(a) Income-tax Act (XI of 1922)--

----S. 12-B---Provision of S. 12-B, when attracted---Nature of profit and gain envisioned by S. 12-B---Difference between the original price of the ship of assessee and the amount received by it from the Insurance Company under the Insurance Policy on account of the loss of ship being not a profit or gain on account of the sale, exchange or transfer of the ship, provisions of S. 12-B of the Act were not attracted.

To bring any profit or gain within the mischief of section 12-B of Income-tax Act, 1922, it is necessary that such profit or gain should have arisen from the sale, exchange or transfer of a capital asset. If the profit or gain has not arisen from any sale, exchange or transfer of the capital asset in question, section 12-B will not be attracted and such profit or gain would not be taxable under the said provision.

The difference between the original price of the ship and the amount received by the assessee from the insurance company under the insurance policy on account of the loss of the ship is not a profit or gain on account of the sale, exchange or transfer of the said ship.

(b) Income-tax Act (XI of 1922)---

----S. 12-B---Profit or gain must arise from sale, exchange or transfer of the capital asset to attract provisions of S. 12-B of the Act.

Nasrullah Awan for Applicant.

Ali Amjad for Respondent.

Date of hearing: 14th November, 1991.

JUDGMENT

NASIR ASLAM ZAHID, J.---The application under section 136(1) of the Department moved before the Income-Tax Appellate Tribunal for reference of the question referred herein below was dismissed by order dated 9-2-1982 of the Income-Tax Appellate Tribunal. In the circumstances, the Department has filed this application under section 136(2) of the ordinance seeking opinion of this Court in respect of the following question for assessment year 1973-74 of the assessee:-

"Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that the excess over the cost of the ship amounting to Rs.15,35,073 received by the assessee from the Insurance Company was not taxable under section 12-B of the Income-Tax Act?"

2. We have heard Mr. Nasrullah Awan, learned counsel for the Department and Mr. Ali Amjad, learned counsel for the respondent/assessee.

3. The relevant facts are that the assessee had purchased a ship for Rs.28,50,048 and after allowing depreciation for a number of years, the ship's value, as per the books, became nil. During the 1971 War with India, this ship was lost and as the ship was insured, against a claim made by the assessee under the insurance cover, an amount of Rs.43,85,121 was received by the assessee from the insurance company during the year in question. The difference between the original price, that is Rs.28,50,048 and the amount received against the claim made by the assessee, came to Rs.15,35,073 which was treated as a capital gain by the Assessing Officer and subjected to tax under section 12-B of the repealed Income-Tax Act, 1922. The assessee filed an appeal and the Appellate Assistant Commissioner, relying on an earlier decision of the Income-Tax Appellate. Tribunal, allowed the appeal. The Department took the matter in second appeal before the Appellate Tribunal and the Tribunal, by its order dated 24-9-1980, dismissed the appeal holding that to tax a profit or gain under section 12-B as capital gain it is necessary to establish that there was a transfer, sale or exchange of the asset in question. As observed, the Department was not satisfied with the decision of the Tribunal and, therefore, filed an application under section 136(1) of the Ordinance which was dismissed and in the circumstances this application under section 136(2) has been filed.

4. Relevant part of section 12-B of the repealed Income-Tax Act reads as follows:-

"12-B (1) The tax shall be payable by an assessee under the head "Capital gains" in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946 and before the 1st day of April, 1949 and after the 7^th day of June, 1963, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place; ??."

To bring any profit or gain within the mischief of section 12-B it is necessary that such profit or gain should have arisen from the sale, exchange or transfer of a capital asset. If the profit or gain has not arisen from any sale, exchange or transfer of the capital asset in question, section 12-B will not be attracted and such profit or gain would not be taxable under the said provision.

In our view, the Tribunal was right in holding that the difference between the original price of the ship in question and the amount received by the assessee from the insurance company under the insurance policy on account of the loss of the ship is not a profit or gain on account of the sale, exchange or transfer of the said ship.

Mr. Nasrullah Awan, learned counsel for the Department made a feeble attempt to challenge the decision of the Tribunal on the basis that in fact some gain has come to the assessee. Just because some gain or profit has been received by an assessee would not be sufficient to bring such, gain or profit within the mischief of section 12-B of the repealed Income-Tax Act, 1922. As observed, such profit or gain must arise from sale, exchange or transfer of the capital asset, which is lacking in the present case.

Finding no merit in this application, this application under section 136(2) of the Income-Tax Ordinance, 1979 is dismissed but with no order as to costs.

M.B.A/C-242/K????????????????????????????????????????????????????????????????????? Application dismissed.