Section 41(2) of the act, as it stood at the relevant time, provided that where any building, machinery, plant or furniture which had been used for the purpose of business or profession was sold, discarded, demolished or destroyed and the moneys payable in respect of such assets together with the amount of its scrap value, exceeded the written down value, the excess over the written down value (WDV) up to the actual cost would be chargeable to tax as income of the business or profession of the previous year in which the said moneys became due for the asset sold.

The term "moneys payable" was further defined in respect of any structure or work as including,any insurance or compensation of moneys payable in respect thereof and where the structure or work was sold, the price for which it was sold.

In the concerned case, `The Hindu' newspaper had purchased an aircraft for the purpose of its business. The insurance policy enabled the insurer to opt for the replacement of the aircraft in the event of loss or damage thereto. Accordingly, when the aircraft was damaged, the insurer opted for the replacement by another aircraft. The assessing officer reopened the assessment for assessment year 1969-70 and worked out the profits under Section 41(2). He rejected the contention of the assessee that, as no money was payable to the assessee under the policy of insurance in view of the exercise of the option by the insurer for a replacement of the aircraft, the provisions of Section 41(2) were not applicable.

The Supreme Court referred to the principles for interpretation of a taxing statute, viz, unless there are clear words for that purpose, a subject could notbe taxed. And that if the person sought to be taxed came within the letter of the law, he must be taxed no matter how great the hardship may appear to the judicial mind to be. On the other hand, if a subject cannot be brought within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be. An equitable construction is not admissible in a taxing statute where you can simply adhere to the words of the statute.

In the words of Rowlatt, J "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."The Supreme Court, after citing the aforementioned, went on to state that the Legislature had deliberately used the word "moneys".

Wherever the Legislature intended to refer to make payment in kind, other than cash or money, it had takencare to provide specifically therefor, as for instance in Section 41(1) itself where the Legislature had used the expression "whether in cash or in any other manner whatsoever". Several other sections of the act referred to benefits other than cash though the value thereof could be ascertained in terms of cash or benefits which are convertible into cash [Sections 17, 23(3), 28(iv), 40A(2)(a), 93(4)(c)].

Inter-alia, the court referred to Section 28(iv) which speaks of value of any benefit or perquisite whether convertible into money or not arising from business or profession and section 93(4)(c) which defines "benefit" as a payment of any kind for the purposes of this section.

The converse case in CIT vs Kanan Devan Hills Produce Co Ltd, 119 ITR 431 (Cal.) was also referred to in this regard. The court thus held that when the Legislature had instead of using any word such as "benefit" used only the term "money", it could refer only to money as understood in ordinary common parlance. It referred to thedictionary meaning of the term in the Shorter Oxford English Dictionary in this regard.

The attorney general's argument that a contract of insurance is only a contract for payment of money and money only, was not acceded to by the court. The court cited Lord Campbell, CJ, in Brown vs Royal Insurance Co, [1859] IE and E 853 for the proposition that the effect of exercise of an option by the insurer would bring an end to the obligation to pay money and make the contract one to reinstate the subject-matter of insurance.

Such a conversion would relate back to the inception of the contract. The court thus concluded that there was no doubt that on the exercise of the option by the insurer over which the insured had no sway, the contract should be considered only as a contract for reinstatement and not as a contract for money.

The court stated that 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 wouldnot alter the nature of the contract.

The contract itself gave the right to the insurer to exercise the option and the legal effect of such exercise was 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 occurrence of the option and not any time earlier. Consequently, the expression "moneys payable" in section 41(2) was held not to apply to the case.

Section 41(2) has been brought back on the statute by the Finance (No 2) Act, 1998, with retrospective effect from April 1, 1998. Here too, the expression used in the relevant portion of the section is only "moneys payable". Till the section is amended, the insured will escape the rigors of Section 41(2) of the act in case the insurer opts to replace the asset instead of paying money to the insured.

The author is a Mumbai-based chartered accountant