General Family Pension Fund Vs. The
Commissioner of Income-Tax, West Bengal [1954] INSC 108 (1 November 1954)
AIYYAR, T.L. VENKATARAMA MAHAJAN, MEHAR CHAND
(CJ) DAS, SUDHI RANJAN HASAN, GHULAM BHAGWATI, NATWARLAL H.
CITATION: 1955 AIR 50 1955 SCR (1) 822
Indian Income-tax Act (XI of 1922), s. 10(7)
and schedule Rule 2(a)(b) as published in 1939-Income-tax on insurance company How
ascertained-Statement of Departmental Representative, Effect of-Insurance Act
(IV of 1938) s. 2(11.) -Life Insurance business.
In accordance with the provisions of s. 10(7)
of the Indian Income-tax Act, 1922, the profits and gains of Life Insurance
business for the periods 1943-1944 to 1946-1947 are to be computed under Rule
2(a) and Rule 2(b) of the rules published in 1939 and contained in the schedule
to the Act. - This computation should be made separately and independently once
under Rule 2(a) and again under Rule 2(b). On such computation income-tax is to
be levied on the greater of the two amounts so computed. It is erroneous to
adopt the computation made under Rule 2(b) as the basis for computation under
Rule 2(a).
Mere statement of the Departmental
Representative of the Income-tax Department to the Tribunal referred to in the
order of the Tribunal cannot have the effect of a finding of fact by the
Tribunal.
Business of a company which consists in
granting terminable pensions or annuities dependent on human life in favour of
the subscribers or their nominees, is an insurance business within the meaning
of s, 2(11) of the Insurance Act, 1938,
HEADNOTE:
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 144 of 1953.
Appeal from the Judgment and Order dated the
28th November, 1951, of the High Court of Judicature at Calcutta in Reference
No. 40 of 1950.
Sukumar Mitra (S. N. Mukherjee, with him) for
the appellant.
C. K. Daphtary, Solicitor-General of India,
(G. N. Joshi, with him) for the respondent.
1954. November 1. The Judgment of the Court
was delivered by VENKATARAMA AYYAR J.-This is an appeal from the judgment of
the High Court of Calcutta on a reference under section 66(1) of the Income-tax
Act. The appellant is a Company which came into existence in 1870 as an
unregistered association, and in 1906 it was registered under the provisions of
the Indian Companies Act. Its business consists exclusively in granting
terminable pensions or annuities dependent on human life in favour of the
subscribers or their nominees. The dispute in this appeal relates to the
assessment of the profits of the Company for income-tax for the periods,
1943-1944, 1944-1945, 1945-1946 and 1946-1947.
To follow the points in issue, it will be
useful to refer to the statutory provisions bearing on the matter. Section
2(11) of the Insurance Act, 1938, defines "life insurance business"
as meaning "the business of effecting contracts of insurance upon human
life" and as including "the granting of annuities upon human
life." The business of the appellant Company would therefore be life
insurance business as defined in-section 2(11) of the Insurance Act. Under section
10(7) of the Indian Income-tax Act, the profits and gains of any business of
insurance are to be computed in accordance with the Rules in the Schedule to
the Act. Rule 2 in the Schedule is as follows:
" The profits and gains of life
insurance business shall be taken to be either- 824 (a)the gross external
incomings of the preceding year from that business less the management expenses
of that year, or (b)the annual average of the surplus arrived at by adjusting
the surplus or deficit disclosed by the actuarial valuation for the last inter valuation
period ending before the year for which the assessment is to be made' so as to
exclude from it any surplus or deficit included therein which was made in any
earlier inter valuation period and any expenditure which may under section 10
of this Act be allowed for in computing the profits and gains of a business,
whichever is the greater.
"Rule 5(ii) defines "gross external
incomings" as including profits on the sale or the granting of annuities.
These Rules came into force in 1939.
In 1945 the assessment of the profits of the
appellant Company for the years 1943-1944, 1944-1945 and 19451946 was taken up
by the Income-tax Officer. Under Rule 2, what the Income-tax Officer had to do
was to compute the profits of the Company under the two heads (a) and (b) in
that Rule and to adopt whichever was higher as assessable profits. What he
actually did however is uncertain, because the orders of assessment themselves
have not been exhibited as part of the record. From the order of the Tribunal
dated 5th March, 1949, it appears that the Income-tax Officer firstly
determined the profits under Rule 2(b) on the basis of actuarial valuation
after making certain adjustments; and secondly on the basis of the figure
arrived at under Rule 2(b), he worked out the profits under Rule 2(a) by making
further adjustments. These orders were made on 14th July, 1945. The company
preferred appeals against them to the Appellate Assistant Commissioner, who
held by his order dated 30th November, 1945, that the annuity business
contemplated by Rule 5(ii) was "purely annuity business", that the
business carried on by the Company was "an admixture between an annuity
and life insurance", and that there had been no adequate investigation by
the Income-tax Officer of the nature of the business of the Company. He 825
accordingly remanded the case for further enquiry and for passing fresh orders
of assessment.
By the time the matters came up for further
enquiry before the Income-tax Officer in pursuance of the order of remand, the
assessment of the profits of the Company for the year 1946-1947 had also to be
made. By order dated 23rd December, 1946, the Income-tax Officer determined the
assessable profits of the Company for all the four years.
He held that there was no element of
insurance in the business of the Company, and that the computation should be
made under Rule 2(a). Then he proceeded to assess the profits under that Rule
precisely in the manner adopted by him in his order dated 14th July, 1945. He
first took the annual adjusted surplus calculated according to the actuarial
valuation under Rule 2(b) and after making certain adjustments, adopted it as
the figure under Rule 2(a).
These orders were clearly erroneous. The
statement that there was no element of life insurance in the policies was
rightly hold to be erroneous by the Tribunal and has not been sought to be
supported. If the annuity business of the Company was not life insurance
business, then even Rule 2(a) would have no application. The Income-tax Officer
was likewise in error in adopting the figures reached under Rule 2(b) as the
basis for computing the profits under Rule 2(a) without an independent enquiry
into the materials requisite under that Rule.
The Company took up the matter in appeal to
the Appellate Assistant Commissioner, who by his order dated 26th September,
1947, held that the annuity business of the appellant was life insurance
business, and that the profits should be computed under Rule 2. He further held
that in the absence of a profit and loss ,statement for the previous year, the
Income-tax Officer could only act on the materials furnished by the actuarial
valuation as a guide for computation under Rule 2(a). He therefore confirmed
the orders of assessment.
The Company then appealed to the Tribunal. By
its order dated 5th March, 1949, the Tribunal held that the business of the
Company was "in a way" insurance, 826 and that computation of the
profits should be made in accordance with Rule 2, after determining the profits
both under Rule 2(a) and Rule 2(b). It took exception to the modus adopted by
the Income-tax Officer in ,computing the profits under Rule 2(a), and observed
that he should have made independent enquiry under Rule 2(a), and determined
the profits and not merely adopted the figures computed under Rule 2(b) as the
basis for computing the profits under Rule 2(a). The Tribunal accordingly
remanded the matter to the Income-tax Officer for further enquiry for
determining the profits in terms of Rule 2(a).
Dissatisfied with this order, the respondent
applied for reference under section 66(1) of the Income-tax Act, and on that
application, the following questions were referred to the decision of the High
Court:
1. " Whether in the facts and
circumstances of the case the business of the assessee-Company consisted wholly
of annuity business or whether it contained some elements of ordinary life
insurance business as distinct from annuity business.
2. Whether the Income-tax Officer was
justified in making an estimate for calculations under Rule 2(a) of the
Schedule attached to section 10(7) of the Income- tax Act. " The reference
was heard by Chakravarti and S. R. Das Gupta JJ. They held that the first
question did not arise on the order of the Tribunal, but all the same expressed
their opinion thereon in the following terms :
" Its business is *holly a business of
granting annuities on human life, and no part of its business is ordinary life
insurance business. " As we are not concerned with this matter in this
appeal, there is no need to further refer to it.
On the second question, they observed that
business in annuities dependent on life as contrasted with "annuities
certain" would be insurance business as defined in section 2(11) of the
Act, and that the profits of that business being "gross external
incomings" as defined in Rule 5(ii) must be determined under Rule 2(a).
Dealing next with the objection of the appellant that there had been no proper
determination of the 827 profits under Rule 2(a), they held that in the absence
of profit and loss statements for the previous years and other materials the
Income-tax Officer had no course open to him except to adopt the figures
computed under Rule 2(b) as a basis for computation under Rule 2(a). The second
question was accordingly, answered in the affirmative. It is against this
decision that the present appeal has been preferred on a certificate granted
under section 66A (2).
Mr. Mitra for the appellant does not dispute
the position that the business of the Company on annuity policies dependent on
human life is insurance business as defined in section 2(11), and that the
profits of the business should therefore be computed in accordance with Rule 2
in the Schedule to the Income-tax Act. His contention is that the Income-tax
Officer had failed to make the computation in accordance with Rule 2(a), and
that the Tribunal was right in remanding the matter for a correct computation
of the profits in accordance with that Rule. This contention must, in our
opinion, succeed. Under Rule 2, the Income-tax Officer has to determine under
clause (a) what the gross external incomings of the previous year were, and
deduct out of them the managing expenses for that year. He has also to find out
in terms of clause (b) the annual average surplus on the basis of actuarial
valuation in the manner prescribed therein. He has then to adopt whichever is
higher as the assessable profits of the year. Now the complaint of the
appellant is that while a computation was made under clause (b) no independent
computation was made under clause (a), and that therefore the profits had not
been determined as required by the Rules. It is a fact that no independent
computation has been made under Rule 2(a), and therefore there has been no
compliance with the Rule. The learned Judges declined to uphold this objection
on the ground that the Company did not place any materials before the Income-
tax Officer so as to enable him to make a determination under Rule 2(a), and
that in the absence of any materials the Income-tax Officer was justified in
acting on the actuarial report for computing the profits even under Rule 2(a).
828 The argument of the appellant is that
having regard to the stand taken by either side at the stage of investigation
and to the opinion expressed by the Income-tax Officer that there was no
element of insurance in the annuity business of the Company, the true position
under the Rules had been missed by all of them, with the result that there was
no attempt made to compute the profits in terms of the provisions of Rule 2(a),
that the appellant had not wilfully failed to produce any evidence, and that
the observation of the learned Judges that no profit and loss statement had
been produced was based on a misapprehension, as no such statement had to be
prepared by an Insurance Company.
We must now turn to the statement of the case
by the Tribunal to see what had really happened before the Income- tax Officer,
for the last word on questions of fact is with it, and that is binding on the
Courts. Neither in the statement of the case by the Tribunal, nor in its order
of remand is there any finding that the requisite materials had been withheld
by the appellant. The only statement bearing on this question in the order of
the Tribunal is as follows:
" ... the Departmental Representative
admitted before us that the calculations purported to have been made under Rule
2(a) were not in accordance with the requirements of Rule 2(a), but it was
explained that as the information necessary for determining income under Rule
2(a) was not available, an estimate was made and the income determined under
Rule 2(b) was adopted for determining the income under Rule 2(a). " What
is referred to in this passage is only a statement of the Departmental
Representative and not a finding. On the other hand, the whole tenor of the
judgment of the Tribunal is that there had been no determination of the profits
under Rule 2(a) by reason of the erroneous view taken by the Income-tax Officer
as to the true nature of the business of the Company. If there had been a
finding by the Tribunal that the requisite materials had been called for and
withheld by the appellant, the decision of the High Court would be
unassailable, and, indeed, that was the only one that 829 could have been reached.
But in the absence of such a finding, we are unable to see any ground on which
the order of the Tribunal could be upset in a reference under section 66(1).
When once it is found that there was no proper determination of the profits as
required: under Rule 2(a)- and that was indeed conceded-and there was no
justification for it such as the High Court thought there was, the only order
that could properly be made was to remand the case for further enquiry and
fresh disposal in accordance with law.
That was the order which was passed by the
Tribunal, and that, in our opinion, was right.
This appeal will accordingly be allowed, and
the second question referred by the Tribunal answered in the negative.
The result of this will be that the
Income-tax Officer will proceed to enquire into the profits of the appellant
Company for the years in question in accordance with the requirements of Rule
2. Under the circumstances, we direct that the parties do bear their respective
costs both here and in the High Court.
Appeal allowed.
Back
