Dipak Kumar Sen, J.
1. This reference arises out of the income-tax assessment of General Assurance Society Ltd., Calcutta, the assessee, in the assessment year 1957-58, the relevant previous years being the one ended on the 31st December, 1956. The facts found and/or admitted in these proceedings are as follows : Till 1956, the assessee carried on business as acomposite insurer, and life insurance was part of its business. Under theLife Insurance (Emergency Provisions) Ordinance, 1956, all life insurance business vested in the Central Government on the 19th January, 1956, pending nationalisation thereof. Such business was ultimately nationalised under the Life Insurance Corporation Act, 1956, on the appointed date, i.e., the 1st September, 1956. As a result, the life insurance business carried on by the assessee was taken over with effect from the said date and under Section 16 of the Life Insurance Corporation Act the assessee was paid a compensation of Rs. 5,95,764.
2. In the assessment of the assessee in the relevant year the ITO took the value of the capital of the assessee relating to life business as computed in terms of Section 7(2) of the Life Insurance Corporation Act, 1956, to be Rs. 2,79,683 and deducting the said amount from the compensation paid held that the balance Rs. 3,16,981 was taxable as capital gains in the hands of the assessee under Section 12B of the Indian I.T. Act, 1922. It was contended on behalf of the assessee that in the balance-sheet of the life insurance business of the assessee prepared as at the 31st December, 1955, the value of the land and buildings of the assessee were not correctly shown. The proper value of the same as at the 31st December, 1955, was Rs. 8,13,819. The said land and buildings had been valued in 1949 by chartered architects which resulted in an appreciation of Rs. 11,87,069 which was shown in the subsequent balance-sheets of the assessee. The Controller of Insurance, however, did not accept such appreciated value and in 1952 the said land and buildings were valued at a lesser figure. For the purpose of computation of capital gain, if the said appreciated value had been taken into account there would be a capital loss instead of gain. The ITO rejected the aforesaid contentions.
3. Being aggrieved, the assessee preferred an appeal. It was contended before the AAC on behalf of the assessee that capital gain had not been properly computed by the ITO inasmuch as the market value of the assets of the assessee as at the 1st January, 1954, in fact exceeded that which was shown in the balance-sheet by Rs. 11,30,771. By actuarial valuation of the business of the assessee for the period 1950 to 1952 the appreciated value was written back only for the limited purpose of ascertaining the surplus, but for the purpose of determining the market value of its assets as on the 1st January, 1954, the said enhancement had to be taken into account. The AAC accepted the contentions of the assessee and held that the assessee was entitled to exercise his option and choose the market value of its assets as on the 1st January, 1954, for computation of capital gains. He accepted the valuation of the land and buildings by the architects in 1949 and held that such enhanced value reflected the correct market value of the said assets as on the 1st January, 1954, On such computation hefound that there was a capital loss and he deleted the amount added as capital gains.
4. The revenue preferred an appeal to the Income-tax Appellate Tribunal from the order of the AAC. It was contended in the appeal that the entire business acquired had to be valued in accordance with the balance-sheet figures and that the Controller of Insurance, the statutory authority to whom the balance-sheets and other statutory returns were required to be forwarded under the Insurance Act, 1938, not having accepted the increase in valuation of the immovable properties, in the triennial actuarial valuation made at the end of 1952 the enhancement was written back and the increase in valuation was written off. It was lastly contended that the market value of the life insurance business as on the 1st January, 1954, should have been determined on the basis of the formula for computing the compensation as laid down under the First Schedule of the Life Insurance Corporation Act.
5. It was contended on behalf of the assessee that in its income-tax assessments up to 1952, the valuation of the land and buildings as enhanced in 1949 had been accepted and at the least the valuation of 1949, should be taken as the market value of the properties on the 1st January, 1954.
6. The Tribunal held that as under Section 7 of the Life Insurance Corporation Act all assets and liabilities appertaining to life insurance business transferred and vested in the Life Insurance Corporation, and as compensation was payable in respect of such assets and liabilities, therefore, for computation of capital gains such assets had to be valued. The Tribunal found that the assessee had adduced evidence to show that the figures in the final balance-sheet did not reflect the correct value of its assets. The Tribunal also noted that neither the revaluation made in 1949, nor the authenticity or correctness of the report of the chartered architects were disputed. Taking note of the post-war trend of consistent rise in the prices of real property the Tribunal concluded that the value of the land and buildings as determined in 1949, could reasonably be taken to be their value also on the 1st January, 1954.
7. The contention of the revenue that the market value of the business as on the 1st January, 1954, should be determined on the basis or formula provided in the First Schedule of the Life Insurance Corporation Act was found by the Tribunal to be based on a Circular of the Central Board of Revenue dated the 1st July, 1960, where it was suggested that in a case where the assessee had no other evidence of valuation the basis or method as indicated in the said Schedule should be adopted. The Tribunal held that as the assessee had adduced some evidence of the value of its assets as on the 1st January, 1954, the said circular did not apply. The Tribunal accordingly dismissed the appeal of the revenue.
8. On an application of the CIT (Central), Calcutta, the Tribunal has drawn up a statement of case and has referred for the opinion of this court the following questions of law as arising out of its order :
'1. Whether, on the facts and in the circumstances of the case, the inference drawn by the Tribunal that the fair market value of the movable properties forming part of the life business of the assessee as on the 1st January, 1954, was equivalent to the valuation thereof as made by two architects in 1949 was based on conjecture and surmise ?
2, If the answer to question No. 1 be in the affirmative, then whether the Tribunal was right in holding that the fair market value of the said properties as on the 1st January, 1954, should not be determined on the same basis or formula as adopted for computing the compensation in accordance with the First Schedule to the Life Insurance Act, 1956 ?'
9. Mr. Suhas Sen, learned counsel for the revenue, contended at the hearing that the value of the assets in question was no doubt enhanced byRs. 11,30,771 in 1949, and was accepted in the subsequent income-taxassessments in the usual course without any question because of the specialstatutory safeguards in the case of insurance cos. but the fact remainedthat the valuation made by the chartered architects was not acceptedby the authority under the Insurance Act, 1938, under whose directionssuch enhanced valuation had to be scaled down subsequently. He submitted that in determining the market value of the assets as on the 1stJanuary, 1954, the valuation of the same assets by the assessee on the31st December, 1953, was pertinent and relevant. This valuation, a matterof record, had not been revised and there was no reason to doubt thecorrectness of the same. This would also be the value of the said assets onthe 1st January, 1954, according to the accepted principles of accountancyand there was no question of further revaluation of the said assets on thebasis of a report of the architects in 1949.
10. He submitted that the Tribunal erred in ignoring or overlooking the following facts:
(a) The valuation made by the architects had been rejected by the Superintendent of Insurance.
(b) The assessee had accepted such rejection and revised its accounts.
(c) The accounts of the assessee as on the 31st December, 1953, recorded a particular valuation of the said assets.
11. Mr. Sen contended that the Tribunal by discarding the valuation as on the 31st December, 1953, and substituting a valuation made in 1949 as the fair market value had acted without any material and on conjecture and surmise.
12. On the second question, Mr. Sen submitted that the said question needed reframing as it did not bring out the real controversy between theparties. He submitted that the answer to the second question did not really depend upon the answer to the first question. He submitted that the basis of valuation of land and building as laid down in the Schedule to the Life Insurance Corporation Act should have been adopted for valuation of the assets in question as on 1st January, 1954. No reasons have been shown for discarding such basis and opting for the valuation made by the architects.
13. Mr. R. K. Murarka, learned counsel for the assessee, contended on the other hand that under the rules contained in the Schedule to the Indian I.T. Act, 1922, the profits and gains of a life insurance business is required to be computed, inter alia, by the annual average surplus disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938. He submitted that only for the limited purpose of calculation of such surplus the enhanced valuation of the assessee's assets was not accepted by the insurance authorities. This did not preclude recomputation of the value of the assets for the purposes of Section 12B of the Indian I.T. Act, 1922, to determine their market value as on the 1st January, 1954. The rules for the calculation of average surplus did not apply in the computation of capital gains.
14. Mr. Murarka further drew our attention to the specific findings of the Tribunal, viz : (a) that the actuarial valuation in 1949 was not in dispute, and (b) that in the income-tax assessments subsequent to 1949 the enhanced valuation of the assets were accepted. He submitted that there was definite material on which the Tribunal could hold that the assets in question were correctly valued. It was found that the value of the real property has continuously gone up and on that basis the Tribunal accepted the valuation of 1949, to be the valueas on the 1st January, 1954. None of these findings had been challenged by the revenue.
15. Mr. Murarka, lastly, contended that the compensation paid to the assessee in the instant case was determined under Part A of the First Schedule where there was no question of computing the value of individual assets as the entire business was valued. According to him, there was no basis or formula laid down in the said Schedule for determination of market value of any individual asset.
16. The questions which have been referred to us are very limited. So far as question No. 1 is concerned it cannot be said that the Tribunal in determining the fair market value of the land and building of the assessee as on the 1st January, 1954, proceeded on conjecture and surmise. The Tribunal had before it the valuation made by the chartered architects in 1949, which was not disputed by anybody. It is also a matter of record that such revised yaluation was accepted in the income-tax assessments subsequent to 1949. The Tribunal has also taken into account the generalrise in price of the immovable properties after the second world war. This is a well-known fact and, in any event, there is no challenge to the same. It also appears to us that in the actuarial Valuation in 1952, the value of such land and the buildings was scaled down only for the purpose of determining the average surplus on which income-tax would be payable. We may refer to Section 10 of the Indian I.T. Act, 1922, and the Schedule thereto in this connection which read as follows:
Indian Income-tax Act, 1922
'10. (1) The tax shall be payable by an assessee under the head 'Profits arid gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him.....
(7) Notwithstanding anything to the contrary contained in Section 8, 9, 10, 12 or 18, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Schedule to this Act.
[See Section 10(7)]
Rules for the computation of the profits and gains of insurance business.
2. The profits and gains of life insurance business shall be taken to be either-
(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 made in accordance with the Insurance Act, 1938 (IV of 1938), in respect of 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 other than expenditure which may under the provisions of Section 10 of this Act be allowed for in computing the profits and gains of a business,whichever is the greater :.....'
17. In this view of the matter, we answer question No. 1 in the negativeand in favour of the assessee.
18. So far as question No. 2 is concerned, it appears to us that the point in issue therein is not connected with question No. 1. Therefore, we accept the submissions of the revenue and reframe the question as follows :
'Whether the Tribunal was right in holding that the fair market value of the suit properties as on the 1st January, 1954, should not bedetermined on the same basis or formula as adopted for computing thecompensation in accordance with the First Schedule to the Life InsuranceCorporation Act, 1956 ?'
19. The First Schedule lays down the principles for determination of compensation under Section 16 of the Life Insurance Act and, inter alia, provides as follows:
'The compensation to be given by the Corporation to an insurer having a share capital on which dividend or bonus is payable, who has allocated as bonus to policy-holders the whole or any part of the surplus as disclosed in the abstracts prepared in accordance with Part II of the Fourth Schedule to the Insurance Act in respect of the last actuarial investigation relating to his controlled business as at a date earlier than the 1st day of January, 1955, shall be computed in accordance with the provisions contained in paragraph 1, or paragraph 2, whichever is more advantageous to the insurer.
Paragraph 1.--Twenty times the annual average of the share of the surplus allocated to shareholders as disclosed in the abstracts aforesaid in respect of the relevant actuarial investigations multiplied by a figure which represents the proportion that the average business in force during the calendar years 1950 to 1955 bears to the average business in force during the calendar years comprised in the period between the date as at which the actuarial investigation immediately preceding the earliest of the relevant actuarial investigations was made and the date as at which the last of such investigations was made.
Paragraph 2.--Half the amount payable under paragraph 1 plus the paid-up capital or assets equivalent thereto, or, in the case of a composite insurer, that part of the paid-up capital or assets equivalent thereto which has or have been transferred to and vested in the Corporation under this Act less the amount, if any, of expenses or losses or both capitalised by the insurer for the purposes of Form A in the First Schedule to the Insurance Act.....'
20. Part B of the said Schedule provides as follows :
'The compensation to be given by the Corporation to an insurer having a share capital on which dividend or bonus is payable who has not made any such allocation as is referred to in Part A in respect of the last actuarial investigation as at a date earlier than the 1st day of January, 1955, shall be an amount equal to the value of the assets of the insurer appertaining to his controlled business in existence, on the 19th day of January, 1956, computed as at that date in accordance with the provisions of paragraph 3 less the amount of liabilities of the insurer appertaining to such business in existence, on the 19th day of January, 1956, computed as at that date in accordance with the provisions of paragraph 4.
Paragraph 3 : Assets.--(a) The market value of any land or buildings.....'
21. It appears to us that Part A of the Schedule which was applied in theinstant case docs not provide any basis or formula for valuation of aparticular item of asset. In Part B no formula or basis is laid down forvaluation of land and buildings and only the market value of land and buildings is referred to. The contentions of the revenue in this regardappears to us to be misconceived. For the above reasons, we answerquestion No. 2, as refrained, in the affirmative and also in favour of theassessee.
22. The reference is disposed of accordingly. There will be no order as tocosts.
C. K. Banerji, J.