A right to refund of taxes paid in respect of income from shares and securities appertaining to the life insurance business of an insurer is a right appertaining to the life insurance business and is transferred to the Life Insurance Corporation of India on the appointed day under Section 7 of the Life Insurance Corporation Act, 1956.

Judgment

SARKAR, J. : The appellant used to carry on both life and other kinds of insurance business. It was what is called in the Life Insurance Corporation Act, 1956 a "composite insurer".

2. The respondent corporation was created by this Act on September 1,1956 and under S. 7 of the Act the terms of which we will have to set out later, all rights appertaining to the life insurance business of an insurer which in the Act is called the "controlled business", became vested in the respondent Corporation on the appointed day, that is, September 1, 1956. Under the orders of assessment to income-tax for the years 1955-56 and 1956 57, the appellant became entitled to certain refunds under the provisions of the Income-tax Act, 1922. The respondent Corporation claimed a part of those refunds under S. 7 and this claim was resisted by the appellant. This dispute was taken to the Life Insurance Tribunal for decision under the Act of 1956 and this Tribunal decided it in favour of the respondent Corporation. The present appeal is against the judgment of the Tribunal.

3. The provisions of the Income-tax Act under which the right to refund arose have to be briefly referred to before we proceed to consider the questions that arise in this appeal. Section 16 (2) states that for the purpose of inclusion in the total income of an assessee, dividend paid to him shall be increased to such amount as would, if income-tax at the rate applicable to the total income of the company were deducted therefrom, be equal to the amount of the dividend. Sub-section (3) of S. 18 requires that out of the income chargeable as interest on securities income-tax has to be deducted at the source at the maximum rate. Sub-section (4) of this section provides that all sums so deducted shall be deemed to be income received by the assessee in computing his income, and under sub-s. (6) these deductions have to be paid to the credit of the Central government. Sub-section (5) states that any deduction made in accordance with the provisions of this section and any sum by which a dividend has been increased under sub-s. (2) of S. 16 shall be treated as a payment of income-tax or super-tax on behalf of the person from whose income the deduction was made or of the shareholder, as the case may be. Section 49B provides that where any dividend has been paid or deemed to have been paid to an assessee who is a shareholder of a company which is assessed to income-tax such assessee shall if the dividend is included in his total income be deemed to have paid himself in respect of such dividend income-tax of an amount by which the dividend has been increased under S. 16 (2). Section 48 is in these terms: "If any ...Company...satisfies the Income-tax officer .....that the amount of tax paid by him......or treated as paid on his behalf for any year exceeds the amount with which he is properly chargeable ...he shall be entitled to refund of any such excess." Shortly put, the result of these provisions is that an assessee becomes entitled to a refund where the tax deducted from the income of his securities or the amount by which the dividend paid to him on his shares has to be increased under S. 16 (2) for computation of his income or both taken together, exceed the amount of tax payable by him.

4. Now a reference has to be made to S.10 of the Insurance Act, 1938. Under sub-s. (2) of this section of that Act, an insurer carrying on business of life insurance had to carry to a separate fund, called the life insurance fund, all receipts due in respect of that business and the assets of this fund have to be kept distinct and separate from all his other assets. Sub-section (3) provides that the life insurance fund shall not be applied directly or indirectly for any purposes other than those of the life insurance business of the insurer. There is no reason to doubt that the appellant carried out the provisions of S. 10 (2) and created the life insurance fund and it is not in dispute that various shar