TMI Blog1962 (11) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricumdas, F. S. Nariman, R. N. Modi, S. N. Andley, Rameshwar Nath and P.L. Vohra For the Respondent: M.C. Setalvad, S.T. Desai, S. J. Banaji and K. L. Hati JUDGMENT The judgment of the court was delivered by 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". The respondent Corporation was created by this Act on September 1, 1956 and under section 7 of the Act the terms of which we will have to set out later, all right 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 section 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 fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 1938. Under section (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 purpose 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 section 10(2) and created the life insurance fund and it is not in dispute that various shares and securities appertained to the life insurance fund of the appellant's business. Various other securities, and perhaps also shares, appertained to the general business of the appellant. We now come to the details of the dispute that arose between the parties. The previous years of the appellant for the assessment years 1955-56 and 1956-57 were respectively the calendar years 1954 and 1955. In each of these years various sums became due to the appellant as interest on securities and as dividends on shares held by it. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surers. (2) The assets appertaining to the controlled business of an insurer shall be deemed to include all right and powers, and all property, whether movable or immoveable, appertaining to his controlled business, including, in particular, cash balances, reserve funds, investments, deposits and all other interests and rights in or arising out of such property as may be in the possession of the insurer and all books of account or documents relating to the controlled business of the insurer; and liabilities shall be deemed to include all debts, liabilities and obligations of whatever kind then existing and appertaining to the controlled business of the insurer..." The question is whether the right to refund was a right existing an September 1, 1956 and whether it appertained to the life insurance business of the appellant within the meaning of section 7. When section 7 mentions a right "appertaining to his controlled business" it obviously contemplates a right existing in relation to that business, for the business not being a legal person, could not own any right. The right had to be owned by the insurer to whom the business belonged but it had to be a right which he owned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t question has to be decided by reference to the Insurance Act because it is that Act which treated the different kinds of insurance businesses separately. Some of the sections of that Act have now to be referred. It is not in dispute that the appellant is an insurer within the meaning of the Act. Sub-section (1) section 10 of the Act requires an insurer like the appellant to keep a separate account of all receipts and payments in respect of each separate class of insurance business carried on by him. We have earlier referred to the provisions of subsection (2) and sub-section (3) of this section. Section 11 provides that an insurer like the appellant shall keep (a) a balance-sheet in accordance with the First Schedule to the Act and (b) a revenue account in accordance with the Third Schedule in respect of each class of insurance business carried on by him. Now regulation (2) in the First Schedule provides that the balance-sheet of the life insurance business shall be prepared as a separate document. A specimen form of a balance sheet is set out in this Schedule. That form shows that shares and securities held by an insurer in connection with its life insurance business have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that, as earlier mentioned, in each of the years 1954 and 1955 a sum of Rs. 48,271.56 had been credited in the appropriate assessment order as tax previously paid. Learned counsel however said that though the income appertained to the life insurance business, the right to the refund did not appertain to any business. According to him, it is a right created by section 48 of the Income-tax Act and under that section it is a right belonging to the assessee who is this case is the appellant. It seems to us that this approach is misconceived and cannot decide the question as to whether the right to the refund appertained to any particular business within the meaning of section 7 of the Act of 1956. We have earlier stated that life insurance business not being a legal person cannot be the owner of any right. All rights appertaining to the business including a right to refund of taxes paid before assessment must necessary belong to the owner of the business. Such rights may however be treated by the owner if he so chooses, as appertaining severally to the different business carried on by him. Or again, a statute may require these rights to be treated as appertaining severally to differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt it was, on final assessment later, found to be in excess of the tax due, it would cease to be payment of tax and become refundable. Therefore, in a case where the deduction was returnable, the amount returnable had never really ceased to be part of the assets. We may here observe that the question whether the amounts added to the dividends under section 16(2) of the Income-tax Act are deductions from income is one on which different opinions are possible. We do not feel called upon to answer that question on this occasion. If these amounts are not deductions from income, the contention now under discussion would not arise in connection with them. If they are then what we have said in dealing with that contention would apply to any deductions from dividends also. Then it was said that if any right to the refund is held to appertain to the life insurance business in this case, then that business would really be given the advantage of the loss made by the general insurance business for it was because of that loss that the right to the refund came into existence. It seems to us that this consideration is irrelevant for deciding whether a right appertains to the life insurance busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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