GENERAL FAMILY PENSION FUND versus THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

1954

India United Mills Ltd. v. Commissioner of Excess Prefits Tax, Bombay.

Vtnkatarama AYJar J,

1954

Novttnber I.

822

SUPREME COURT REPORTS

[1955]

relief granted, and that when the Excess Profits Tax Officer finds that an assessee to whom relief had been granted under section 26(3) has utilised the buildings, plant or machinery in business after the termination of the war, he is entitled to proceed under section 15 of the ·Act.

In the result, the appeal fails, and is dismissed with

•

costs.

Appeal dismissed.

GENERAL FAMILY PENSION FUND

I ' THE COMMISSIONER OF Il'iCOME-TAX, WEST BENGAL, [MEHR CHAND MAHAJAN C.J., s. R. DAS, GHDLAM HASAN, BHAGWATI and VENKATARAMA AYYAR JJ.]

Indian Income-tax Act (XI of 1922), s. 10(7) and schedule Rule 2(a)(h) as published in 1939-Inco1ne-tax on insurance company Hotv ascertained-Statement of Depa1·tn1ental Representative, Effect of-Insurance Act (JV of 1938) s. 2(11)-Life Insurance business.

to 1946-1947 are

In accordance with

the provisions of s. 10(7) of the

Indian Income-tax Act, 1922, the profits and gains of Life Insurance busi to be computed ness for the periods 1943-1944 under Rule 2(a) and Rule 2(b) of the rules published in 1939 and contained in the schedule to the Act. This computation should be mac1e separately and independently once under Rule 2( a) and again under Rule 2(b ). On such computation income-tax is to be levied It is erroneous on the greater of the t\VO amounts so co1nputed. to adopt the computation made under Rule 2(b) as for the basis computation under llule 2(a),

Mere

statement of the Departn1ental Representative of

Income-tax Department to the Tribunal referred of Tribunal.

the Tribunal cannot have the effect of a finding of fact by

to

in

the the order the

Business of a con1pany \Vhich consists in granting terminable the is an insurance business within the

pensions or annuities dependent on hu1nan life in favour subscribers or their non1inees, meaning of s. 2(11) of the Insurance Act, 1938.

of

-

,,

•·

. ...t..

.S.C.R.

SUPREME COURT REPORTS

823

CIVIL

APPELLATE

JuR1smcnoN : Civil Appeal

1954

No. 144 of 1953.

Appeal from the

Judgment and Order dated the 28th November, 1951, of the High Court of Judicature at Calcutta in Reference No. 40 of 1950.

Sukumar Mitra (S. N. Mukherjee, with him) for the

appellant.

C. K. Daphtary, Solicitor-General of India,

( G. N.

Joshi, with him) for the respondent.

1954. November 1. The Judgment of the Court

was delivered by

Gtmral Family Pension Fund v. The Commissioner of lncom.-tax, West Bengal.

·Jf

registt"red under the

VENKATARAMA AYYAR J.-This is an appeal

from the judgment of the High Court of Calcutta on a reference under section 66(1) of the· Income-tax Act. into existence The appellant is a Company which came in 1870 as an unregistered association, and in 1906 it was Indian Companies Act. Its business in ,granting terminable pensions or annuities dependent on subscribers or their nomi human life in favour of the nees. The dispute in this appeal relates to the assess- ment of the profits of the Company for income-tax for and the 1946-47.

of the exclusively

provisions consists

1943-1944,

1944-1945,

1945-1946

periods,

statutory

provisions

bearing on

To follow the points in issue, it will be useful to refer to the the matter. Section 2(11) of the Insurance Act, 1938, defines "life insurance business" "the business of as meaning ·effecting contracts of insurance upon human life" and as including "the granting of annuities upon human life." The business of the appellant Company would therefore be life insurance business as defined in section 2(11) of the Insurance Act. Under section 10(7) of the Indian Income-tax Act, the profits and gains of any business of insurance are to be computed in accordance with the Rules in the Schedule to the Act. Rule 2 in ·the Schedule is as follows :

"The profits and gains of

life insurance

business

shall be taken to be either-

1954

General Family Pension Fund v. T~ CommissWner of Incom~-tax, West Be11gal.

V tnkatarama Ayyar J.

824

SUPREME COURT REPORTS

[1955}

(a) the gross external incomings of the preceding the management expenses.

that business less

year from of that year,

or

(b) the annual

last intervaluation

average of the surplus arrived

at by adjusting the surplus or deficit disclosed by the period actuarial valuation for the ending before the year for which the assessment is to be made, so as to exclude from it any surplus or deficit therein which was made in any earlier inter included valuation period and any expenditure which may under for in computing section 10 of this Act be allowed is the the profits and gains of a business, whichever greater.''

Rule 5(ii) defines "gross external

as. including profits on the sale or the granting of annuities. These Rules came into force in 1939.

incomings"

In 1945 the assessment of the profits of the appellant Company for the years 1943-1944, 1944-1945 and 1945- Income-tax Officer. Under 1946 was taken up by the to. Rule 2, what the Income-tax Officer had to do was compute the profits of the Company under the two· heads (a) and (b) in that Rule and to adopt whichever was higher as assessable profits. What he actual! y did however is uncertain, because the orders of assessment themselves have not been exhibited as part of the· From the order of the Tribunal elated 5th record. March, 1949, it appears that Income-tax Officer the firstly determined the profits under Rule 2(b) on tl1e basis of actuarial valuation after making certain adjust ments; and secondly on the basis of the figure arrived at under Rule 2(b ), he worked out the profits under Ruk 2(a) by making further adjustments. These orders were July, 1945. The company preferrccl made on 14th appeals against them to the Appellate Assistant Com missioner, who held by his order dated 30th November, 1945, that the annuity business contemplated by Ruk that the business 5(ii) was "purely annuity business", carried on by the Company was "an admixture between an annuity and life insurance", and that there had been Income-tax Officer no adequate of the nature of tlie business of the Company. He

investigation by the

'

• •

S.C.R.

SUPREME COURT REPORTS

825

remanded °r:he accordingly and for passing fresh orders of assessment.

case for

further

enquiry

I95f

General Family Pension Fund v. The Commissiontr of Income-tax, West [Bengal.

Venkataratna A,Y;·ar J.

the

the four years. He held that

By the time the matters came up for further enquiry before the Income-tax Officer in pursuance of the order the Com of remand, the assessment of the profits of the year 1946-47 had also to be made. By pany for order dated 23rd December, 1946, Income-tax Officer determined the assessable profits of the Company for all there was no element of insurance in the business of the Company, and that the computation should be made under Rule 2(a). Then he proceeded to assess the profits under that Rule precisely in the manner adopted by him in his order dated 14th the annual adjusted surplus calculated the actuarial valuation under Rule 2(b) and after making certain adjustments, adopted it as under Rule 2(a). These orders were clearly erroneous. The that there was no element of life statement insurance in the policies was rightly held to be erroneous by the Tribunal and has not been sought to be supported. If the annuity business of the Company was not life insurance business, then even Rule 2(a) would have no application. The likewise in error in adopting the figures reached under Rule 2(b) as the basis for computing the profits under Rule 2(a) without an into the materials requisite under that Rule.

Income-tax Officer was

July, 1945. He first

independent

took to

the figure

according

enquiry

held

September, 1947,

The Company took up the matter in appeal to the Appellate Assistant Commissioner, who by his order dated 26th annuity business of the appellant was life business, and that the profits should be computed under Rule 2. He further held that in the absence of a profit and loss statement for the previous year, the Income-tax Officer furnished by the could only act on the materials for computation under actuarial valuation as a guide Rule 2(a). He the orders of assessment.

that the insurance

therefore confirmed

The Company then appealed to the Tribunal. By its order dated 5th March, 1949, the Tribunal held that the business of the Company was "in a way" msurance,

-

--·

1954

General Family Pension Furul v.;: TW Commissioner o.f Income-tax, Wrst Bengal.

Venkatarama Ayyar].

' • . ,

~26

SUPREME COURT REPORTS

f19551

Income-tax Officer

and that computation of the ptbfits should be made in accordance with Rule 2, after determining the profits It took exception both under Rule 2(a) and Rule 2(b). to the modus adopted by the in computing the profits under Rule 2(a), and observed that he should have made in<lependent enquiry under Rule 2(a), and determined the profits and not merely adopted the figures computed under Rule 2(b) as the basis for computing the profits under Rule 2(a). The Tribunal to the remanded Income-tax Officer for further enquiry for determining the profits in terms of Rule 2(a).

· Dissatisfied with this order, the for reference under section 66(1) of Act, and on that application, the following were referred to the decision of the High Court : 1. "\Vhether in the facts and circumstances

respondent applie<l Income-tax questions

the matter

accordingly

the

the business of

case wholly of annuity some elements of ordinary distinct from annuity business.

the assessee-Company

of the consisted it contained life insurance business as

business or whether

the

2. Whether

Income-tax Officer was justified in making an estimate for calculations under Rule 2 (a) of the Schedule attached to section 10(7) of the Income tax Act."

The reference was heard by Chakravarti and S. R. Das Gupta JJ. They held question did not that the first arise on the order of the Tribunal, but all the same expressed their opinion thereon in the following terms :

"Its business

is wholly a business

of

annuities on· human life, and no part of its business ordinary life insurance business."

As we are not concerned with this matter in

this

certain" would be

appeal, there is no need to further refer to it. On the second question, they observed

that business contrasted with in annuities dependent on "annuities as defined in section 2(11) of the Act, and that the profits of that business being "gross external incomings" as defined in Rule 5(ii) must be determined under Rule 2(a). Dealing next with the objection of the appellant that there had been no proper determination of the

insurance business

life

as

granting is

S.C.R.

SUPREME COURT REPORTS

827

1954

profits under Rule 2(a), they held that in the absence of profit and loss statements for the previous years and other materials the Income-tax Officer had no course open to him except to adopt the figures computed under Rule 2(b) as a basis for computation under Rule 2(a). The second question was accordingly answered in the It is against this decision that the present affirmative. granted been appeal has under section 66A (2).

preferred on a certificate

J

...

General Family Pension Fund v. The Commissioner of lnrome·tax, West Bengal.

Venkatarama AY.1ar ].

that the Tribunal was

to determine under clause

therefore be computed in

right in remanding profits the

Mr. Mitra for the appellant does not dispute the position that the business of the Company on annuity policies dependent on human life is msurance business as defined in section 2(11), and that the profits of the business should accordance with Rule 2 in the Sehedule to the Income-tax Act. His contention is that the Income-tax Officer had failed to make the computation in accordance with Rule 2( a), the and matter for a correct computation of in accordance with that Rule. This contention must, in our opinion, succeed. Under Rule 2, the Income-tax Officer has (a) what the grnss external incomings of the previous year were, and deduct out of them the managing expenses for that year. He has also to find out in terms of clause (b) the annual average surplus on the basis of actuarial valuation in the manner prescribed then to adopt whichever of the year. Now the complaint of the appellant is that while a computation was made under clause (b) no independ ent computation was made under clause (a), and that therefore as It is a fact that no independent required by the Rules. computation has been made under Rule 2(a), and therefore there has been no compliance with the Rule. The learned Judges declined to uphold this objection on the Company did not place any the ground that materials before the Income-tax Officer so as to enable him to make a determination under Rule 2(a), and that in the absence- of any materials Income-tax justified in acting on the actuarial report Officer was for computing the profits even under Rule 2(a).

the profits had not been determined

is higher as the assessable

therein. He has

profits

the

,.

.)._.

1954

General Fami(y Pensi-on Fund v. T ht Commissioner '!,f Income·lax, l1' est Bengal.

Venkatarama Ayyar J.

•

\

828

SUPREME COURT REPORTS

f1955]

to

the

taken

by either side at

the opinion expressed by

The argument of the appellant is that having regard stage of to the stand investigation and the Income-tax Officer that there was no element of insur ·ance in the annuity business of the Company, the true position under the Rules had been missed by all of them, with the result that there was no attempt made to compute the profits in terms of the provisions of Rule 2(a), that the appellant had not wilfully failed to produce any evidence, and that the observation of the loss statement had learned been produced was based on a misapprehension, as no such statement had to be prepared by Insurance Company.

Judges that no profit and

an

V.f e must now turn to the statement of the case by the Tribunal to see what had really happened before the Income-tax Officer, for the last word on questions of fact is with it, and that is binding on the Courts. Neither in the statement of the case by the Tribunal, nor in its order of remand is there any finding that the requisite materials had been withheld by the appellant. The only statement bearing on this in the order of the Tribunal is as follows :

question

" ...... the Departmental Representative

admitted before us that the calculations purported to have been made under Rule 2(a) were not in accordance with the requirements of Rule 2(a), but it was explained that as the information necessary for determining income under Rule 2 (a) was not available, an estimate was made and the income determined under Rule 2 (b) was adopted for determining the income under Rule 2(a)."

What is referred to in

this passage is only a state ment of the Departmental Representative and not a finding. On the other hand, the whole tenor of the judgment of the Tribunal is that there had been no determination of the profits under Rule 2(a) by reason Income-tax Officer of the erroneous view taken by the as to the true nature of the business of the Company. If there had been a finding by the Tribunal that the requisite materials had been called for and withheld by the appellant, the decision of the High Court would be that unassailable, and, indeed, that was the only one

S.C.R.

SUPREME COURT REPORTS

829

1954

could have been reached. But in the absence of such a finding, we are unable to see any ground on which the order of the Tribunal could be upset in a reference under section 66 ( 1). Vvhen once it is found that there was no proper determination of the profits as required under Rule 2(a)-and that was indeed conceded-and there was no justification for it such as the High Court thought there was, the only order that could properly be made was to remand the case for further enquiry and fresh disposal in accordance with law. That was the order which was passed by the Tribunal, and that, in our opinion, was right.

General Family Pension Fund v. The Commissionr of Income-tax, West Bengal

Vmkatarama 4vyar J.

and

result of this will

This appeal will accordingly be allowed,

the second question referred by the Tribunal answered in the negative. The that the Income-tax Officer will proceed to enquire into the the years in profits of the appellant Company for question in accordance with the requirements of Rule 2. Under the circumstances, we direct that the parties do bear their respective costs both here and in the High Court.

be

Appeal allowed.

NAVINCHANDRA MAFATLAL

1954

November 1.

THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY. [MEHR CHAND MAHAJAN C.J., s. R. DAS, GHULAM HASAN, BHAGWATI and VENKATARAMA AYYAR JJ.]

..

Indian Income-tax Act

India Act, 1935 (26 Geo. 5 CH. 2) Seventh Schedule, List I, 54-Tax on capital gains, if ultra vires-Capital gains, -Legislative practice-Interpretation of words-Words used Constitution Act.

(XI of 1922) s. 12-B-Government of Item income in

if

Section 12-B of the Indian Income-tax Act, 1922 (inserted by Act XXII of 1947) which imposed is not ultra vires the Government of India Act, 1935. The term 'Capital

tax on 'Capital gains'