Section 45(1A) - The Real Intention

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What is the intention of the income tax department behind application of Section 45 (1A)?

An insurance contract is a contract of indemnity. Why receipts from so, on event of damage or destruction of property if resulting in surplus, taxed?
Keeping in mind that the contract was entered into for protection against loss and not for the sake of earning any profit, which may though be earned, completely unintentionally?
Replies (6)
Though our Taxman do not explicitly tell us the rational behind provisions, it is quite evident that wherever there's some gain, it is taxable under taxation laws.
It's because the destruction of the property and money received against it is treated as "transfer". If you would have sold the property, against that you would have received the consideration, and from your books of accounts such property would have to be removed. The same concept is applicable. It may not be the intention to destroy the property and earn insurance money, but where the property is destroyed in that case also the value of such property has to be removed from the books of accounts, and where insurance money is received , it's to be treated as if you have transferred the property and against that you are receiving consideration, hence capital gain would arise. Just need to see the fact, don't see how the fact has been occurred.
Hope your doubt is clear now.
Thank you Mr Kundu.
I want to ask you just one more question :

What is your view regarding the judgment taken on the "VANIA SILK MILLS CASE"?

The case you have mentioned is a very old case, I guess that time the Sec.45(1A) was not inserted.

AFTER THIS CASE SECTION 45(1) AMENDMENT & SECTION 45(1A) INSERTED
Thanks to all.


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