Case: General Family Pension Fund Vs. The Commissioner Of Income-Tax,West Bengal

To follow the points in issue, it will be useful to refer to the statutory provisions bearing on the matter. Section 2(11) ofthe Insurance Act, 1938, defines "life insurance business" as meaning "the business of 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 asprofits and gains of life insurance business shall be taken to be either -(a) the gross external incomings of the proceeding year from that business less the management expenses of that yearor(b) the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation for the last intervaluation 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 intervaluation period and any expenditure which may under section 10 of this Act be allowed for in computing the profits and gains of a business, whichever is the5(ii) defines "gross external incomings" as including profits on the sale or the granting of annuities. These rules came into force in 1939.In 1945 the assessment of the profits of the appellant Company for the years 1943-1944, 1944-1945 and 1945-1946 was taken up by the Income-tax Officer. Under Rule 2, what the Income-tax Officer had to do was to 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 actually did however is uncertain, because the orders of assessment themselves have not been exhibited as part of the record. From the order of the Tribunal dated 5th March, 1949, it appears that the Income-tax Officer firstly determined the profits under Rule 2(b) on the basis of actuarial valuation after making certain adjustments; and secondly on the basis of the figure arrived at under Rule 2(b), he worked out the profits under Rule 2(a) by making further adjustments. These orders were made on 14th July,company preferred appeals against them to the Appellate Assistant Commissioner, who held by his order dated 30th November, 1945, that the annuity business contemplated by Rule 5(ii) was "purely annuity business", that the business carried on by the Company was "an admixture between an annuity and life insurance", and that there had been no adequate investigation by the Income-tax Officer of the nature of the business of the Company. He accordingly remanded the case for further enquiry and for passing fresh orders ofthe time the matters came up for further enquiry before the Income-tax Officer in pursuance of the order of remand, the assessment of the profits of the Company for the year 1946-1947 had also to be made. By order dated 23rd December, 1946, the Income-tax Officer determined the assessable profits of the Company for all the four years. He held that 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 July, 1945. He first took the annual adjusted surplus calculated according to the actuarial valuation under Rule 2(b) and after making certain adjustments, adopted it as the figure under Ruleorders were clearly erroneous. The statement that there was no element of life 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 Income-tax Officer was 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 independent enquiry into the materials requisite under thatCompany took up the matter in appeal to the Appellate Assistant Commissioner, who by his order dated 26th September, 1947, held that the annuity business of the appellant was life insurance business, and that the profits should be computed underHe further held that in the absence of a profit and loss statement for the previous year the Income-tax Officer could only act on the materials furnished by the actuarial valuation as a guide for computation under Rule 2(a). He therefore confirmed the orders ofCompany 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" insurance, and that computation of the profits should be made in accordance with Rule 2, after determining the profits both under Rule 2(a) and Rule 2(b). It took exception to the modus adopted by the Income-tax Officer in computing the profits under Rule 2(a), and observed that he should have made independent 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 accordingly remanded the matter to the Income-tax Officer for further enquiry for determining the profits in terms of Rulewith this order, the respondent applied for reference under section 66(1) of the Income-tax Act, and on that application, the following questions were referred to the decision of the High"Whether in the facts and circumstances of the case the business of the assessee-Company consisted wholly of annuity business or whether it contained some elements of ordinary life insurance business as distinct from annuity business.Whether the 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-taxreference was heard by the Chakravarti and S. R. Das Gupta, JJ. They held that the first question did not arise on the order of the Tribunal, but all the same expressed their opinion thereon in the followingbusiness is wholly a business of granting annuities on human life, and no part of its business is ordinary life insurancewe are not concerned with this matter in this appeal, there is no need to further refer tothe second question, they observed that business in annuities dependent on life as contrasted with "annuities certain" would be insurance business 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 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 affirmative. It is against this decision that the present appeal has been preferred on a certificate granted under section 66A(2).

Reasoning:
What is referred to in this passage is only a statement 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 of the erroneous view taken by the Income-tax Officer 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 unassailable, and, indeed, that was the only one that could have beenin 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). When 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.