1967 (8) TMI 3 - HC - Income Tax

Insurance business - excess premium was entered in the books of the assessee-company in the premium deposit account - assessee-company transferred the sum of Rs. 33, 905 to its revenue account - ITO was not justified in treating the said amount as gross external incomings of the year under r. 2(a) of the Rules for the computation of the profits and gains of insurance business

Summary

Issues:
Whether the sum of Rs. 33,905 was taxable as gross external incomings in the hands of the assessee-company for the assessment year 1959-60.

Detailed Analysis:

The case involved a question referred to the Delhi High Court by the Income-tax Appellate Tribunal regarding the taxability of a sum of Rs. 33,905 in the hands of an insurance company for the assessment year 1959-60. The issue pertained to whether this amount constituted gross external incomings of the previous year. The company in question, an insurance business, had received excess premiums from policyholders in earlier years, which were later transferred to the revenue account during the relevant accounting period. The Income-tax Officer treated this amount as gross external incomings under the relevant rules for the computation of insurance business profits and gains.

The primary contention revolved around whether the said amount qualified as gross external incomings and whether it was an incoming of the preceding year. The Appellate Assistant Commissioner, citing precedent, held that these amounts did not constitute gross external incomings. The Income-tax Tribunal also acknowledged that the amount in question, received in relation to earlier years, should not be considered as external incomings of the current year.

Two main arguments were presented before the court: one from the revenue's counsel asserting that such amounts must be treated as gross external incomings upon transfer to the revenue account, and the other from the assessee-company's counsel contending that the date of physical receipt was crucial and that gross external incomings cover only receipts of income nature, not capital nature. The court examined these arguments in detail, considering the nature of the amounts received, their treatment in the company's accounts, and the legal provisions governing the computation of insurance business profits.

Ultimately, the court agreed with the argument that a mere transfer of the amounts to the revenue account did not constitute incomings as per the relevant rules. The court emphasized that incomings must stem from a definite source and that a mere windfall would not fall within that expression. Therefore, the court ruled in favor of the assessee-company, holding that the sum of Rs. 33,905 was not taxable as gross external incomings for the assessment year 1959-60. The parties were directed to bear their own costs, and the question was answered in the affirmative against the revenue.