No Capital Gains Tax On Insurance Compensation: Sc
The Supreme Court yesterday stated that an assessee who received compensation from an insurer for the loss of property suffered by him was not liable to pay capital gains tax.
The decision overruled a previous judgement of the Calcutta High Court.
There was no `transfer of property as defined in Section 2(47) of the Income Tax Act in such cases, and therefore the assessee was not liable to pay capital gains tax, the judgement said.
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The division bench, consisting of Justice S C Agrawal and Justice K S Paripoornan, allowed two appeals filed against the Calcutta High Court.
They stated that where an insurance company paid for the total loss or damage of the property and took it over, there was no transfer under Section 45 of the Income Tax Act.
The appeals were filed by a tea company that had received compensation from an insurer under policies for insurance against fire.
The excess sum of compensation after deducting the original cost of the assets destroyed by fire was brought to tax as capital gains under Section 45 of the Income Tax Act.
This was challenged by the company.