Case: Commissioner Of Income-Tax, Madras Vs. Prithvi Insurance Co. Ltd

1. The respondent, a public limited company, carried on in the relevant years of account business of insurance - life and general. In each of the calendar years 1944 to 1948 relating to the assessment years 1945-46 to 1950-51, the Company suffered doss in the life insurance section and made profit in the general insurance section. Till the assessment year 1950-51 the loss suffered in the life insurance section was allowed by the Revenue authorities to be carried forward and set off under S 24 (2) of the Indian Income-tax Act, 1922, against profits from the general insurance section in the subsequent year. In proceedings for assessment for the assessment year 1951-52 the Income tax Officer held that the life insurance business and the general insurance business carried on by the Company were "distinct and separate" and the loss carried forward from the previous year in respect of life insurance business could not be set off under S. 24 (2) against the profit of the general insurance business. The Appellate Assistant Commissioner and the Tribunal confirmed the view of the Income-tax Officer. The Tribunal referred the following question to the High Court of Madras under S. 66 (1) of the Income-taxthe unabsorbed losses incurred by the assessee in the earlier years in its life insurance business are available to be set off against its profits from general insurance business for the assessment years 1951-52 toHigh Court answered the question in the affirmative. With certificate granted by the High Court, these appeals have been preferred by the Commissioner of Income-tax.

Reasoning: 7. In the present case, there is little doubt that the two businesses constituted one composite business : the Company was entitled to carry on the life insurance business and the general insurance business under its Memorandum of Association, and the businesses were attended to by the Branch Managers and the Agents without any distinction, there was one common administrative organization and the expenses incurred in connection with the business both for administration and for heads of expenditure such as salary of the staff, postage, staff welfare fund and general charges, were common.8. We are unable to agree with counsel for the Commissioner that the test whether one of the businesses can be closed without affecting tire conduct of the other business, is a decisive test in determining, whether the two constitute the same business within the meaning of S. 24 (2). If one business cannot conveniently be carried on after the closure of the other, there would be a strong indication that the two businesses constitute "the same business", but no decision inference may be drawn from the fact that after the closure of one business another may conveniently be carried on.9. In the present case the Tribunals judgment proceeds not upon any special circumstances governing the distinctive organization, management, at counts, methods of book-keeping or the peculiarities of the two businesses, but primarily upon the provisions of the Income-tax Act which provide different methods of computation of the taxable income of the life insurance business and of the general insurance business. We are notable to agree with the Tribunal, that because in respect of the life insurance business and general insurance business there are special methods of computation of income for the purpose of levying income-tax, they are not the "same business within the meaning of S. 24 (2).In our view thereforewas right in holding that the life insurance business and the general insurance business constitute the same business within the meaning of S. 24 (2) of thethe life insurance business and the general insurance business were not "the same business" within the meaning of S. 24 (2), loss in the life insurance business which could not be set off against income from other business of the Company and sources of income, could not he carried forward and set off in the year following against the income from the general insurancein respect of the life insurance business and general insurance business there are as already mentioned, special methods of computation of income. But because there are distinct methods of computation of taxable income of the insurance business, and the general provisions of theAct relating to computation of profits and gains of a business in S. 10 and the related sections are inapplicable, it does not follow that the two businesses cannot be the same business" within the meaning of S. 24 (2).Whether two or more lines of business, may be regarded as the same business, or different business depends not upon the special methods prescribed by theAct for computation of the taxable income, but upon the nature of the businesses, the nature of their organisation management, source of the capital fund utilised, method ofand a host of other related circumstances which stamp them as the same or distinct.