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CALCUTTA HIGH COURT
General Family Pension Fund, Calcutta - Appellant
Versus
Commissioner of Income Tax, Calcutta - Respondent
Decided On : 12-04-1946
Income Tax - Mutual Life Assurance Company - Indian Income Tax Act, 1922, Ss. 3, 8, 10, 12, 59 - Indian Income Tax Rules, R. 25 - Whether R. 25 applicable to a mutual life assurance company - Whether income from investments is part of the life assurance business - Whether the company can appropriate its non-mutual receipts against expenditure - Whether the principle of favourable attribution is applicable - Held, R. 25 is applicable to a mutual life assurance company - Income from investments is part of the life assurance business - The company cannot appropriate its non-mutual receipts against expenditure - The principle of favourable attribution is not applicable.
Fact of the Case:
The assessee company, a mutual life assurance company, was exempted from the provisions of the Indian Life Assurance Companies Act, 1912. The company had considerable sums invested in Indian Government and similar securities and also some other investments. The Income Tax Officer assessed the company's income from investments separately under Sections 8 and 12 of the Indian Income Tax Act, 1922, allowing deductions only for bankers' charges or commission and a proportionate amount of management expenses. The assessee company appealed to the Appellate Tribunal, which held that Rule 25 of the Indian Income Tax Rules was not applicable to the company and that the assessment should be made separately under Sections 8 and 12.
Finding of the Court:
The Court held that Rule 25 of the Indian Income Tax Rules was applicable to the assessee company, a mutual life assurance company. The Court further held that income from investments was part of the life assurance business and that the company could not appropriate its non-mutual receipts against expenditure. The Court also held that the principle of favourable attribution was not applicable in this case.
Issues: The issues before the Court were:1. Whether Rule 25 of the Indian Income Tax Rules was applicable to a mutual life assurance company.2. Whether income from investments was part of the life assurance business.3. Whether the company could appropriate its non-mutual receipts against expenditure.4. Whether the principle of favourable attribution was applicable.
Ratio Decidendi: The Court held that Rule 25 was applicable to the assessee company because it was a life assurance company incorporated under the Indian Companies Act and it carried on insurance business. The Court further held that income from investments was part of the life assurance business because investments were essential for an insurance company to carry on its business. The Court also held that the company could not appropriate its non-mutual receipts against expenditure because the subscriptions were earmarked for the liabilities of the company. The Court held that the principle of favourable attribution was not applicable because the assessment under Rule 25 was based on a valuation of assets and liabilities, and not on actual payments.
Final Decision: The Court answered the second question in the affirmative and the third question in the negative. The assessee was entitled to its costs.
JUDGMENT
Gentle, J. - The General Family Pension Fund was incorporated under the Indian Companies Act, 1882, on 17-8-1906; it is a company limited by guarantee, it has no share capital and its members are confined to persons who are subscribers for grant of pensions and annuities and Who hold entrance certificates; the liability of each member is limited to a nominal sum of Rs. 5; since it complied with the provisions of S. 26 of the above Act, a licence was granted by the Bengal Government permitting the company to be registered without the word "Limited" being included in its name. The objects of the company, as contained in its Memorandum of Association, inter alia, are:
3. (a) To acquire and take over as a going concern and to carry on and conduct and continue the objects of an existing unincorporated association or institution called the General Family Pension Fund founded and formed in the year 1870 (not being an association farmed for the purpose of carrying on any business that has for its objects the acquisition of gain within the meaning of S. 4 of the said Act) (Indian Companies Act, 1882.)
(b) To grant terminable pensions or annuities dependent on human life or any other event or contingency in favour of any subscriber and/or any nominee or nominees (within the categories therein mentioned) of a subscriber to the funds of the company.
(d) To grant invest and deal with the moneys of the Company not immediately required.
(g) To pay out of any of the Company's funds all expenses of management of the Company;s business and objects.
4. The income and property of the Company whencesoever derived shall be applied solely towards the promotion of the business and objects of the company as set forth in the Memorandum of Association and no portion thereof shall be paid or transferred directly by way of divided or bonus or otherwise by way of profit to the members of the company. Provided that nothing there in contained shall prevent (1) payment of specified salaries and wages and (3) granting to any member a pension or annuity.
2. It is conceded by the Commissioner of Income Tax that the company carries on the business of a life assurance company. The Indian Assurance companies Act, 1912 applies to all persons or bodies of persons, whether corporate or incorporate, (therein referred to as life assurance companies), who carry on such business within British India except, inter alia, to any Fund which the Governor General in Council may, by notification, exempt from the operation of the Act By Notification No. 7345-97 dated 13-9-1913, the General Family Pension Fund was exempted from the operation of that Act, It is also conceded by the Commissioner that the transactions between the Company and its members are mutual dealings and that income tax is not assessable upon the surplus of the members subscriptions; this concession was made in pursuance of the decision in (1889) 14 A. C. 381 New York Life Assurance Co. v. Styles (1889) 14 A.C. 381: 59 L. J. Q. B. 291: 61 L.T. 201, the principles of which, it is admitted, apply in India. It is convenient hereafter to refer to the General Family Pension Fund as 'the Fund'. This reference is concerned with the assessments for the years 1937/38 and 1938/39. Since they are in respect of years prior to the passing of the Indian Income Tax (Amendment) Act, 1939, the provisions of the Indian Income Tax Act, 1922 (hereinafter called 'the Act'), as enacted before the Amendment Act, 1939, will apply to this reference. The questions referred for the opinion of this Court are:
1. Whether the decisions of the Assistant Commissioner of Income Tax, Calcutta, for the years 1929/29 to 1935/36 are binding upon the Income Tax Officer upon the principles of res judicata or otherwise ?
2. Whether the income profits and gains of the General Family Pension Fund for the year ending 31st December 1936 should be assessed under Rule 25 of the Indian Income Tax Rules in the form then in force?
3. If the answer to (2) is
Payments made under agreements to government are considered revenue expenditure, not capital, and are deductible under Income Tax laws.
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