The Neptune Assurance Co. Ltd. Vs. The
Life Insurance Corporation of India & ANR [1962] Insc 304 (8 November 1962)
SARKAR, A.K.
DAS, S.K.
KAPUR, J.L.
DAYAL, RAGHUBAR
CITATION: 1963 AIR 900 1963 SCR Supl. (1) 980
ACT:
Insurance-Life Insurance Corporation-Vesting
of rights in Corporation-All rights appertaining to life insurance business of
insurer-lnsurer getting income-tax refund--Such refund, when accrues-Such
refund, if appertaining to life insurance business--Insurance Act, 1938 (4 of
1938) ss.10, 13--Indian Income-tax Act. 1922 (11 of
1922)ss.16(2),18,48,49B--Life Insurance Corporation Act.
1956 (31 of 1956), s.7
HEADNOTE:
The appellant company was carrying on both
life and other kinds of insurance business. On the coming into force of the
Life insurance Corporation Act, 1956, by virtue of s. 7 all rights appertaining
to the life insurance business of an insurer became vested in the Corporation
on the appointed day, that is, September 1956. Under the provisions of the Indian
Income-tax Act, 1922, an assessee became entitled to a refund where the tax
deducted from the income of his securities or the amount by which the dividend
paid to him on his shares had to be increased under 's. 16(2)of that Act for
computation of his income, or both taken together, exceeded the amount of tax
payable by him. By virtue of the provisions, under the orders of assessment to
income-tax for the year 1955-56 and 1956-57, the appellant became entitled to
certain refunds, but these assessment orders were made after September 1, 1956.
The respondent Corporation claimed to be entitled to portions of the aforesaid
refunds under the provisions of s. 7 of the Life Insurance Corporation Act. The
question was (1) whether the right to refund was a right existing on September
1, 1956, and (2) whether it appertained to the life insurance business of the
appellant within the meaning of s. 7.
Held : (1) that the right to the refund which
accrued to the appellant existed on September 1, 1956. Though the actual
assessment only particularised the amounts of refund, it did not create the
right, for the right came into existence as 981 soon as, according to the
relevant Finance Act, it became ascertainable that the tax deducted at source
or treated as paid on its behalf exceeded the tax payable.
(2)that the right to the refund was one
appertaining to the life insurance business. The income from shares and
securities held by the appellant as provided by the Insurance Act, 1938, and
appertaining to the life insurance business must itself be treated as
appertaining to that business; and when it was refunded as having been utilised
in payment of the tax in excess of what was due it could not change its
previous nature, and would still remain the income of the life insurance
business. The right to the return of this income would, therefore, also be a
right appertaining to the life insurance business.
The proportion in which the refund was to be
distributed between the life business and the general business laid down.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 386 of 1961.
Appeal by Special leave from the order dated
August 3, 1959, of the Life Insurance Tribunal, Nagpur, in case No. 24/XII of
1959.
Purshottam Pricumdas, F. S. Nariman, R. N.
Modi, 'S. N. Andley, Rameshwar Nath and P.L. Vohra,for the appellant.
M.,C. Setalvad, Attorney-General for India,
S.T. Desai, S. J. Banaji' and K. L. 'Hati, for respondent.
1962. November 8. The judgment of the Court
was delivered by SARKAR, I.-The: appellant used to carry on both life and other
kinds 'of insurance business' It was what is called in the Life Insurance
Corporation Act, 1956 a "composite insurer." The respondent
Corporation was created by this Act on September 1, 1956.and under s. 7 of the
Act the terms of which we will have to set out later, all 982 rights
appertaining to the life insurance business of an insurer, which in the Act is
called the "controlled business", because vested in the respondent
Corporation on the appointed day, that is, September 1, 1956. Under the orders
of assessment to income-tax for the years 1955-56 and 1956-57, the appellant
became entitled to certain refunds under the provisions of the Income-tax Act,
1922. The respondent Corporation claimed a part of those refunds under s. 7 and
this claim was resisted by the appellant. This dispute was taken to the Life
Insurance Tribunal for decision under the Act of 1956 and this Tribunal decided
it- in favour of the respondent Corporation. The present appeal is against the
judgment of the Tribunal.
The provisions of the Income-tax Act under
which the right to refund arose have to be briefly referred to before we
proceed to consider the questions, that arise in this appeal. Section 16(2)
states that for the purpose of inclusion in the total income of an assessee,
dividend paid to him shall' be increased to such amount as would, if income-tax
at the rate applicable to the total income of the company were deducted there
from, be equal to the amount of the 'dividend. Sub-section (3) of s. 18
requires that out of the income chargeable as interest on securities income-
tax has to be deducted at the source at the maximum rate.
Sub-section (4) of this section provides that
all sums so deducted shall be deemed to be income received by the assessee in
computing his income, and under sub-s. (6) these deductions have to be paid to
the credit of the Central Government. Sub-section (5) states that any deduction
made in accordance with the provisions of this section and any sum by which a
dividend has been increased under sub.s. (2) of s., 16 shall be treated as a
payment of income-tax or super tax on behalf of the person from whose income
the deduction was made or of the shareholder, as the case may, be. Section 49,
B provides where any dividend has been paid or deemed 983 to have been paid to
an assessee who is a shareholder of a company which is assessed to income-tax
such assessee shall if the dividend is included in his total income be deemed
to have paid himself in respect of such dividend income-tax of an amount by
which the dividend has been increased under s. 16(2). Section 48 is in these
terms : "If any company ......... satisfies the Income tax Officer that
the.
amount of tax paid by him or treated as paid
on his behalf for any year. exceeds the amount with which he is properly
chargeable... he shall be entitled to refund of any such excess."Shortly
put, the result. of these provisions is that anassessee becomes entitled to a
refund where the tax deducted from the income of his securities or the amount
by which the dividend paid to him on his shares has to be increased under s.
16(2) for computation of his income, or both taken together,, exceed the amount
of tax payable by him.
Now a reference has to be made to s. 10 of
the Insurance Act, 1938. Under sub-s. (2) of this section an insurer carrying
on business of life insurance has to carry to a separate fund, called the life
insurance fund, 'all ;receipts due in respect of that business and the assets
of this fund have to be kept distinct and separate from all his other assets.
Subsection (3) provides that the life insurance fund shall not be applied
directly or indirectly for any purposes other than those of the life insurance
business the insurer,. There is no reason to doubt that the appellant carried
out the provisions of S. 10(2) and created the life insurance fund and it is
not in dispute that various shares and' securities appertained to the life
insurance fund 'of the, appellant's business. Various other securities, and
perhaps also shares' appertained to the general business (if the appellant.
We now come to the details of the dispute
that arose between the parties.; The previous years of the appellant for the'
assessment years 1950-56 and 984 1956-57 were respectively the calendar years
1954 and 1955.
In each of these years various sums became
due to the appellant as interest on securities and as dividends on shares held
by it. The assessment orders in respect of the aforesaid assessment years
earlier mentioned, showed that in the first assessment year credit had been
given to the appellant in the sum of Rs. 48,271.56 on account of taxes earlier
paid in respect of its life department I and in the sum of Rs. 3,245.25 on the
same account in respect of its general department. The figures of taxes earlier
paid for which credit had been given in its assessment for the second
assessment year were, Rs' 48,271' 56 in respect of the life department and Rs.
3,196.25 in respect of its general department. The appellant's income for the
assessment year 1955-56 was assessed on September 29, 1956, and later revised
on May 21, 1957, and for the year 1956-57, on January 31, 1957. The assessment
order for the year 1955-56 showed a profit of Rs. 1,50,191/- in the life
department and a loss of Rs. 23,667/- in the general department and it was
thereupon assessed on a total income of Rs. 12,6,524/-. The tax due on this
income being less than the tax for which credit had been given as tax
previously paid, a sum of Rs. 12,867.58 was found refundable to the appellant.
In respect of the assessment year 1956-57, the position was that the life
department had made a profit of Rs. 1,51,835/- and the general department had
incurred a loss of Rs. 2,06,083/- with the result that in that year the
appellant had on the whole incurred a loss and did not have to pay any tax. The
entire amount of tax credited as earlier paid in respect of this year's
assessment, therefore, became refundable. These assessment orders were however
made after the appointed day, namely, September 1, 1956. It has been the common
case of the parties that the amounts of tax credited as previously paid as
earlier mentioned were the deductions under s. 18(3) of the Income-tax Act 985
and the amount added to the dividend under s. 16(2) of that Act.
The respondent Corporation claimed to be
entitled to a refund of Rs. 9,622.43 out of the amount found refundable for
1955-56 and Rs. 48,271.56 out of the amount refundable for 1956-57 under the
provisions of s. 7 of the Act of 1956.
As we have earlier stated the Tribunal
allowed this claim of the Corporation. Now, s. 7 is in these terms :
S. 7. (1) On the appointed day there shall be
transferred to and vested in the Corporation all the assets and liabilities
appertaining to the controlled business of all insurers.
(2)The assets appertaining to the controlled
business of an insurer shall be deemed to include all rights and powers, and
all property, whether movable or immovable, appertaining to his controlled
business, including, in particular, cash balances, reserve funds, investments,
deposits and all other interests and rights in or arising out of such property
as may be in the possession of the insurer and all books of account or
documents relating to the controlled business of the insurer; land liabilities
shall be deemed to include all debts, liabilities and obligations of whatever
kind then existing and appertaining to the controlled business of the insurer.
x x x x x x x x x x x x The question is
whether the' right to refund was a right existing on September 1, 1956 and
whether it appertained to the life insurance business of the appellant within
the meaning 'of s. 7. When s. 7 mentions a right "'appertaining to his
controlled business" it obviously contemplates a right existing in relation
to that business, for the business not being 986 a legal person, could not own
any right. The right had to be owned by the insurer to whom the business
belonged but it had to be a right which he owned in relation to his controlled
business.
Now as to the first part of this question it
seems to us plain that the right to the refund existed on September 1, 1956. It
is no doubt true that the amounts of the refund had not been ascertained till
the orders of assessment had been made and these had been made later than September
1, 1956. But that does not affect the question. It is well established that
under the Income-tax law the liability to be charged to tax, if any, exists all
along. The amount of liability depends on the Finance Act of the year
concerned.
That is the effect of s.3 of the Income-tax
Act which says that the tax at the rates mentioned in the Finance Act shall be
charged for the year specified in that Act. So it was said in Messrs Chatturam
Horilran Ltd. v. Commissioner of Income-tax, Bihar and Orissa(1).
"'The Income-tax Act is a standing piece
of legislation which provides the entire machinery for the levy of income-tax.
:The Finance Act of each year imposes the obligation for the payment of a
determinate sum for each such year calculated with reference to that
machinery".
Now the Finance Acts for the years 1955 and
1956, like all other such Acts, provided the rates at which income-tax was
payable for the assessment years commencing from 1st April of the year in which
the Acts were respectively passed. It would follow that on the 1st of April in
1955 and in 1956 the amounts of the tax payable by the appellant became-
determinable for the income was then capable of computation and the rate was
also known. So on these dates the appellant became entitled to a refund of the
amount of tax deducted at the source or treated as (1) [1955]2 S.C.R. 290,297.
987 paid on its behalf under the provisions
of the Income-tax Act earlier mentioned which was in excess of the tax payable
by it for each of these years. The assessment only particularised the amounts;
it did not create the right, for the right came into existence as soon as
according to the relative Finance Act it became ascertainable that the tax
deducted at source or treated as paid on its behalf had exceeded the tax
payable. That right, therefore, was an asset contemplated 'in s. 7 of the Act
of 1956. This disposes of the first part of the question that arises in this
case.
We turn now to the other part of the
question, namely, whether the right to the refund 'was one appertaining to the
life insurance business. That question has to be decided by reference to the Insurance
Act because it is that Act which treated the different kinds of insurance
businesses separately, Some of the sections of that Act have now to be referred
to. It is not in dispute 1 that the appellant in an insurer within the meaning
of the Act. Subsection (1) of s. 10 of the Act requires an insurer like the
appellant to keep a separate account of all receipts and payments in respect of
each separate class of insurance business carried on by him. We have earlier
referred to the provisions 'of sub-s. (2) and sub-s. (3) of this section.
Section 11 provides that an insurer like the appellant shall keep (a) a balance
sheet in accordance with the third Schedule to the Act and (b) a revenue
account in accordance with the third Schedule in respect of each class of
insurance business carried on by him. Now Regulation (2) in the first Schedule
provides that the balance sheet of the life insurance business shall be
prepared as a separate document. A specimen form of a balance-sheet is set out
in this Schedule. That form shows that shares and securities held by an insurer
in connection with its life insurance business have to be set out separately.
Again, the form of 988 the revenue account which, as we have earlier stated,
has to be drawn up separately for each kind of insurance business carried on by
the insurer requires the interest and dividends coming to the account of the
life insurance business to be shown separately after deducting the income- tax
payable thereon. A note to the form states that in making these deductions on
account of income-tax rebates allowed on income. tax must be taken out of the
tax.
Section 13 of the Act requires every insurer
carrying on life insurance business to make an actuarial valuation every three
years and to submit a report in accordance with the fourth Schedule. The
regulations in this Schedule require a consolidated revenue account in form G
contained in it to be annexed to the actuarial report. That form again requires
that interest and dividends, which must necessarily be interest and dividends
appertaining to the life insurance business because, the report concerns the
life insurance business only to be .set out. All these provisions to our mind
indicate what is contemplated by the Insurance Act to be an asset appertaining
to the life insurance business.
These are assets of the life insurance fund
mentioned in sub-s. (2) of s. 10 of the Act. It is because the Act treats
particular assets as appertaining to the life insurance business that it made
detailed provisions for these assets to be shown separately in the accounts. If
an asset appertained to the life insurance business, it is obvious that income
from it, would also appertain Therefore, the income from its fruit, namely, the
to that business. shares and securities appertaining to the life insurance
business must itself be treated as appertaining to that business. That is why
the forms of accounts set out in the Schedules requires this income to be shown
separately in the several accounts that have to be kept for the life insurance
business.
Indeed it has not been disputed by learned
counsel for the appellant-as it could not be in view 989 of the provisions of
the Insurance Act earlier referred to- that many of the shares and securities
held by the appellant appertained to its life insurance business. Neither aid
we understand learned counsel to dispute that the income from these shares and
securities itself appertained to the life insurance business. It is in respect
of this income that, as earlier mentioned, in each of the years 1954 and 1955 a
sum of Rs. 48,271.56 had been credited in the appropriate assessment order as
tax previously paid. Learned counsel however said that though the income
appertained to the life insurance business, the right to the refund-did not
appertain to any business. According to him, it is a right created by s. 48 of
the Income-tax Act and under that section it is a right belonging to the
assessee who in this case is the appellant. It seems to us that this. approach
is misconceived and cannot decide the question as to whether the right to the
refund appertained to any particular business within the meaning of s. 7 of the
Act of 1956. We have earlier stated that life insurance business not being a
legal person cannot be the owner of any right. All rights appertaining to the
business including a right 'to refund of taxes paid before assessment must
necessarily belong to the owner of the business. Such lights may however be
treated by the owner if he so chooses, as appertaining severally to the
different businesses carried on by him. Or again, a statute may require these
rights to be treated as appertaining severally to different businesses carried
on by him. The latter is the case here. The Income'-tax Act was not concerned
with the various kinds of business carried on by answer. As we have earlier
shown, the Insurance Act treated the various kinds of insurance businesses
carried on by an insurer separately. Likewise the Act ,of 1956 treated the life
insurance business as something separate from other kinds of business carried
on by an insurer. We think that it would be misconception to refer to the
Income- tax Act in interpreting the Act of 1956 for deciding whether a right to
a refund 990 belonging to an insurer appertains to his life insurance business
or to another kind of insurance business carried on by him.
The right to the refund no doubt existed in
the appellant on September 1, 1956, but it so existed in it as the proprietor
of both the life insurance business and the general insurance business. The
right, therefore, may have appertained partly to one business and partly to the
other. The income of the assets of the insurance business or what is treated as
such under s. 16(2) of the Income-tax Act of such assets was utilised for
paying the tax along with the income of other assets. When it 'was realised
that more income-tax had been paid by such utilisation than the law justified,
then the excess had to be refunded. It was the income so utilised in excess
that had to come back.
Upon its return it could not change its
previous nature ; it would still remain the income of 'the life insurance
business. A right to the return of this income would therefore also be a right
appertaining to the life insurance business. The, right through appertaining to
the life insurance business no doubt originally belonged to the appellant but
as it appertained to its life insurance business, s. 7 of the Act of 1956
operated to transfer this right from it to the respondent Corporation on
September 1, 1956.
It was said that the amount deducted from the
income of the shares and securities belonging to the life insurance business
upon such deduction ceased to be the asset of that business and a right to its
refund, therefore, also could not appertain to that business. We think that
this contention is erroneous. The deduction amounted to payment of tax before
assessment and was, therefore, really in the nature of a provisional payment.
It was provisional in the sense that to the extent it was on final assessment
later, found to be in excess of the tax due, it would cease to be payment of
tax and become refundable. Therefore, in a 991 case where the deduction was
returnable, the amount returnable had never really ceased to the part of the
assets. We may here observe that the question whether the amounts added to the
dividends' under s. 16(2) of the Income-tax Act are deductions from income is one
on which different opinions are possible. We do not feel called upon to answer
that question on this occasion. If these amounts are not deductions from
income, the contention now under discussion would not arise in connection with
them. If they are, then what we have said in dealing with that contention would
apply to any deductions from dividends also.
Then it was said that if any right to the
refund is held to appertain to the life insurance business in this case, then
that business would really be given the advantage of the loss made by the
general insurance business for it was because of that loss that the right to
the refund came into existence. It seems to us that this consideration is
irrelevant for deciding whether a right appertains to the life insurance
business. That right-did not arise because there was a loss in the general
insurance business. It would be a misconception to consider it as so arising,
for the right arose because the appellant's business as a whole suffered a loss
or made a smaller income as the case was.
No question of one department of the
appellant's business taking advantage over another at all arises. A right to
the refund appertains insurance business because it was a right to the life to
the refund of moneys belonging to that business which had been applied in
excess of the amount of tax for which the law made the appellant liable as the
owner of the entire business.
It remains now to discuss in, what proportion
the refund is to be distributed. On this question no difficulty arises in
respect of the year 1956-57. In that year the entire amount deducted at source
or treated as paid as tax on behalf of the appellant 992 came back. Each
department will, therefore, take whatever was deducted from or treated as paid
in respect of the income of its own assets. The result is that the refund of
Rs. 51,468.81 for the year 195657 has to be distributed as follows: The
appellant, will get Rs. 3,196.56 and the respondent Corporation Rs. 48,271.25.
In the year 1955-56 however the refund amounted to Rs. 12,867.68 while the
amount of tax deducted from the income of the life insurance department or
treated as paid from that income was Rs. 48,271.56 and that deducted or treated
as paid from the income of the general department was Rs. 3,245.25. In this
year the general department incurred a loss. Therefore, considered as a
separate business no tax would have been payable out of its assets and so, as
between the two departments no part of its income was liable to be applied in
payment of the tax. The entire amount of Rs.3,245.25 should be refunded to it.
The balance Which must represent the deduction out of the income of the
business or an amount treated as paid that business and therefore appertaining
be made over to the respondent corporation. the view taken by the Tribunal and
with life insurance in respect of to it, should This is it we agree. This would
put the tax liability for the year 1955-56 entirely on the life department 1
and that would be the correct thing to do for that liability must appertain to
the department which alone made the profit.
We may add that in certain proceedings, to
the details of which it is not necessary to refer, the amount of the refund has
already been paid by the Government and out of that sum, the appellant has been
paid what we have held it to be entitled to. We declare that the respondent
Corporation is entitled to the balance which has already been paid to it on
October 15, 1959, by respondent No.2 in compliance with the order of this Court
dated September 21, 1959.
The appeal is dismissed with costs.
Appeal dismissed.
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