B.S. AHUJA, J.M.: These two appeals, first (ITA No. 269/(Bom)/84) by assessee company and second (ITA No. 433/(Bom)/84) by Department, pertain to asst. yr. 1974-75 and are being disposed of by this common order. ITA No. 433/Bom/1984: only ground in departmental appeal pertains to allowance of 10 per cent of cost of process know-how of Rs. 41,613 as revenue expenditure. Following order of Tribunal for asst. yrs. 1969-70 to 1971-72 in assessee's own case and for more detailed reasons given in our order of even date for asst. yrs. 1972-73 and 1973-74 respectively, we uphold order of CIT(A) and dismiss departmental appeal. ITA No. 269/(Bom)/1984: first ground in assessee's appeal pertaining to sum of Rs. 22,100 paid to customs authorities has not been pressed. second ground pertains to disallowance of Rs. 3,300 paid by way o f compensation to certain hutment dwellers squatting on plant site. assessee is lesse of plot for 99 years for MIDC. It appears that there were certain quarters on this land assessee had to pay this amount to them to make them vacate land. authorities below have held that when land is acquired with unauthorised huts, it would have lowered market value which would have been enhanced with hutment dwellers are removed therefrom. Therefore expenditure is of capital nature. ld. counsel for assessee places reliance on Bombay High Court ruling in CIT vs. Cinceita Private Ltd. (1982) 28 CTR (Bom) 250: (1982) 137 ITR 652 (Bom) for proposition that such expenditure is not capital expenditure but revenue expenditure. That ruling, however, has no bearing on point at issue. In that case premises taken on lease were for period of twenty years and dispute obtained to registration fee, stamp duty and solicitors fees paid for drawing up lease deed. We find no parallel between that ruling and facts before us. In our opinion, expenditure to remove unauthorised structure was indeed capital expenditure. We hold order of CIT (A). next ground pertains inclusion of Rs. 95,537 in income assessed. This amount is foreign exchange gain for payment of amount borrowed for import of machinery. For reasons given in detail in our order for asst. yrs. 1972-73 and 1973-74 and respectfully following order of Special Bench in case of Poysha Industrial Co. Ltd. vs. ITO (1982) 29 CTR (Trib) 22 (Bom) (SB): (1983) 4 ITR 41 (Bom). We accept assessee's plea that this amount is not taxable as revenue receipt. appeal in this regard is allowed. lass ground pertains to sum of Rs. 1,05,078 assessed as capital gains and Rs. 8,68,046 as profit under s. 41(2) of IT Act, 1961. facts in this regard are that assessee-company had insured PAN plant including equipments which are composite parts thereof, one of them being PAN reactor, for their replacement value. There was fire in factory during year on 4th Jan., 1973, in which PAN reactor was destroyed. assessee received compensation from insurance company amounting to Rs. 16,65,486. There is no dispute as regards amount computed as profit under s.41(2) and as capital gains. contention on behalf of assessee is that these amounts are not taxable. ITO noted n para 8 of his order that assessee-company has installed PAN reactor in 1968 at cost of Rs. 15 lakhs. It was used for about six years and was then destroyed by fire. insurance company took over scraps and to that extent reduced final claim of insurance. assessee has originally offered amount as capital gains but later on contended that there was no transfer as contemplated in s. 2(47) and, therefore, amount received as compensation could not be taxed. ITO held that there was transfer and therefore, taxed capital gains and also profit under s. 41(2). ld. CIT(A) followed Gujarat High Court ruling in CIT vs. Vaniya Silk Mills P. Ltd. 1978 CTR (Guj) 141: (1977) 107 ITR 300 (Guj) and held that there was transfer as defined in Act by way of extinguishment of rights of assessee in parts of plant destroyed by fire and excess amount received over and above cost have been rightly assessed as capital gains. s regards profit under s. 41(2), CIT (A) held that ruling in by Supreme Court reported in CIT vs. Sirpur Paper Mills 1978 CTR (SC) 11: (1978) 112 ITR 776 (SC) would only apply, where machineries were damaged and by repairing damage plant or machinery is restored to working condition. I n this case except two dishes and covers, entire PAN reactor was destroyed; therefore, s. 41(2) was clearly applicable. assessee, company is aggrieved and has come up in appeal before us. We have heard ld. Counsel for assessee and Departmental Representative. It was contended that PAN reactor was part of composite plant and not item of plant and machinery by itself. assessee was claiming depreciation on entire plant and not on reactor separately. According to ld. counsel for assessee for attracting capital gain tax it was necessary that whole capital assets should be transferred and not only part thereof. Placing reliance on Supreme Court decision in case of Sirpur Paper Mills (supra), he contended that profit under s. 41(2) could not be brought to tax. ld. Departmental Representative placed reliance on Gujarat High Court ruling in (1977) 197 ITR 300 (Guj) (supra) and that of Calcutta High Court in Manyhong & Kyal Tea Estates Ltd. vs. CIT (1981) 129 ITR 661 (Cal), for proposition that whether insurance company pays compensation on account of fire in factory, plant or machinery, transfer is clearly involved and, therefore, assessment of capital gains and profits under s. 41(2) would be fully justified. ld. Departmental Representative pointed out that even dish ends would have gone out of shape and would have required repairs before use. destruction of reactor which is heart of chemical plant would put entire plant out of commission. We have considered rival contentions. Gujarat High Court had considered similar case in Vaniya Silk Mills P. Ltd. (supra). and held that in case of fire there was extinguishment of proprietary interest of assessee in capital asset, namely, machinery and where profit arose to assessee in consequence of payment made by insurance company for such extinguishment they were taxable. As in this case, so also in that case fire had so extensively damaged machinery that insurance company fire had so extensively damaged machinery that insurance company paid value of machinery and took away damaged machinery. It was held that there was transfer within meaning of s. 2(47) in so far as assessee's rights in capital assets were extinguished. Their Lordships further held that term used in s. 2(47) extinguishment of any rights therein do not require that property in which rights have been extinguished should continue to exist. They can also apply in cases where property ceases to exist on account of destruction by fire. This ruling was followed by Calcutta High Court in case of Mary Bong & Kyol Tea Estates Ltd. (1981) 129 ITR 661 (Cal) (supra). In that case also fire broke out in assessee's factory resulting in damage and destruction of some assets. insurance company paid compensation for losses and ITO brought to tax profit under s. 41(2) and capital gains. Tribunal found under terms of insurance policy that insurer had right to take possession of, or require to be delivered, any property of insured in building or on premise at time of loss or damage and right to remove property or otherwise deal with same, and actually left over property was taken over by insurance company and Tribunal held that capital gains were taxable. High Court upheld that finding holding that on payment of policy money, insurer became entitled to what remained of capital assets and took it over. This was, therefore, case of transfer of that capital asset in changed shape and form and, therefore, capital gains were taxable. Their Lordships have at length discussed law on insurance in this ruling. terms of insurance policy had been placed before us. They are similar terms. compensation claim settled by insurance company vide letter dt. 12th Oct., 1973, copy of which has been placed before us, shows that value of salvage of pan reactor has been reduced from compensation worked out for loss of pan reactor so that fact remains that insurance company took over salvage and sold it back to assessee-company. From ruling of Gujarat and Calcutta High Courts discussed above it is clear that there is transfer involved when property is destroyed by firm and insurance company takes over salvage and pays compensation. It is not necessary that entire machinery must be destroyed by fire before capital gains can be brought to tax or profit under s. 41(2). Even in Calcutta case only some of assets were destroyed by fire and still it was held that profits under s. 41(2) and capital gains were taxable. We, therefore, see no merit in arguments advanced on behalf of assessee and uphold order of CIT (A) in this regard. assessee's appeal is accordingly partly allowed. *** HERDELLIAH CHEMICALS LTD. v. INSPECTING ASSISTANT COMMISSIONER