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Commissioner of Income-tax, Bombay City-iii Vs. Oriental Government Security Life Assurance Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax References Nos. 31 of 1972 and 155 of 1981
Judge
Reported in(1982)29CTR(Bom)112; [1983]141ITR215(Bom); [1982]10TAXMAN308(Bom)
ActsIncome Tax Act, 1961 - Sections 244
AppellantCommissioner of Income-tax, Bombay City-iii
RespondentOriental Government Security Life Assurance Co. Ltd.
Excerpt:
.....of which claim of assessee for refund arises is in respect on securities which appertained to life insurance business or controlled business of assessee - assessments particularised amounts refundable and did not create right to refund - rights to refund vested in corporation - assessee cannot claim refund - held, assessee was not entitled to refund of tax deducted at source out of interest on securities. - - the assessment year involved is 1957-58, the corresponding financial year being march 31, 1956, to april 1, 1957. during this year the assessee carried on, as usual, its life insurance business as well as the general insurance business through its subsidiary company, from january 1, 1956, to january 18, 1956, and earned a profit of rs. ..7. there is an explanation to this..........said company was established in 1874 and was to leader amongst the indian companies carrying on life insurance business in india. in later years it floated a subsidiary company which carried on the business of general insurance. the assessment year involved is 1957-58, the corresponding financial year being march 31, 1956, to april 1, 1957. during this year the assessee carried on, as usual, its life insurance business as well as the general insurance business through its subsidiary company, from january 1, 1956, to january 18, 1956, and earned a profit of rs. 2,39,574 for the said period from january 1, 1956, to january 18, 1956. on january 19, 1956, the life insurance (emergency provisions) ordinance, 1956, was promulgated in order to provide for the taking over of the management of.....
Judgment:

Kania, J.

1. Both the aforesaid references arise out of the same order of the Income-tax Appellate Tribunal and hence they are being disposed of together by this common judgment.

2. The facts relevant to the appreciation of the controversy raised before us are as follows :

The assessee is the Oriental Government Security Life Assurance Co. Ltd. (referred to hereinafter as 'the said company'). The said company was established in 1874 and was to leader amongst the Indian companies carrying on life insurance business in India. In later years it floated a subsidiary company which carried on the business of general insurance. The assessment year involved is 1957-58, the corresponding financial year being March 31, 1956, to April 1, 1957. During this year the assessee carried on, as usual, its life insurance business as well as the general insurance business through its subsidiary company, from January 1, 1956, to January 18, 1956, and earned a profit of Rs. 2,39,574 for the said period from January 1, 1956, to January 18, 1956. On January 19, 1956, the Life Insurance (Emergency Provisions) Ordinance, 1956, was promulgated in order to provide for the taking over of the management of the life insurance business pending the nationalisation of such business. The life insurance business was referred to as 'the controlled business' in the said Ordinance and the management of the controlled business was taken over by the Central Govt. On March 21, 1956, the Life Insurance (Emergency Provisions) Act, 1956, was passed replacing the said Ordinance with immediate effect. Under this Act the management of the controlled business of the assessee-company remained vested in the Central Govt. from January 19, 1956, to March 20, 1956, under the provisions of the Ordinance and from March 21, 1956, to August 31, 1956, under the corresponding provisions of the said Life Insurance (Emergency Provisions) Act. On June 18, 1956, the Life Insurance Corporation Act, 1956, (referred to hereinafter as 'the LIC Act'), came into force. The object of the LIC Act was to provide for the nationalisation of life insurance business in India by transferring all such business to a corporation established for that purpose. Section 3(1) of the LIC Act authorised the Central Govt. to establish the Life Insurance Corporation of India from the date referred to therein as 'the appointed day'. In pursuance of the powers vested in it, the Central Govt. established the Life Insurance Corporation of India on September 1, 1956, and all the assets and liabilities pertaining to the controlled business of all insurers, including the assessee-company, stood transferred to and vested in the said Corporation to the assessee and the amount thereof was enhanced by the Tribunal appointed under the said LIC Act. In the assessment for the aforesaid assessment year the ITO assessed a profit of Rs. 2,39,574 for the period from January 1, 1956, to January 18, 1956, in the hands of the assessee. He next assessed to tax a compensation of Rs. 3,84,631 received by the assessee under s. 7 of the Life Insurance (Emergency Provisions) Act, 1956, for the period from January 19, 1956, to August 31, 1956, on the basis that it was a revenue receipt. It may be noted that it was the case of the assessee before the ITO that the aforesaid amount of Rs. 2,39,574 representing the income for the period January 1, 1956, to January 18, 1956, was not the income of the assessee but was the income of the said Corporation. The assessee preferred an appeal to the AAC against the order of the ITO. In the appeal, the learned counsel appearing for the assessee stated that he did not dispute that the assessee was liable to assessment on the said profit of Rs. 2,39,574 for the period January 1, 1956, to January 18, 1956, but the claimed exemption from income-tax in respect of this income under the provisions of sub-ss.(3) and (4) of s. 25 of the Indian I.T. Act, 1922. It may be noted here that even before the AAC the contention of the assessee was that the aforesaid income of Rs. 2,39,574 was not the income of the assessee but was the income of the said Corporation and the assessee was not liable to be assessed in respect of the said income. The AAC set aside the assessment order passed by the ITO and directed the ITO to reassess the assessee after investigating into the detailed arguments made by the assessee. The assessee then preferred an appeal before the Income-tax Appellate Tribunal against the order passed by the AAC. Before the Tribunal the learned counsel for the assessee changed his stand and contended that although the aforesaid income of Rs. 2,39,574 was the income of the assessee, the assessee was not liable to be assessed in respect of the said income in view of the exemption contained in sub-ss.(3) and (4) of s. 25 of the Indian I.T. Act, 1922. It was held by the Tribunal, inter alia, that the aforesaid compensation of Rs. 3,84,631 was not a revenue receipt liable to assessment. The Tribunal further accepted the assessee's argument that the aforesaid amount of Rs. 2,39,574 was the income of the assessee under the provisions of sub-ss.(3) and (4) of s.25 of the Indian I.T. Act, 1922, and that the assessee was not disqualified from claiming the exemption under cl.(b) of the proviso to the said sub-sections of s. 25. On an application made by the Commissioner under s. 66(1) of the Indian I.T. Act, 1922, the Tribunal referred the following questions to us for determination in Income-tax Reference No. 31 of 1972 :

'(1) Whether the assessee-company's case was covered by the later part of clause (b) of the proviso to sub-sections (3) and (4) of section 25 of the Indian Income-tax Act, 1922, and whether it was, therefore, disqualified from the exemption under sub-sections (3) and (4) of section 25 ?

(2) Whether the compensation amount of Rs. 3,84,631 was a revenue receipt liable to assessment ?'

3. We may at this stage note that by the order of the Tribunal, from which the said reference was made, the Tribunal had directed the ITO to give pro rata credit for the tax deducted at source in respect of the period from January 1, 1956, to January 18, 1956, to the assessee. Thereafter, it appears that the ITO, who was directed to grant the refund, as aforesaid, raised a difficulty that no refund could be granted by him as the assessee had not produced the relevant tax deduction certificates, although such certificates had, it appears, been produced by the said Corporation, viz., the Life Insurance Corporation. Thereupon a miscellaneous application was made by the assessee on January 12, 1971. On the said miscellaneous application the Tribunal directed that pro rata tax credit be granted to the assessee for the tax deducted at source for the said period of 18 days on the basis of the tax deduction certificates already produced by the LIC for the relevant period in its assessment proceedings, regardless of the question whether refund had already been granted to the LIC on the basis of the very same certificates. Thereafter, an application was made by the department under s. 66(2) of the Indian I. T. Act, 1922, to this court for directing the Tribunal to refer certain further questions and on the said application pursuant to the orders of this court, the Tribunal has referred the following three questions to us for our determination :

'(1) Whether the Tribunal erred in holding that there was no justification whatsoever for importing the rules contained in the Schedule I to the Life Insurance Corporation Act, into the Indian Income-tax Act, 1922, for computing capital gains under s. 12B of the Act ?

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to refund of tax deducted at source out of the interest on securities held by it ?'

4. The aforesaid three questions have been referred to us for determination in Income-tax Reference No. 155 of 1981.

5. As far as question No. 2, in Income-tax Reference No. 31 of 1972 and questions Nos. 1 and 2, in Income-tax Reference No. 155 of 1981, are concerned, it is common ground that the same are concluded in favour of the assessee by the judgment of this court in CIT v. New India Assurance Co. Ltd. : [1980]122ITR633(Bom) . In view of the aforesaid judgment, the said questions are answered as follows :

Question No. 2, in Income-tax Reference No. 31 of 1972, is answered in the negative. Similarly, questions Nos. 1 and 2, in Income-tax Reference No. 155 of 1981, are also answered in the negative.

6. The questions, which remain for our consideration, are : Question No. 1 in Income-tax Reference No. 31 of 1972 and question No. 3 in Income- tax Reference No. 155 of 1981. We propose to deal first with question No. 3, in Income-tax Reference No. 155 of 1981, as in a sense it is more fundamental and disposes of the whole reference. In regard to the aforesaid question No. 3, which we first propose to consider, it must be noted that it is common ground that the tax deducted at source in respect of which the claim of the assessee for refund arises is in respect of interest on securities which appertained to the life insurance business or the controlled business of the assessee. Sub-sections (1) and (2) of s. 7 of the Life Insurance Corporation Act, 1956, run as follows :

'(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 ; and 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........'

7. There is an Explanation to this sub-section as well as a third sub-section, but it is not necessary for our purposes to consider them particularly or to consider the other provisions of the said LIC Act, because the admitted position before us is that the interest in respect of which tax was deducted at source and out of which claim for refund arises belonged to the controlled business of the assessee. In Neptune Assurance Co. Ltd. v. Life Insurance Corporation of India : [1963]48ITR144(SC) , the appellant was an insurer which carried on both life insurance and other kinds of insurance business. During the calendar years 1954 and 1955, which were the previous years for the assessment years 1955-56 and 1956-57, respectively, certain sums became due to the appellant as interest on securities, from which income-tax was deducted at source under s. 18(3) of the I.T. Act, 1922, and as dividends on shares which were grossed up by an amount which had to be treated as tax paid thereon under s. 16(2) and s. 18(3) of that Act. The assessment orders for the aforesaid years were both made after September 1, 1956, on which date the life insurance business of the appellant became vested in the LIC by virtue of the provisions of s. 7 of the LIC Act, 1956. The Corporation claimed that part of these funds which pertained to the life insurance business under s. 7 of the LIC Act. It was held by the Supreme Court that the amounts of the tax payable by the appellant for the assessment years 1955-56 and 1956-57 became determinable on April 1, 1955, and April 1, 1956, respectively. Therefore, on those dates, the appellant became entitled to a refund of the tax deducted at source or treated as paid on its behalf which was in excess of the tax payable by it for each of these years. The assessments only particularised the amounts refundable and did not created the right to refund. The right to refund, having come into existence on the April 1, 1955, and the April 1, 1956, respectively, was that the income from assets appertaining to the life insurance business also appertained to that business and, therefore, income from shares and securities appertaining to the life insurance business had itself to be treated as appertaining to that business. In view of this decision, there can be no doubt at all that the right to refund in the present case arose at the end of the relevant assessment year, namely, on April 1, 1957, that is, after the 'appointed day' and by that time all the assets appertaining to the controlled business of the assessee had vested in the said Corporation by reason of s. 7 of the LIC Act. As the rights to refund itself became vested in the said Corporation, we fail to see how the assessee could ever claim that it was entitled to the said refund. It is true that the Tribunal has purported to distinguished this decision on the ground that in the case before the Supreme Court the right to refund came into existence before the appointed day, namely, September 1, 1956, whereas in the case before us the right to refund has come into existence on April 1, 1957, after the appointed day. We are utterly unable to appreciate this distinction sought to be drawn by the Tribunal. If the right to a refund, which came into existence before the appointed day, became vested in the said Corporation by reason of the provisions of s. 7 of the LIC Act, we totally fail to see how it can be said that such a right, if it came into existence after the appointed day, did not vest in the Corporation but remained with the assessee. The reasoning adopted by the Tribunal, in our view, has merely to be stated to be rejected and, in fact, Mr. Vyas, the learned counsel for the assessee, was unable to support that reasoning.

8. It was, however, contended by Mr. Vyas that the original order of the ITO regarding the grant of refund had become final and in view of the decision of the Tribunal we are not entitled to go into the same at all. It was pointed out by him that the ITO had held that the income earned from carrying on the life insurance business from January 1, 1956, to January 18, 1956, was the income of the assessee and liable to be assessed in the hands of the assessee and had granted pro rata credit in respect of the refund on the tax deducted at source to the assessee. This order was set aside by the AAC who directed the ITO to re-do the assessment, as we have stated earlier. The Tribunal in its turn had allowed the appeal of the assessee from the order of the AAC and directed the ITO to grant pro rata refund as claimed by the assessee in respect of the tax deducted at source on the interest income of the assessee-company for the period from January 1, 1956, to January 18, 1956. It was contended by him that in view of this, the finding of the ITO that the income from the life insurance in respect of the aforesaid period belonged to the assessee and the assessee was entitled to pro rata refund had become final. In our view, there is not substance whatsoever in this contention. In fact, the aforesaid question referred to us for our determination clearly envisages that this is a question which is open for consideration and which we are bound to go into.

9. It was next contended by Mr. Vyas that the real question is as to whether it was the assessee who was entitled to the said refund or the said Corporation. That was a question which could be decided only by the Tribunal set up under the said LIC Act, and not by the ITO at all. Nor could that question be determined in any proceedings arising under the Indian I.T. Act, 1922. In support of that submission, Mr. Vyas drew our attention to s. 41 of the LIC Act which says that no civil court shall have jurisdiction to entertain or adjudicate upon any matter which a Tribunal is empowered to decide or determine under the said LIC Act. In our view, this submission is also without any foundation whatsoever. The direct question before us is not whether it is the assessee who is entitled to the refund or the said Corporation, but the question whether in income-tax proceedings the assessee is entitled to the said refund. In determining that question the ITO was entitled to and, in fact, bound to consider incidentally as to whether it was not the assessee but the said Corporation, which was entitled to the said refund so that in that case the assessee could not claim it. The aforesaid contention must also, therefore, be rejected. In view of what we have said above, we are of the view that question No. 3, in Income-tax Reference No. 155 of 1981 must be determined in the negative and against the assessee.

10. In view of this decision, in our opinion, it is wholly unnecessary to determine question No. 1, in Income-tax Reference No. 31 of 1972, as whatever may be the decision in respect of that question, the assessee would not be entitled to the refund claimed by the assessee. The determination of that question would be merely academic. We may, in this regard, point out that in Misc. Petition No. 335 of 1971 filed in this court by the Commissioner of Income-tax, Bombay City III, Bombay, and another against the Income-tax Appellate Tribunal, the assessee and others, including the said LIC, the Commissioner has made it quite clear that the I.T. Dept. does not regard the income of the assessee from the life insurance business in respect of the period from January 1, 1956 to January 18, 1956, as the income of the assessee and that no attempt will be made to tax the assessee in respect of the said income. This also makes it further clear that the decision on the aforesaid question No. 1 in Income-tax Reference No. 31 of 1972 will be wholly academic and we decline to answer the said question.

11. In view of the divided success which the parties have achieved in these references there will be no order as to the costs thereof, and the parties will bear their own respective costs.


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