Case: Vanguard Insurance Company Limited Vs. Commissioner of Income Tax, Madras

The relevant facts are as follows : The appellant, Vanguard Fire & General Insurance Co., hereinafter referred to as the assessee, carried on fire and general insurance business. It owned a building of which a part was occupied by the assessee for its own business, the rest being let out on rent. During the previous year ending December 31, 1949 (assessment yearthe assessee received a sum of Rs. 8, 230 as rent on the portion let out. In the accounting year ending December 31, 1950 (assessment yearthe rent received amounted to Rs. 37, 200. TheOfficer in view of section 4(3)(xii) of the Act excluded these amounts from assessment. The Commissioner ofissued a notice to the assessee under section 33B of the Act to show cause why the orders of theOfficer should not be modified so as to set right the error committed by theOfficer in excluding these sums from assessment. After hearing the assessee, he held that " it is only income which is chargeable under the head income from property which is entitled to the exemption laid down in this clause and not income chargeable under the Schedule in the case of insurance companies. " The assessee appealed to theAppellate Tribunal which upheld the order of the Commissioner ofThe Tribunal observed"The exemption under section 4(3)(xii) is to the income received from property and as the income in the instant case is from insurance business, the assessee cannot lay claim to any exemption under thisFurther the Schedule in dealing with life insurance makes some mention of income from property (section 9), while the absence of any such mention in general insurance isthe instance of the assessee, the Appellate Tribunal stated a case and referred the question reproduced already. The High Court answered the question in the affirmative and against the assesseeSection 4(3)(xii) and section 10(7) of the Act read as follows"4. (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them(xii) any income chargeable under the head income from property in respect of a building, the erection of which is begun and completed between the 1st day of April, 1946, and the 31st day of March, 1956, both dates inclusive, for a period of two years from the date of such completion.""10. (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."As the assessee carried on the business of insurance other than life insurance, paragraph 6 of the Schedule applies to it and is in the following terms" The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Superintendent of Insurance after adjusting such balance so as to exclude from it 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. Profits and losses on the realisation of investments and depreciation and appreciation of the value of investments shall be dealt with as provided in rule 3 for the business of life insurance. "Mr. S. Swaminathan, the learned counsel for the assessee, contends that by virtue of section 4(3)(xii), the income from property cannot be included in the total income of the assessee, and that section 10(7) does not exclude the applicability of section 4(3)(xii). He points out that section 10(7) opens with the words " notwithstanding anything to the contrary contained in section 8, 9, 10, 12 or 18 ". Thus theclause does not include anything contained in sections 4 and 6. He further says that section 4(3)(xii) is applicable because although the income from property in the case of a general insurance company is computed in accordance with the Schedule, yet it is still chargeable under the head " income from property ", and there is no practical difficulty in granting exemption to income falling under section 4(3)(xii)

Reasoning: In our opinion, it is equally impossible to apply the provisions of section 4(3)(xii) to an assessment made under section 10(7), read with paragraph 6 of the Schedule. There is no income chargeable under the head " Income from property " as far as a general insurance business is concerned. The effect of section 10(7) is to delete the heads " Interest on securities ", " Income from property " and " Income from other sources " from section 6 of the Act, as far as general insurance businesses areBombay High Court came to the same conclusion as we have done in Commissioner ofv. Asian Assuranceagree with the High Court that the answer to the question must be in the affirmative and against the assessee.