1. This appeal by the assessee is directed against the order of the Commissioner of Income-lax (Central), Ludhiana, made Under Section 263 of the Income-tax Act, 1961 on 7-11-1986 relating to the assessment year 1982-83.
2. We have heard the parties and carefully considered their rival submissions. For the reasons that we record below, after bringing into focus the relevant facts of the case, which have a bearing on determination of the issue before us, we have no hesitation in cancelling the impugned order by holding that the Commissioner of Income-tax had no jurisdictional facts to assume lawful jurisdiction Under Section 263 to make the impugned order.
3. The assessee, Shri Vinod Kumar Gupta, is an individual having income from house property, share of profits from M/s. New Idea Farm Equipment Co., interest on deposits etc. The assessee was travelling with a couple, who were family friends, in a car driven by a driver on 29th Dec. 1979 when, unfortunately, the car met with a serious accident. The friend of the assessee died on the spot. His friend's wife, however, survived with injuries. The assessee was grievously injured. The accident took place in the jurisdiction of Motor Accident Claim Tribunal, Gurdaspur. He was admitted to CMC, Ludhiana. From a medical certificate issued on 18-10-1980, it appears that he had fractures and was "still under treatment" on the date of certificate, i.e. 18-10-80.
The assessee was apparently insured against such accident with National Insurance Co. Ltd. under Policy No. 882/8100368. The period of disablement extended from 30-12-79 to 19-8-80. For the period 30-12-79 to 29-4-80, there was total disablement. For the period from 30-4-80 to 19-8-80, there was partial disablement. The insurance company paid him Rs. 34,142.86 on this account by cheque No. 683671 dated 31-12-1981 drawn on Punjab & Sindh Bank, Miller Ganj, Ludhiana. The claim of the assessee for medical expenses was still pending before the Motor Accident Claim Tribunal, Gurdaspur, on 31st Dec., 1981 when the above amount was paid to the assessee by the said insurance company.
4. The assessee filed his return of income for the assessment year under appeal on 30th August, 1982. The assessee also attached details of his income for the year under appeal and in the computation so made as annexure to the return filed on 30th August, 1982, he left a note as under: NOTE: Claim from Insurance Co. amounting to Rs. 34,143 is not taxable as income.
When the process of assessment started the Income-tax Officer observed this note and wrote a letter to the assessee that a note has been appended to the computation sheet attached with the return that claim from insurance company amounting to Rs. 34,143 is not taxable as income. You are requested to explain the nature of the insurance claim received and as to why it is not taxable. In order to enforce compliance, the Income-tax Officer added in hand to this typed letter that a notice Under Section 143(2) is enclosed. By letter dated 23-1-85, the assessee explained to the officer that he had taken out accident policy on his life and as a result of the accident, he suffered grievous injuries and was admitted to the local hospital. The amount of compensation amounting to Rs. 34,143 on this account, it was claimed, was a capital receipt and not liable to income-tax. In support of this claim, letter from insurance company had already been filed before the Income-tax Officer to which his attention was invited.
5. The Income-tax Officer (Shri D.R. Dhanna), after examination of all the evidence on record, completed the assessment on 25-1-1985 Under Section 143(3) determining total income of the assessee at Rs. 65,858.
In this total income, he did not include the sum of Rs. 34,143. It is, however, to be noticed that in the assessment order made on 25-1-1985, the Income-tax Officer has not discussed the claim of the assessee, his enquiries made from the assessee and the replies thereto and other evidence in the form of medical certificates and correspondence with the insurance company which paid the amount 6. It appears that the Income-tax Officer who made the above assessment was subsequently tranferred. He was succeeded by another officer (Shri S.R. Chhabra). The succeeding Income-tax Officer issued a notice Under Section 154 of the Act on 24-10-1985 and projected to the assessee that he proposed to rectify the mistake by bringing to tax the amount of Rs. 34,143 received from insurance company for disablement because this had been "omitted to be assessed". When this letter was received by the assessee, the assessee submitted a reply on 5-11-85 pointing out to the Income-tax Officer that there was no question of any mistake apparent from record which could be rectified to include the sum of Rs. 34,143 because the Income-tax Officer who made the assessment on 25-1-85 had been fully satisfied after necessary enquiries that the amount was not taxable being capital receipt. It is not clear what happened thereafter but the learned counsel for the assessee made a statement at the Bar that thereafter nothing was heard from that Income-tax Officer.
7. It is thereafter that the Commissioner of Income-tax (Central), Ludhiana, issued a notice Under Section 263 to the assessee, a copy of which is placed on our record, which, unfortunately, does not bear any date but the ld. Commissioner has written in his impugned order that it was dated 21st August, 1986. In this letter, the ld. Commissioner projected to the assessee that in the assessment made on 25-1-1985, the Income-tax Officer had not included the sum of Rs. 34,143 received as compensation from National Insurance Co. on account of temporary disablement. According to him, the order made by the Income-tax Officer was thus erroneous as well as prejudicial to the interest of revenue and he intended to pass a suitable remedial order. The assessee tiled written reply dated 21-8-86 and was also heard through his learned counsel Shri Subhash Aggarwal, Advocate. It was submitted before the ld. Commissioner that, "full facts were brought to the notice of the Income-tax Officer during the course of assessment proceedings and that it was only after the appreciation of the legal position that the Income-tax Officer framed the assessment without including in assessee's income the compensation money of Rs. 34;143 received by the assessee from the insurance company on account of temporary disablement". It was also projected to the Commissioner that even otherwise, normally, insurance receipts on maturity of policies are not taxable and the amount received by the assessee should be treated at par with that A specific point was made before the Commissioner that the order passed by the Income-tax Officer on 25-1-1985 having been made after due enquiries and appreciation of the legal position could not be called erroneous or prejudicial to the interest of revenue by taking a different view now Under Section 263 because that would merely change the opinion of the Income-tax Officer which is not permissible under the law.
8. The ld. Commissioner, however, considered these submissions but held that when damages are received for permanent disablement as a result of accident, they constitute a capital receipt. However, if the disablement is only temporary, the damages received are revenue receipt. He set aside the order made by the Income-tax Officer on 25-1-85 with the direction that, "it be framed in accordance with the provisions of law after including the sum of Rs. 34,143 above referred to as a taxable revenue receipt in the hands of the assessee".
9. Before us, the learned counsel for the assessee relying upon the judgment of the Punjab and Haryana High Court in the case of (a) CIT v.R.K. Metal Works [1978] 112 ITR 445, (b) judgment of the Tribunal in the case of Smt. Guljeet Walla v. ITO [1988] 32 TTJ (Delhi) 538 and judgment of the Tribunal in the case of S.N. Agrawal v. ITO [1982] 13 ITJ (Delhi) 444, contended that the order made by the Income-tax Officer on 25-1-1985 was neither erroneous nor prejudicial to the interest of revenue as it had been made after due enquiries and in accordance with the provisions of law. The Commissioner had, therefore, no jurisdictional facts for making the impugned order. It may be cancelled. The revenue, on the other hand, relying upon the ratio decidendi of the Supreme Court in the case of Raghuvanshi Mills, Ltd. v. CIT [1952] 22 ITR 484 and the judgment of the Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, justified the order of the Commissioner and submitted that the assessee had not made out a case for an interference in the impugned order and, therefore, the appeal of the assessee be dismissed.
10. It is clear from what is stated above that when the Income-tax Officer proceeded to make the impugned assessment dated 25-1-85, he was fully aware that the sum of Rs. 34,143 received from the insurance company by the assessee was claimed as not taxable. It is this awareness that prompted him to write a letter to the assessee enclosing notice Under Section 143(2) of the Act. The assessee responded to that notice by a written reply dated 23-1-1985. Though the letter of the Income-tax Officer filed before us does not bear a date, yet the reply of the assessee refers to this notice as dated 16-1-85. In the reply filed before the Income-tax Officer on January 23,1985, the assessee has clearly brought out all the facts that were relevant for determining the character of the amount of Rs. 34,143. It is only thereafter that the Income-tax Officer considered not only "the letter of the assessee but a certificate from National Insurance Co. Ltd. which had been filed on his record. Therefore, when he made the assessment on 25-1-85, it was completed with his judicial satisfaction that the amount of Rs. 34,143 did not bear the character of income includible in the total income of the assessee for the year under appeal.
11. On such facts, the Commissioner could not have assumed lawful jurisdiction without showing how the order of the Income-tax Officer was erroneous as well as prejudicial to the interest of revenue and as to what the basis of such a conclusion was as held by the Hon'ble Punjab and Haryana High Court in the case of R.K. Metal Works (supra).
The fact that the Commissioner of Income-tax had an opinion different from what the Income-tax Officer had after due enquiries and after proper consideration of the relevant provisions of law, could not justify to say that the order made by the Income-tax Officer was erroneous as well as prejudicial to the interest of the revenue to give the Commissioner lawful jurisdiction Under Section 263 of the Act 12. We have carefully considered the authorities cited from both the sides though in our considered opinion, as mentioned above, purely on the facts of the case, there was no justification for invoking the provisions of Section 263 in this case. However, on a careful perusal of the authorities cited, we find that the reliance by the revenue on the Supreme Court judgment in the case of Raghuvanshi Mills Ltd. (supra) is basically misplaced because in that case the assessee-company had insured its mills with certain insurance companies and had also taken out certain policies of the type known as "consequential loss policy" which insured against loss of profit, standing charges and agency commission. Therefore, the ratio of that case of the Hon'ble Supreme Court turns on the facts of that case and cannot even, in our humble opinion, by any stretch of imagination, be brought to have a bearing on the facts of this case which involves payments received on account of personal injuries in a car accident. In the case of Gee Vee Enterprises (supra), the Income-tax Officer had not made sufficient enquiries before granting registration to the assessee.
The court, therefore, was considering facts which were entirely different from the facts of the case before us.
13. The facts before us clearly show that the assessee in all fairness and in a bona fide manner based upon in actual happenings in life made disclosure of the amount of Rs. 34,143 received from the insurance company for temporary disablement proved by necessary documents. This amount was, on the facts of the case, capital receipt and not taxable and includible in the total income of the assessee. The Income-tax Officer, therefore, reached a correct conclusion that the amount was not includible in the total income of the assessee. His order could not be said to be erroneous as well as prejudicial to the interest of revenue within the ambit of Section 263 of the Act. We, therefore, cancel the order of the Commissioner under appeal before us.