John Beaumont, C.J.
1. This is a reference by the Commissioner of Income-tax under Section 66(1) of the Indian Income-tax Act, in which he raises certain questions relating to the assessment for the financial year 1931-32 of the National Mutual Life Association of Australasia, Ltd. The nature of that company and the sources of income liable to Indian income-tax were discussed by this Court in Commissioner of Income-tax v. National Mutual Life Association of Australasia : (1931)33BOMLR807 . In that case we held, following the principle established by the House of Lords in England in New York Life Insurance Co. v. Styles (1889) 11 App. Cas. 381 that the premium income of the company derived from participating policies was not profits or gains liable to be charged with Indian income-tax. We held, however, that the company had made certain profits which were liable to tax, particularly income derived from investments, profits from non-participating policies, and other income beyond the contributions from the participating policy holders, and as the company had not made a return disclosing those profits, we held that the Commissioner of Income-tax was entitled to assess the company under Rule 35 of the Income-tax Rules.
2. Now, in respect of the year in dispute, the company has made a return of three sources of income which, they say, constitute all the income chargeable according to our former decision, those three sources being, renewal premiums received under non-participating policies 90-4-8, interest 3,149-1-0 and fees 2-9-0, a total of 3,241-14-8, and the company is prepared to be assessed on that income without making any deduction in respect of the expenses incurred in earning it. So that the company's case is that this sum of 3,241-14-8 is the only income taxable under the Indian Income-tax Act.
3. The learned Commissioner took the view that the company ought to have made a return in the prescribed form under Section 22 of the Act; that as the company had not made a return in the prescribed form, he was at liberty to make the best assessment he could under Section 23(4); and that as he had no reliable data to act upon in making that assessment, he was entitled to act under Rule 35.
4. Section 22(1) of the Act provides that the principal officer of every company shall furnish to the Income-tax Officer each year a return in the prescribed form of the total income of the company during the previous year. Section 59 gives power to the Central Board of Revenue to make rules for carrying out the purposes of the Act, and in particular they may make rules prescribing the manner in which and the procedure by which income, profits and gains shall be arrived at in the case of insurance companies. The prescribed form referred to in Section 22 is given in Rule 18, and it certainly would not seem to be appropriate to a mutual life assurance company such as we have to deal with in this ease, and I doubt very much whether, if a return were made in the prescribed form, it would really supply the Income-tax Officer with the data he requires. I am not, therefore, prepared to accept his view that because he did not get a return in the prescribed form he was entitled to assume that he had not got any reliable data and therefore to bring into operation Rule 35. That rule provides that the total income of the Indian branches of non-resident insurance companies, in the absence of more reliable data, may be deemed to be the proportion of the total income, profits or gains of the companies corresponding to the proportion which their Indian premium income bears to their total premium income. Applying that rule in the present case, the learned Commissioner stated the premium income of the company at 3,244,476 that being the total premium income derived both from participating and non-participating policies. Then he takes the premium income of the company in British India at 87,942, and then he takes the income of the Indian branch as the proportion between 87,942 and 3,244,476.
5. A point has been raised that the Commissioner in applying Rule 35 to a mutual insurance company, or a company whose business is largely mutual, should have taken the premium income derived only from the non-participating polices. But that, I think, is not the meaning of the rule, which provides for ascertaining the total income of the Indian branch by comparing the proportion which the Indian premium income bears to the total premium income. Premia received from participating policies, although not profits or gains, are nevertheless premium income. It would be a matter of chance whether a comparison of the total premium income with the total Indian premium income would be more or less in favour of the assessee company than a comparison of the total non-participating premium income with the non-participating Indian premium income. If, therefore, the learned Commissioner was right in applying Rule 35 at all, I think that he has applied it in the right way.
6. But the contention of the company is that that rule only applies in the absence of more reliable data, and that as the company supplied the Income-tax Officer with the actual figures of their receipts of moneys accruing or arising in British India which are liable to tax, he got all the data he could require for making a proper assessment. If the matter rested only upon the arguments stated in the case, I should be disposed to agree with that contention. As I have already stated, I do not think that a return in the prescribed form would have provided the necessary data, and although failure to make a return in the prescribed form justified the Commissioner in making an assessment under Section 23(4), he would not be justified in making the assessment under Rule 35 if he had got reliable data supplied to him by the company. But in arguing the case the learned Advocate General has taken a rather different line to that which the Commissioner takes in the case stated. The learned Advocate General contends that the profits of the company received in India in respect of participating policies, although under the decision of this Court in National Mutual Life Association of Australasia v. Commissioner of Income-tax, Bombay, not profits or gains liable to tax, are nevertheless profit which is received by the company in India and remitted to places outside India, and that income derived from those moneys is liable to tax under Section 42 of the Act. In Exhibit G, which is an account of the proceedings before the Income-tax Officer, Mr. Blunt, on behalf of the company, argued that the premiums received in India are remitted to the head office monthly and that the same are invested outside India and any interest realised on such investments is not liable to tax in India. No doubt that admission represents what the fact is, namely, that the premiums received in India are sent to the head office, and there invested so as to produce income, and this fact has not been challenged before us.
7. Under Sections 3 and 4 of the Indian Income-tax Act income-tax is chargeable on profits or gains accruing or arising or received in British India, or deemed under the provisions of the Act to accrue or to arise or to be received in British India. Section 42(1) provides :-
In the case of any person residing out of British India, all profits or gains accruing or arising, to such person, whether directly or indirectly, through or from any business connection or property in British India, shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person, and such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax:...
It was held by the Calcutta High Court in Re Rogers Pyatt Shellac & Co. v. Secretary of State for India I.L.R. (1924) Cal. 1 and by the full bench of the Rangoon High Court in The Commissioner of Income-tax, Burma v. Messrs. Steel Brothers & Co. Ltd. I.L.R. (1925) Ran. 614 that a company resident outside British India which received goods from branches within British India was assessable to Indian income-tax in respect of the profits made by the sale of those goods outside British India, These decisions show that in the case of a non-resident, income which neither accrues, nor arises, nor is received, within British India, may be liable to tax under the combined operation of Sections 3, 4 and 42 of the Indian Income-tax Act; that is to say, a non-resident may be liable to tax in respect of sources of income, which would not be liable to tax in the case of a resident. The proposition is no doubt a somewhat startling one, but it is desirable that decisions of the Courts in India under the Indian Income-tax Act should be uniform as far as practicable, and I think that we ought to follow these two cases without pausing to enquire whether we should ourselves have arrived at the same conclusion. I do not myself see any distinction in principle between the case of goods acquired in British India by an agent in British India, and sent to the principal, resident outside British India, and there sold at a profit, and the case of moneys collected by an agent in British India and sent to the principal outside British India and there invested by him at a profit. It is, further, to be observed that the Madras High Court in Chief Commissioner of Income-tax v. Bhanjee Ramjee & Co.(1) held that a principal could bo assessed under Section 42 without the necessity of appointing an agent under the latter part of the section and Section 43.
8. I think, therefore, that the learned Advocate General is right in contending that profits derived from the investment of moneys representing profits derived from participating policies are profits or gains accruing or arising to the assessee company, directly or indirectly, through or from a business connection or property in British India. One argument against that view which presents itself is that having regard to the ratio decidendi of Styles' case, a company, engaged in mutual insurance business is not carrying on a business, but that argument was definitely rejected by the House of Lords in Cornish Mutual Assurance Co. v. Inland Revenue Commissioners  A.C. 281 in which their Lordships held that a company carrying on mutual insurance business was carrying on business within the meaning of Section 52, Sub-section (2)(a), of the Finance Act, 1920. I think that the same reasoning must apply to the words 'business connection' in Section 42 of the Indian Income-tax Act, and I am not prepared upon this point to accept the view expressed by the Rangoon Court in The Commissioner of Income-tax, Burma v. Messrs. Steel Brothers & Co., Ltd., that the meaning of 'business connection' should be restricted by the definition of 'business' contained in the Indian Income-tax Act, Section 2(4), which runs : ''business' includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.' That is not an exhaustive definition, and does not enact that nothing but trade, commerce or manufacture can bo included in the word 'business.'
9. It is said on behalf of the assessee company that it would be difficult, if not impossible, for a company, such as the assessee company, to provide any such data as the Commissioner requires. They would have, in the first place, to show what profits they have derived from their Indian business in connection with participating policies, and to ascertain that profit it would be necessary to have an actuarial valuation of the Indian business, because premia of life insurance business are not equivalent to profits. Then they would have to show how those profits have been invested, and what profits or gains have been derived from those investments. Investments might conceivably be in some form of business, and it might be very difficult to show what profits or gains have been derived therefrom. We were pressed also with the implications of the Advocate General's argument. A person resident outside British India may receive moneys from a business connection in British India in various ways. They may be moneys received from a firm in which he is a partner, or moneys received from a company in which he is a shareholder, or moneys received from a business which is managed on his behalf by an agent: they may be capital or income, and if income, they will probably have paid Indian income-tax. Are profits derived from those moneys to be regarded for all time as profits or gains accruing or arising from a business connection in British India, and as such liable to tax under Section 42 by the machinery provided by that section, and Section 43 I feel the force of the argument, but I do not see how to avoid the conclusion that the Income-tax Commissioner is entitled to the particulars which he claims; and if the assessee is unable to provide the necessary material on which to base an assessment, then the legislature has thoughtfully provided the Commissioner, by Rule 35, with a method of getting over the difficulty. If he has no more reliable data, then he may act on that rule, and the fact that no data are procurable for no fault of the assessee company seems to me to be immaterial.
10. We must, therefore, answer the question put to us, (1) 'Whether the Income-tax Officer, Companies Circle, was justified in law in resorting to Rule 35 of the Income-tax rules for the purpose of assessing the company to income-tax for the year 1931-32 having regard to the data furnished by it to the officer,' in the affirmative; and (2) 'Whether the assessment of the company to income-tax for the year 1931-32 is a legal assessment and binding upon it in view of the opinion expressed by this Honourable Court in Civil Reference No. 5 of 1928,' also in the affirmative.
11. Commissioner to get his costs from the assessee-company on the original side scale.
12. The short question on this reference is whether the Income-tax authorities were justified in proceeding to assess the assessee under Rule 35 of the Income-tax Rules. Rule 35 is one of the rules made under Section 59 of the Act and provides a method for calculating the profits, gains or income of a non-resident insurance company in the absence of a more reliable data; and the question is, whether, as the assessee contends, the return made by them was a reliable data or whether, as the Income-tax authorities say, it is not.
13. The nature of the company and the material facts are referred to in the judgment of the learned Chief Justice. From the letter of reference it appears that the Commissioner considered that the data furnished by the assessee was not reliable for two reasons, (1) that the company had failed to put in a return in the prescribed form as required by Section 22 of the Act, and therefore under Section 23(4) the Income-tax Officer was entitled to assess the company to the best of his judgment; and (2) that the company had failed to supply the Income-tax Officer any actuarial valuation for the Indian business even though it was specifically asked to do so, and therefore the Officer was entitled to proceed in the manner laid down in Rule 35.
14. The learned counsel on behalf of the assessee contends that the finding of the Commissioner on these two points cannot be accepted and that he was wrong in holding that the company hag not furnished the Income-tax Officer with the reliable data. Section 22(1) provides that the principal officer of every company shall furnish to the Income-tax Officer every year a return in the prescribed form and verified in the prescribed manner. The form which is prescribed is on the record as Exhibit B, The learned counsel's argument is that having regard to Section 59 and the rules made thereunder and in particular to Rule 25, the legislature recognised that the prescribed form referred to in Section 22(1) was not applicable to a company carrying on business such as the assessee company is doing. It seems to me that there is considerable force in this argument Section 59 provides that the Central Board of Revenue may make rules prescribing the manner in which and the procedure by which the income, profits and gains shall be arrived at in the case, among others, of insurance companies. Rule 25 of the rules seems to support this contention, and shows that the method of assessing the profits or gains of life insurance companies must in its very nature be different from that employed in the case of an ordinary trading concern or business, and so does Rule 35. In view of the conclusion to which we have come, it is not necessary to pursue the matter further.
15. Mr. Coltman's second argument that having regard to the nature of the business of the company which carries on a world-wide business of mutual insurance it would not be possible to have an actuarial valuation limited to its India business only seems to me to be well founded. Before us, however, the learned Advocate General supports the course taken by the Income-tax authorities by relying on Section 42(1) of the Act. It runs :-
In the case of any person residing out of British India, all profits at gains accruing or arising, to such person, whether directly or indirectly, through or from any business connection or property in British India, shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person, and such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income tax :...
It is argued that this section is a machinery section and therefore for the purposes of this case the provisions of this section cannot be relied upon by the Crown. In Re Rogers Pyatt Shellac & Co. v. Secretary of State for India I.L.R. (1924) Cal. 1 it was held that the first part of Sub-section (1) of Section 42 is a charging section and the latter part, which provides for such profits or gains as are referred to in the earlier part of the section should be chargeable to income-tax in the name of the agent of the party &c.;, is a machinery section. With that opinion I respectfully agree. It seems to me that Section 42(1) must be read with Sections 3, 4 and 6, and the definitions of the words 'assessee' and 'company' in the Act. Reading these sections together, the plain meaning of the statute is that if a non-resident company carries on business in British India, then profits or gains are chargeable to Indian income-tax under Sections 3 and 4 read with Section 6. But if a non-resident company earns any profits or gains, directly or indirectly, even though the same accrue or arise outside India, provided they are earned or derived through or from a business connection or property in British India, then for the purposes of the Act such profits or gains should be deemed to be income within the meaning of Section 42 of the Act. The view I am taking of the relevant sections derives support from Re Rogers Pyatt Shellac & Co. v. Secretary of State for India and from the full bench decision of the Rangoon High Court in The Commissioner of Income-tax, Burma v. Messrs. Steel Brothers & Co., Ltd. I.L.R. (1925) Ran. 614
16. The question, then, is whether on the facts of this case Section 42 would apply. Before discussing it, I shall deal with the assessee company's complaint that the ground now put forward by the Advocate General was not one of the grounds on which the Commissioner relied for holding that the return made by the company was not 'reliable data.'
17. It is undoubtedly true that this is not relied upon as one of the grounds by the Commissioner for holding that the data furnished by assessee was not reliable. But the record shows that the real complaint of the Income-tax authorities was that the assessee was not disclosing the interest earned during the accounting period on the premium income derived from the holders of the participating policies, and this appears from page 18 of the record. There the Income-tax Officer observed as follows :-
The learned solicitor who appears for the assesses argues that the premiums received in India are remitted to the Head Office monthly and that the same are invested outside India and any interest realized on such investments is not liable to tax in India.
This also appears from the order passed by the Income-tax Officer, reference to which will be found on page 19 of the record.
18. I do not think, therefore, that the assessee can be said to have been taken by surprise by the contention raised by the learned Advocate General. Apart from that it seems to me that the grounds mentioned in the opinion of the learned Commissioner are not necessarily binding on this Court, and the Court would be entitled to go through the whole record for a proper determination of the questions raised.
19. The view of the Income-tax authorities was that the return did not show the true income or profits or gains of the company. The return of the company showed (1) renewal premiums for non-participating policies, (2) interest earned on the premium income of both participating and non-participating policies in British India, and (3) fees. This return did not refer to the interest admittedly earned outside India on both kinds of policies. The assessee relied on Commissioner of Income-tax v. National Mutual Life Association of Australasia : (1931)33BOMLR807 , and their contention was that they were not bound to do so in view of the decision in that case. In my opinion the point as to what items were chargeable to income-tax in respect of the profits or gains made by a mutual insurance company did not specifically arise in that case, although it is true that some reference to the same is to be found in one part of the judgment. But, as far as I can see, the principle of Style's case was accepted, and it seems to me, both under that case and on principle, that the interest earned on premium income from participating policies would be income chargeable to income-tax under the Act.
20. With regard to the applicability of the principle in Section 42, the contention of the appellant company is that the section does not apply as the premium income was sent outside British India and interest earned on it was also received outside British India, and in respect thereof there could be no business connection as such as contemplated by Section 42, The first question is, was there a business connection There is no explanation or definition of 'business connection' in the Act, nor of 'business' as such, though Section 2(4) says that 'business' includes any trade, commerce of manufacture, or any adventure or concern in the nature of trade, commerce or manufacture. It is clear that this is not a definition. The word 'includes' in the interpretation clauses is intended to be enumerative and not exhaustive and it has an extending force and does not limit the meaning of the term. In the corresponding Section 3 in the English Finance Act of 1915 the words are 'through or from any branch, factories, agency, receivership or management.' In my opinion, the expression 'business connection' is a more comprehensive expression as including not only the kinds of things specifically described as being included in the term, but the kind of things which are specifically mentioned in the English Act. All that is necessary is that there should be a 'business' in British India and a connection between a non-resident person or company and that ' business,' and that the non-resident person or company has earned an income through such connection.
21. It has been held in The Commissioner of Income-tax Burma v. Messrs. Steel Brothers & Co., Ltd., that the expression 'business connection ' should be confined as described by what is stated in Section 2(4). With all respect, I am unable to agree. In the Calcutta case to which I have referred, it was held that there was a business connection although all that happened was that goods were purchased in India by an agent and sent to the principals outside India and there sold at a profit. If any thing, the position in this case is stronger. Here, the company carries on insurance business and issues policies in respect of which it earns premiums. Such premiums or the accumulations thereof are sent out for being invested outside British India. It is difficult to see how the interest earned thereon though earned outside cannot be said to be profits arising, if not directly, at least indirectly, through a business connection in India. There is nothing in the nature of the business of a company carrying on mutual insurance business which would take the case out of the category of 'business'. It was held in Cornish Mutual Assurance Co. v. Inland Revenue Commissioners  A.C. 281 that a company carrying on mutual insurance business was carrying on business within the meaning of Section 52 of the Finance Act of 1920.
22. In the course of the discussion it was suggested that before Section 42 can apply it is necessary that a notice under Section 43 must be served on a person by the Income-tax Officer stating that he intended to treat him as the agent of the non-resident person before such person can be treated as an agent and chargeable to income-tax within the meaning of Section 42, and as that was not clone in this case, Section 42 did not apply. The answer to the argument is that in this case the principal is sought to be taxed under the Act and the income which was not shown in the return was his income by reason of the meaning of the word 'income' in Section 4 as extended by Section 42. The point arose in Chief Commissioner of Income-tax v. Bhanjee Ramjee & Co. I.L.R. (1921) Mad. 773 and it was held that a principal was liable to assessment under Section 42 without an agent being appointed under Section 43. In my opinion this view is correct.
23. I think, therefore, having regard to the provisions of Section 42, read with SectionS 3 and 4 and the definitions of 'assessee' and 'company' in Section 2, the interest earned on premiums from participating policies was taxable, and as that was not shown in the return made by the assessee company, the income-tax authorities were right in holding that the data furnished was not 'more reliable' within the meaning of Rule 35. They were, therefore, entitled to proceed under Rule 35 read with Section 23(4).
24. I also agree, though not without some hesitation, that the Commissioner in calculating the assessable income under Rule 35 has applied the rule in the correct way.
25. I agree, therefore, that both the questions raised by the Commissioner must be answered in the affirmative.
26. Undoubtedly the construction put on Section 42 by us leads to some startling results, some of which are pointed out by the Chief Justice. But if, as I think, the case comes within the letter of the law, the question as to the policy of the legislature or the resulting consequences is a matter of no relevance.