Report No. 67
44.43. Distinction between life insurance and accident insurance.-
The distinction between life insurance and accident insurance, is equally important. This is very well elaborated in an Australian case.1 It points out, first, that marine, fire burglary, personal accident, motor vehicle and other miscellaneous insurances indemnity the insured against loss from events which may or may not occur, while life insurance is related to a contingency which must occur, the only uncertainly being about its time. Secondly, life policies are capable of advance calculation, while in other forms of insurance the determination of probabilities would seem to have a less scientific basis. Thirdly, accident and sickness policies are ordinarily annual contracts, (like fire etc.), and have no surrender value.
1. National Mutual Life Association v. Federal Commissioner of Taxation, (1959-60) 33 Australian Law Journal Reports 16 (21-22) (Windeyer, J.).
44.44. Question of reduction of duty-previous discussion.-
We shall now proceed to consider the specific question which forms the subject- matter of this Chapter. The point that we have to consider has a history.1 It would appear that on 18th February, 1898 the Chamber of Commerce, Bombay, sent a representation2 to the Government regarding stamp duty on accident insurance policies, for bringing the law in line with the English Act. (This was with reference to the Draft Bill to amend and consolidate the Stamp Act).
1. For history of the provision itself, see paras. 7 to 9, supra.
2. Papers of Act 2 of 1899, Vol. 2 (National Archives).
44.45. The Select Committee1 which examined the 1898 Bill, considered this representation.2 (The representation is mentioned in its Report, in the marginal list of papers considered). The Select Committee did not, however, adopt the suggestion in toto, but stated:
"No. 47. Policy of Insurance-We have provided a reduced duty for insurance against accident or sickness which is at present chargeable on the same footing as life insurance."
[Art. 12, Sch. II, Notification No. 5199-S.R., dated 1st November, 1895]
1. Report of the Select Committee, dated 19th March, 1898. (Papers of Act 2 of 1899, Vol. 2) (National Archives).
2. See supra.
44.46. The draft as suggested by the Select Committee on the Bill of 1898 was as follows1:
"47. Policy of Insurance
C-Accident and Sickness Insurance-
(a) against Railway Accident, valid for a single journey only
Proper Stamp duty
[Art. 6, Sch. I, Notification No. 5199-S.R., dated 1st November, 1895]
1. This draft seems to have been adopted without further discussion.
When issued to a passenger travelling by the intermediate or the third class in any Railway.
(b) in any other case-for the maximum amount which may become payable in the case of any single accident or sickness where such amount does not exceed Rs. 1,000, and also where such amount exceeds Rs. 1,000 for every Rs. 1,000 or part thereof.
D-Life Insurance or other Insurance not specifically provided for, except such a re-insurance as is described in Division E1 of this article for every sum insured not exceeding Rs. 1,000 and also for every Rs. 1,000 or part thereof insured in excess of Rs. 1,000
|(i) if drawn single||
|(ii) if drawn in duplicate, for each part||
[Art. 12(b), Sch. II, Notification No. 5199-S.R., dated 1st November, 1895]
1. The printed copy speaks of Division F, but this seems to be a slip for Division E.(Division E related to Re-Insurance).
Policies of life insurance granted by the Director-General of the Post Offices of India in accordance with rules for Postal Life Insurance issued under the authority of the Government of India."
[Art. 12, Sch. II Notification No. 5199-S.R., dated 1st November, 1895]
44.47. Considerations to be borne in mind in recommending changes.-
We have now to consider whether the law on the subject should be changed. For this purpose, a consideration of the rationale of the existing law appears to be desirable. Now, it is not always easy to discover the rationale of the provisions of a taxing law.1 For that reason, it is not easy to formulate the considerations which should be taken into account while coming to a conclusion whether a change should be made in such provisions or not. On the one hand, from the point of view of the insurance corporation, a policy of insurance is a business document. It brings profit, and its taxability is supportable on that ground.
1. Ranking C.J.-" the legislature may have reasons and good reasons which do not appear upon the surface"-Janardhan v. Secretary of State, AIR 1931 Cal 193 (200).
44.48. On the other hand, from the point of view of the insured the policy is merely a protection against a possible risk; there is no motive of profit, and it is not a commercial transaction so far as the assured is concerned. He does not view it as such. It is not even an 'investment', i.e., the conversion of money into some species of property from which income or profit is expected to be derived in the ordinary course of trade or business.1 It may be noted that in contrast, some forms of life insurance-e.g., endowment-are investments.
1. See Chamber's Encyclopaedia, (1951), Vol. 7, p. 609.
44.49. Again, in modern times, with the increasing risk of accidents, in the factory, from transport, from the complexity of urban life and other similar factors, there is every need to encourage accident insurance, so that the loss is not borne by one person, but is distributed amongst many. From that point of view, there appears to be ample justification for keeping the stamp duty to the minimum.
44.50. Comments of State Governments regarding duty on original policy.-
We shall now consider the comments received by the Ministry of Finance from State Governments on the two points raised in the suggestion of the Indian Insurance Companies Association.1 The points made in these comments may be thus summarised:2
Duty on original policy.
One State Government and the Administrations of most Union Territories agreed to the proposed change. Two State Governments and the Administration of one Union Territory, had no comments. Nine State Governments were opposed to the proposed change. The reasons for opposing the change, as stated in the various replies taken together, were
(i) that the rate is not high when compared with life insurance policies;
(ii) that any concession in respect of policies under Articles 47C and 47CC will give rise to similar requests by persons interested in policies governed by Articles 47A and 47D;
(iii) that accident and sickness insurance premia are paid by well-to-do people either for themselves or for their workmen, and there can be no hardship involved in paying the present rates;
(iv) that no reduction of Government revenue can be contemplated during the present emergency;3
(v) that the Insurance Companies Association has not been able to furnish points of similarity between policies under Article 47B and those under Article 47C;
(vi) that looking to the huge amount insured for comparatively small amounts or premiums, the stamp duty under Article 47C(b) is not likely to affect the insurance business;
(vii) that under section 29, it is the person taking out the policy who bears the duty, and insurance companies are not directly concerned with the incidence of this stamp duty."
One State Government,4 which was opposed to the reduction, suggested that bus journey may be included alongwith railway accidents, for exemption under rule 47C(a), "which may lead to greater popularity of accident insurance among the less well-to-do classes."
1. See, supra.
2. The summary is based on S. Nos. 35 and 36 in the Law Commission File No. F. 3(4)/57/L.C., Part I, Vol. II.
3. This was a reference to the emergency of 1962.
4. S. No. 36 (Enclosures), in Law Commission's File No. F. 3(4)/57/L.C., Part 1, Vol. II.