 45 which relate to transfer and  not  to  mere extinguishment  of  right but to one by transfer.  Hence  an

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extinguishment  of  right not brought about by  transfer  is outside the purview ors. 45. [584A-B]     Whatever the mode by which a transfer is brought  about, the existence of the asset during the process of transfer is a  pre-condition.  Unless the asset exists  in  fact,  there cannot be a transfer of it. [583E]     Transfer presumes both the existence of the asset and of the transferee to whom it is transferred. [584C]     2.2  When an asset is destroyed there is no question  of transferring  it to others. The destruction or loss  of  the asset, no doubt, brings. about the destruction of the  right of the owner or possessor of the asset, in it. But it is not on  account of transfer. It is on account of the  disappear- ance of the asset. The extinguishment of right in the  asset on account of extinguishment of asset itself is not a trans- fer  of  the  right but its destruction. By  no  stretch  of imagination, the destruction of the right on account of  the destruction of the asset can be equated with the extinguish- ment of right on account of its transfer. [583E-G]       3.1  Although the definition of "transfer"  in  Section 2(47)  of the Act is inclusive, and, therefore,  extends  to events  and transactions which may not otherwise be  "trans- fer"  according to its ordinary, popular and natural  sense, yet it also mentions such transactions as 580 sale,  exchange  etc.  to which the  word  "transfer"  would properly  apply  in its popular and  natural  import.  Since those  associated words and expressions imply the  existence of the asset and of the transferee, according to the rule of noscitur  a  sociis, the expression "extinguishment  of  any rights  therein" would take colour from the said  associated words and expressions, and will have to be restricted to the sense analogous to them. [585C-E]     If the legislature intended to extend the definition  to any extinguishment of right, it would not have included  the obvious  instances  of transfer, viz.  sale,  exchange  etc. Hence the expression "extinguishment of any rights  therein" will have to be confined to the extinguishment of rights  on account  of  transfer  and cannot be extended  to  mean  any extinguishment of right independent of or otherwise than  on account of transfer. [585E-F]     3.2  The  High  Court, was not correct  in  reading  the expression "’extinguishment of any rights" in the assets  as any extinguishment of right whether it resulted in or was on account  of transfer nor was it right in assuming  that  for "transfer"  within the meaning of Section 45 the asset  need not  exist.  It erred in ignoring the basic  postulate  that Section 45 does not relate to extinguishment of right but to transfer.  Having  concentrated its attention on  the  words "extinguishment  of  right" rather than on  "transfer",  the High  Court, misdirected itself and proceeded on  the  basis that every extinguishment of right whether by way of  trans- fer or not, is attracted by Section 45. [585F-G; 584B]     Commissioner  of Income-Tax v. Madurai Mills  Co.  Ltd., [1973] 89 ITR 45 and Commissioner of Income-Tax v. Mohanbhai Pamabhai, [1973] 91 ITR 393, referred to.     4.  Whether  the lendee company had  insured  assessee’s machinery as bailees or as agents of the assessee would make no  difference.  The insurance policy contained  the’  rein- statement  clause requiring the insurer to pay the  cost  of the machinery as on the date of the fire. [587G-H; 588A]     5. In an insurance policy with the reinstatement clause, the insurer is bound to pay the cost of the insured property as  on the date of destruction of loss, and it matters  very little  if  the amount so paid by the insurance  company  is

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invested for purchasing the destroyed asset or for any other purpose. [588A-B]     C.  Leo Macho do v. Commissioner of  Income-Tax,  [1988] 172 ITR 744, approved.  581     Income-tax Commissioner v.J.K. Cotton Spinning & Weaving Mills Co. Ltd., [1987] 164 ITR 18, disapproved.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1106 (NT) of 1976.     From the Judgment and Order dated 22nd/23rd January 1976 of  the  Gujarat High Court in Income Tax Ref.  No.  122  of 1974.     Joseph Vellappilly, K.J. John and Ms. Deepa Dikshit  for the Appellant.     S.C. Manchanda, Ranvir Chandra and Ms..A. Subhashini for the Respondent. The Judgment of the Court was delivered by     SAWANT.  J.-The appellant/Company, hereinafter  referred to as the assessee, carries on. the business of  manufacture and sale of  art-silk cloth. In the year 1957, it  purchased machinery  worth  Rs.2,81,741 and gave it on  hire  to  M/s. Jasmine  Mills  Pvt.  Ltd.,  Bombay at  an  annual  rent  of Rs.33,900.  On  August  11, 1966, a fire  broke-out  in  the premises  of M/s. Jasmine Mills causing extensive damage  tO the  machinery  installed in their  premises  including  the machinery  hired  by them from the assessee.  The  machinery belonging  to the assessee became useless for  any,  further use on account of the damage. M/s. Jasmine Mills had insured along  with its own machinery, the  assessee’s  machinery-as well,  and  on  a settlement of the  insurance  claim,  M/s. Jasmine Mills received a certain amount out of which it paid a  sum  of  Rs.6,32,533 to the assessee on  account  of  the destruction  of  its machinery. The difference  between  the actual  cost  of the machinery and  its  written-down  value worked  out to Rs.2,62,781. The assessee in  its  income-tax return for the assessment year 1967-68 (relevant  accounting year being ’the year ending on 31st August, 1966) showed the said amount as profit chargeable to tax under Section  41(2) of the Income-Tax Act (hereinafter referred to as the "Act") The  IncomeTax Officer, however, subjected to tax  also  the additional  amount of Rs.3,50,792 being the  difference  be- tween  the amount of Rs.6,32,533 received on account of  the insurance  claim  and the original ’cost of  the  machinery, i.e.,  Rs.2,81,741,  treating  the  same  as  capital  gains chargeable  under Section 45 of the Act. The contention  ad- vanced  by the assessee that the capital gains tax  was  not attracted to the amount received on account of the insurance claim since there was no transfer. 582 of capital asset as was contemplated by Section 45 read with Section  2(47) of the Act, was negatived by  the  Income-Tax Officer.     The assessee appealed against the order to the Appellate Assistant  Commissioner who also negatived the said  conten- tion of the appellant and" dismissed the appeal. The  asses- see’s  contention was, however; upheld in the appeal  before the  Income-Tax  Appellate Tribunal,  the  Tribunal  holding that:  the amount was not received on account of a  transfer of the capital asset but on account of the damage to it  and that. Section 45 was attracted only when there was a  trans- fer  of  the  capital asset. Being  aggrieved,  the  Revenue

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applied  for  reference  of the case to the  High  Court  on the,following two questions:               (i)  whether on the facts and in  the  circum-               stances of the case the transfer was justified               in  law in holding that there Was no  transfer               of  capital asset by the assessee  within  the               meaning Of Section 2(47) of the Act?               (ii)  whether on the facts and in the  circum-               stances  of  the case the sum  of  Rs.3,50,792               being the excess of the cost of the  machinery               -received  from M/s. Jasmine Mills  Pvt.  Ltd.               was  chargeable to tax as Capital gains  under               Section 45 of the Act? The High Court answered the first question in the  negative, and  consequently  the second question in  the  affirmative. i.e.,  both questions in favour of the Revenue  and  against the assessee.     This appeal has been filed by the assessee on a certifi- cate granted by the. High Court. 2.  The short question that falls for our ’consideration  is whether  the money received towards the insurance  claim  on account of the damage to or destruction of the capital asset is  so  received  on account of the transfer  of  the  asset within the meaning of Section 45 of the Act and is.,  there- fore,  chargeable to the capital gains tax under  the  ’said section. 3.  It would be convenient to reproduce here the  provisions of Section 45 of the Act as they stood at the relevant time:               "45.  Capital  gains--Any  profits  or   gains               arising  from the transfer of a capital  asset               effected  in the previous year shall, save  as               otherwise  provided in sections 53 and 54,  be               chargeable   to  income-tax  under  the   head               ’capital gains’, and shall               583               be  deemed  to-be the income of  the  previous               year in which the transfer took place".               ,. Emphasis supplied,                   Section  2(47)  of the Act  which  defined               transfer  at the relevant time read’  as  fol-               lows:               "2.  Definitions--In  this  Act,  unless   the               context otherwise requires,.               ..........................               (47)  ’transfer’,  in relation  to  a  capital               asset, includes the, sale, exchange or  relin-               quishment  of the asset or the  extinguishment               of any rights therein or the compulsory acqui-               sition thereof under any law."     A reading of the two sections makes it abundantly  clear that  the profits or gains which are amenable to Section  45 must  arise from the transfer of the capital asset which  is effected  in the previous year. The transfer may be  brought about  by any of the modes of transfer which include  ,sale, exchange, relinquishment of the asset or the  extinguishment of ’the rights therein, or the compulsory acquisition of the asset  under any law. It may be ’of the asset itself  or  of any  rights in it. It may further be the result of a  volun- tary  act  or a compulsory operation. Whatever the  mode  by which it is brought about, the existence of the asset during the process of transfer is a pre-condition. Unless the asset exists in fact, there cannot be a transfer of it.     4.  When an asset is destroyed there is no  question  of transferring  it to others- The destruction or loss  of  the asset,  no doubt, brings about the destruction of the  right

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of the owner or possessor of the asset, in it. But it is nOt On  account of transfer. It is on account of the  disappear- ance of the asset. The extinguishment of right in the  asset on  account of extinguishment of the asset. itself is not  a transfer of the right but its destruction. By no stretch  of imagination, the destruction of the right on account of  the destruction  of  the asset can be equated with’  the  extin- guishment  of right on account of its transfer.  Section  45 speaks  about  capital, gains arising out of  "transfer"  of asset  and not on account of "extinguishment of  right".  by itself.  The capital gains is attracted by transfer and  not merely  by extinguishment of right howsoever brought  about. The transfer may be effected by various modes and one of the modes  is  the extinguishment of right on  transfer  of  the asset itself for on account of the transfer of the right  or rights in 584  The  extinguishment of right or rights must in any case  be on account of its or their transfer in order to attract  the provisions  of Section 45. If is not, and is on’ account  of the  destruction  or loss of the asset, as  in  the  present case,  it is not a transfer and does not attract the  provi- sions  of Section 45 which relate to. transfer and  not1  to mere  extinguishment of right but to one by transfer.  Hence an extinguishment of right not brought about by transfer  is outside  the purview of Section 45. The High Court erred  in ignoring the basic postulate that Section 45 does not relate to   extinguishment  of  right  but  to   transfer.   Having concentrated  its attention on the words "extinguishment  of right"  rather  than  on "transfer", the  High  Court,  with respect, misdirected itself and proceeded on the basis  that every extinguishment of right whether by way of transfer  or not, is attracted by Section 45.     5. Transfer presumes both the existence of the asset and of the transferee to whom it is transferred. In the case  of the  damage, partial or complete, or destruction or loss  of the  property,  there is no transfer of it in  favour  of  a third  party. The money received under the insurance  policy in such cases is by way of indemnity or compensation for the damage,  loss or destruction of the property. It is  not  in consideration of the transfer of the property or the  trans- fer  of any right in it in favour of the insurance  company. It is by virtue of the contract of insurance or of  indemni- ty, and in terms of the conditions of the contract. Under an insurance  contract,, the assured cannot claim  more  amount than the sum insured. The sum insured is the maximum liabil- ity of the insurer and the assured secures it by paying  his premium  which  is  accordingly fixed.  ’Even  within’  the. maximum limit, the insured cannot recover more than What  he establishes  to  be  his actual loss, whatever  may  be  his estimates of the loss that he was likely to bear and whatev- er  the premium he may have paid calculated on the basis  of the said estimate.     The  fact  that while paying for the total  loss  of  or damage  to  the property, the insurance company  takes  over such property or whatever is left of it, does not change the nature of the insurance claim which is indemnity or  compen- sation  for the loss. The payment of insurance claim is  not in consideration of the property taken over by the insurance company,  for one is not consideration for the other. It  is incOrrect’ to argue that the insurance claim is the value of the damaged property- The claim is assessed on the basis  of the damage sustained by the property or the amount necessary to restore it to its original condition. It is not a consid- eration  for the damaged property. In the present case,  the

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insurance was on reinstatement. basis which meant that the 585 property  was  to be restored to the Condition in  which  it was, before the fire. The insurance company paid the  amount for the restoration of the ’machinery which had to be on the basis of its value at the time of the fire. The machinery in question  was purchased in the year 1957 and the fire  broke out. on August 11, 1966. Although nothing has come On record on the point, taking into consideration the ’ordinary course of  events,  it is legitimate to presume that  the  cost  of machinery had gone up during the intervening period and  the assured and, therefore, the assessee, was entitled to recov- er  on  the basis of the increased value  of  the  machinery (refer  to Halsbury’s Laws of England, Fourth edition,  Vol. 25 under the heading insurance, in para 654).’     6..  It  is true that the definition  of  "transfer"  in Section  2(47) of the Act is inclusive,  and-therefore,  ex- tends to events and transactions which may not otherwise  be "transfer"  according to its ordinary, popular  and  natural sense. It is this aspect of the definition which has weighed with  the  High Court and, therefore’; the ’High  Court  has argued  that  if the’ words  "extinguishment-of  any  rights therein" are substituted for the ’word "transfer" in Section 45,  the claim or compensation received from  the  insurance company  would  be attracted by the said section.  The  High Court has, however, missed the fact that the definition also mentions  such transactions as sale, exchange etc. to  which the word "transfer" would properly apply’ in its popular and natural  import. Since those associated’ words  and  expres- sions imply the existence of the asset and of the  transfer- ee, according to the rule of noscitur a sociis, the  expres- sion’  ’extinguishment  of any rights  therein"  would  take colour  from the said associated words and expressions,  and will  have to be restricted t6 the sense analogous to  them. If the legislature intended to extend the definition to  any extinguishment  of  right, it would not  have  included  the obvious  instances of transfer, viz., sale,  exchange  etc., Hence the expression "extinguishment of any rights therein". will have to be confined to the ’extinguishment of rights on account  of  transfer and cannot be extended  ’to  mean  any extinguishment of right independent of or otherwise than  on account of transfer.     7.  The High Court, as stated earlier, read the  expres- sion  "extinguishment  of any rights" in the assets  as  any extinguishment  of  right whether it resulted in or  was  on account of transfer. For the reasons which we have discussed earlier  we find that approach is not correct. For the  same reasons,  we are unable to accept the reasoning of the  High Court  that for "transfer" within the meaning of Section  45 the  asset  need  not exist. We are  afraid  that  the  High Court’s reliance on Commissioner of Income-Tax v. R.M. Amin, [1971] 82 ,ITR 194 586 Gujarat  to  hold  that for the.  transfer  contemplated  by Section  45, the asset need not exist is  not  well-merited. There, the High Court was concerned with a  chose-in-action, viz.,  the shares, and the amount received by the  assessee- shareholder  on liquidation of the company representing  his share  in  the assets of the company. The  Court  there  had pointed  out that the extinguishment of right of the  asses- seeshareholder in his share which was an incorporeal proper- ty  had  come  about on account of receipt by’  him  of  the amount representing the value of the shares.     The amount received by the assessee-shareholder does not represent  any consideration received by him as a result  of

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the  extinguishment of his rights in ’the shares. The  share merely represents the right to receive money on distribution of the net assets of the company in liquidation and it is by satisfaction  of that right, that the right is  extinguished when  such monies are received by the shareholder. The  con- sideration presumes quid pro quo and, therefore, transfer of the property or. of the rights in the property, whether  the property is corporeal or incorporeal.     When the assets, themselves are being distributed, it is correct,to say that to the extent of distribution, they  are wiped out. It is in that sense that the assets do not  exist to the extent that they are distributed. When the  company’s assets are thus distributed, is a sense the assets which are converted into money and which, therefore, exist in the form of  money are transferred from the liquidator to the  share- holder.  His  rights in the assets come to an  end  when  he receives  his liquidated share of the asset. In such a  case the assets do exist though in the converted form, viz., cash and  what is transferred is also the converted form  of  the asset.  With  respect, therefore,"it is not correct  to  say that in such cases the capital asset does not exist and does not  change hand  as capital asset. That the receipt of  his share  in  the asset brings about automatically  the  extin- guishment  of the shareholder’s rights in the asset  cannot, however, be gainsaid. The decision of the Gujarat High Court in  R.M. Amin’s case (supra) was appealed against  and  this Court  while approving’ the ratio of the said decision  fur- ther explained the nature of the ’money received by a share- holder on the’ liquidation of a company. This Court  reiter- ating  its earlier view in the case of Commissioner  Of  In- come-tax  v. Madurai Mills Co. Ltd., [1973] 89 ITR 45,  held that the act of the liquidator in distributing the assets of the  company does not result in the creation of new  rights. It  merely recognises the legal rights which were in  exist- ence  prior  to the distribution. The  shareholder  receives money in recognition and satisfaction of his 587 right and not by operation of any transaction which  amounts to sale, exchange, relinquishment of asset or extinguishment of any of his rights in such asset.     8.  So also when a partner retires from the  partnership what  he receives is his share in the partnership  which  is worked out and realised. It does not represent consideration received’  by ’him as a result of the extinguishment of  his interest  in-the partnership assets. He has no share in  any particular asset of the firm. Therefore, there is no  trans- fer  of  interest  in any particular asset of  the  firm  on account of the receipt of his share by a retired partner. As held  in Commissioner of Income-tax v.  Mohanbhai  Pamabhai, [1973]  91 ITR 393 (Gujarat) no part of the amount  received by the assessee as a retired partner is assessable to  capi- tal gains tax under Section 45.     9.  The High Court has explained these two decisions  by giving.  reasons  which do not appeal to us. The  COurt  has tried to distinguish them from the facts of the present Case pointing out, firstly, t, hat there was no foundation either in  law  or  in fact to believe that the  amount  which  the assessee received from M/s. Jasmine ’Mills was paid to it in satisfaction  or  in working out of its right,  if  any,  to recover  damages under law or contract for the loss or  dam- age’ caused’ to the machinery. We do not see any  difficulty in holding that it was an amount received by the assessee as damages  on  account  of the loss of its  machinery.  It  is difficult to describe it otherwise. The second reason  given by  the High Court is, with’respect, equally fragile. It  is

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held  that  the alleged right, if any, of  the  assessee  t9 recover damages was not an absolute statutory right but  one which was subject to a contract to the contrary and even  if there  was  no such contract, it was merely an  inchoate  or contingent  right in respect of which some investigation  or legal  proceeding  and settlement or adjudication  would  be necessary  for  its’ satisfaction or fulfilment. We  do  not agree  with this reasoning as well. The facts  clearly  show that M/s. Jasmine Mills as a bailee had insured the  machin- ery  hired  from the assessee, since it was liable  to  make good  the  loss of the machinery to the  assessee.  This  is implied  under a contract of bailment unless it is  provided to the contrary. M/s. jasmine Mills further admittedly  paid the  insurance amount pro rata to the assessee. In the  cir- cumstances,  we  are unable to  appreciate  the  distinction sought to be made by the High Court.      10.  We  are also unable to see how it would  make  any difference to the point involved in the present case whether the  Jasmine Mills had insured the assessee’s  machinery  as bailees or as agents of the assessee. 588 There  is further no dispute that the insurance policy  con- tained  the reinstatement clause requiring the  in-surer  to pay the cost of the machinery as on the date of the fire. As we have pointed out earlier, in an insurance policy with the reinstatement  clause, the insurer-is bound to pay the  cost of the insured property as on the date of the destruction or loss,  and it matters very little if the amount so  paid  by the  insurance  company is invested for purchasing  the  de- stroyed asset or for any other purpose.In the circumstances, for  the purposes of answering the question in hand, it  was not necessary to inquire whether the amount received by  the assessee was spent in replacement of the machinery or not.     11.  For  the reasons given above, the  decision  of,the Allahabad  High Court-in Commissioner of Income-tax v.  J.K. Cotton  Spinning& Weaving Mills Co. Ltd., [1987] 164 ITR  81 which  proceeds on the same reasoning as the impugned  judg- ment  is  also not a good law. InStead, we  approve  of  the conclusion reached by the Madras High Court in C. Leo Macho- do v. Commissioner of Income-tax, [1988] 172 ITR 744 for the reasons given by us above;     12. In the result, the’ appeal succeeds and the impugned decision  is  set aside. In the circumstances of  the  case, however, there will be no order as to costs. R.P,                                            Appeal   al- lowed. 589