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Informist, Thursday, Jul. 10, 2025

 

 

NEW DELHI – The Bombay High Court has set aside the income tax department's order to tax the insurance claims received by Poonawalla Estate Stud & Agricultural Farm in respect of dead horses, as the claims were made before the amended income tax act came into effect in 2000. 

 

The court noted that the government had introduced a provision under the income tax law to cover the amount received under insurance claim on destruction of capital assets to tax. However, the provision came into effect in 2000, while the petitioner's income tax assessments were for the assessment years 1988-89 (Apr-Mar), 1990-91, 1991-92, and 1995-96. This is one of the reasons for holding that the amount received by the assessee towards insurance claims on death of the horses cannot be brought to tax before introduction of the said amount to tax, said the high court.

 

The tax department had held insurance claims received in respect of dead horses were profits and, hence, chargeable to tax under Income Tax Act, 1961. The high court directed the income tax department to treat the entire amount of insurance claims received by Poonawalla Estate Stud & Agricultural Farm for death of horses as capital receipt.

 

"We are therefore of the view that the horses in respect of which the insurance claim was received were Assessee's capital assets and that therefore insurance receipt arising therefrom could only have been considered as capital receipt, not chargeable to tax," said the high court. 

 

The petitioner was carrying on the business of breeding, rearing and selling racehorses since 1967. At its stud farm, there were several mares and stallions. When a male horse or female horse was born, it was being treated as a stock in trade till it attained the age of two years. The value of such horses was determined by the petitioner on the basis of expenditure incurred on feeding, medical treatment and training. After the horse crossed the age of two years, it was either sold or was given on lease for horse racing or transferred for being used for breeding activities. 

 

When some of the petitioner's horses died, it received insurance claims on those. The tax department held that the insurance claim received by the petitioner for death of the horses was to be deemed as income of the Assessee under Section 41(1) of the 1961 Act. The case eventually reached the Bombay High Court in a batch of petitions filed by the petitioners more than two decades ago.  End

 

Reported by Surya Tripathi

Edited by Akul Nishant Akhoury

 

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