TMI Blog1960 (12) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and gains of life insurance business shall be taken to be either (a) the gross external incomings of the preceding year from that business less the management expenses of that year, or (b) the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 (IV of 1938), in respect of the last intervaluation period ending before the year for which the assessmerit is to be made, so as to exclude from it any surplus or deficit included therein which was made in any earlier intervaluation period and 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, whichever is the greater. 4. Under the aforesaid rule 2, the greater of the two alternative profit computations under rule 2(a) or 2(b) shall fix the assessment and tax payable. 5. The second actuarial valuation of the assessee company as made for the composite period of 4 years, 9 months and 16 days from March 14, 1941, to December 31, 1945, and thereafter annually for each of the calendar years 1946 and 1947. These disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly assessed for both the aforesaid years. 10. The Income-tax Officer, on his coming into possession of the information that the losses had been excessively computed in the original assessments of both the aforesaid years, wrote on 17th November, 1951, to the official liquidator as the principal officer of the assessee company requesting him to show cause why the aforesaid mistakes in the computations should not be corrected under section 35. The official liquidator objected to the rectification in his letter dated 13th December, 1951. Copies of both these letters are annexed hereunto as annexures A-1 and A-2 and form part of the case. 11. The Income-tax Officer, in the above circumstances, issued notices under section 34 on December 29, 1951, to the official liquidator for both the aforesaid years 1947-48 and 1948-49. The assessee filed its returns on February 5, 1952, stating therein as follows : Assessment year: 1947-48 : ₹ 66,129-12-7 under section 2(a) already returned and loss determined at ₹ 18,096. Assessment year: 1948-49: loss ₹ 65,738 as worked out under section 2(a) and as such accepted by the Income-tax Officer. 12. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the loss of that year to be carried forward. The Tribunal accordingly held that the carry forward available to the assessee from assessment year 1946-47 for set-off against the aforesaid assessments of 1947-48 and 1948-49 was only ₹ 18,096 which had also been accepted by the assessee in the assessment of that year, which was not appealed against, and thus rejected the contention. This decision of the Tribunal is clearly based upon a finding of fact from which no question of law can be spelled out. 16. From out of the aforesaid facts, the question of law that arises is : Whether the reopening of the assessments of 1947-48 and 1948-49 under section 34 is legal ? 17. The departmental representative agrees to the statement. The counsel for the assessee agrees that all facts bearing on the above question have been correctly set out in paragraphs 2 to 14 supra and that no material fact has been omitted therefrom. SUPPLEMENTARY STATEMENT OF CASE In compliance with the directions of the High Court in C. M. P. Nos. 10735 and 10736 of 1956 dated March 29, 1957, we state a case and refer it to the High Court under section 66(2). The question of law on which the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits for the year ended June 30, 1936 ... 196 Preliminary expenses written off from the profits for the year ended June 30, 1938 ... 282 Preliminary expenses written off from the profits for the year ended June 30, 1939 ... 93 Organisation expenses written off for the year ended June 30, 1938 ... 350 Actuary's test valuation fees for changing the scheming of insurance written off out of the profit for the year ended June 30, 1939 ... 150 Income-tax paid in the year ended June 30, 1938 (on assessment) ... 11 Profession tax paid in the year ended June 30, 1940 ... 2 Tax deducted at source on interest on securities Year ended June 30, 1939 ... 45 Year ended June 30, 1940 ... 93 Period up to December 30, 1940 ... 77 ----------- Total profit for the period of 5 years, 10 months and 19 days 7,289 ----------- The average for one year : ₹ 1,238. 7. The assessments of 1942-43 onwards, as the valuation of the first quinquennium was available by that time, were required to be mad on the greater of the two alternative profit computations, under rule 2(a) or 2(b). These were accordingly completed as follows : ----------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(b) were losses. He determined the loss to be carried forward at ₹ 18,096 being the loss computed under rule 2(b) as above, which was more favourable to the Department. 10. In the section 34 assessments completed on the assessee for the calendar years 1946 and 1947, the previous years for assessment years 1947-48 and 1948-49, the assessee inter alia contended that the actuarial deficiency for the second valuation period to 31st December, 1945, adjusted for income-tax purposes of ₹ 86,708 as set out in paragraph 8 supra must be permitted to be carried forward and set off. The Income-tax Officer refused the set-off for the following reasons reproduced from his order for assessment year 1947-48 : The only other submission made by the official liquidator was that the loss to be carried forward for 1947-48 assessment was ₹ 86,708. This is not correct. According to the assessment order for 1946-47 the proportionate deficiency for the year determined was ₹ 18,096 and this was the loss that was carried over to 1947-48 assessment year. Since then separate actuarial valuations for each of the years ended December 31, 1946, and December 31, 1947, were made and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 18,096 was therefore taken for assessment for the year 1946-47. It is the appellant's contention that the figure of ₹ 18,096 was not the correct figure, but that the correct figure ought to have been ₹ 86,708 which was the loss suffered by the company according to the actuarial valuation of the five years ending 31st December, 1945. Under section 24(2) loss of a year not set off under section 24(1) is to be carried forward to the next year for set-off against income, profits and gains from the same business. Again under section 24(3) when in the course of the assessment of the total income of any assessee, it is established that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section, the Incometax Officer shall notify to the assessee by order in writing the amount of the loss as computed by him for the purposes of this section. This order notifying the amount of loss computed for, the year 1946-47 was duly given to the appellant and no appeal was filed against the computation of loss so made by the Income-tax Officer for the year 1946-47. The amount of ₹ 18,096 therefore became final and it is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calendar year 1945, the previous year for assessment year 1946-47, was only ₹ 18,096 being the proportionate annual average loss on the basis of the loss of ₹ 86,708 for the full actuarial period up to December 31, 1945, as aforesaid which being more favourable to revenue than the rule 2(a) computation had to determine the loss of that year to be carried forward. The Tribunal accordingly held that the carry forward available to the assessee from assessment year 194647 for set-off against the aforesaid assessments of 1947-48 and 1948-49 was only ₹ 18,096 which had also been accepted by the assessee in Cases Referred No. 100 of 1956 and No. 89 of 1957, decided on December 14, 1960. JUDGMENT RAJAGOPALAN, J. These two references, one under section 66(1) and the other under section 66(2) of the Income-tax Act, arose out of proceedings of the assessment years 1947-48 and 1948-49 to assess the income of the assessee company from its life insurance business which it carried on in the corresponding years of account 1946 and 1947. As directed by section 10(7) of the Act, the profits of the assessee company had to be assessed each year either under rule 2(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue than the computation of the loss for that year under rule 2(a). When the income for the year 1946 had to be assessed in the assessment year 1947-48, the valuation report for 1946, the third valuation report, was available. The actuarial deficiency disclosed by the second report for the period that ended on December 31, 1945, was ₹ 90,851, and the deficiency at the end of 1946 as disclosed by the third report was ₹ 77,165. Therefore there was an actuarial surplus of ₹ 13,686 for 1946. When the assessment was first completed in 1949 the Income-tax Officer committed a mistake. Instead of deducting ₹ 77,165 from ₹ 90,851, which would have resulted in an actuarial surplus of ₹ 13,686 for 1946 he added both the sums and arrived at a deficiency of ₹ 1,68,016. The computation of the loss in that manner was more favourable to revenue than a computation under rule 2(a). A similar mistake was committed when the income for 1947 was first assessed in 1949 for the assessment year 1948-49. The actuarial deficiency at the end of 1947, for which there was a separate actuarial valuation, was ₹ 32,124. Instead of deducting this from ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it was amended in 1939, requiring a correlation of the discovery of escape from assessment to definite information which had come into the possession of the Income-tax Officer. What section 34(1)(b) as amended in 1948 required was that the Income-tax Officer should, in consequence of information in his possession, have reason the believe that the income had escaped assessment. Section 35 permits rectification where the mistake is apparent on the face of the record of assessment. The learned counsel for the Department could not challenge the correctness of the plea of the assessee, that the original assessments completed in 1949 for both the assessment years under consideration now could have been rectified under section 35. The mistakes were apparent on the face of the assessment orders themselves. What should have been subtracted was added to ascertain the deficiency disclosed by the actuarial reports. It should be remembered that the Income-tax Officer first contemplated recourse to section 35 but dropped it as the assessee did not agree. The further contention of the learned counsel for the assessee was that where rectification was permissible under section 35, recourse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments under the wider formula if for any reason . That decision is not direct authority on the scope of sections 34 and 35 as they now stand. The real contention of the learned counsel for the assessee that we have to consider is that neither the test of definite information that had come into the possession of Income-tax Officer nor the requirement of information is his possession that is prescribed by the 1948 amendment of section 34, can be satisfied, unless the information is extraneous to the record of the original assessment which the Incometax Officer seeks to reopen under section 34. Another form in which the same contention was put forward was that a mistake apparent on the face of the order of assessment itself, as in this case, could not constitute information within the meaning of section 34, and that what is already on record, especially if it is a mistake readily discoverable by a mere scrutiny, cannot be information which has come into the possession of the Income-tax Officer, or information in his possession within the meaning of section 34. The learned counsel for the assessee sought support for this contention in the observations of their Lordships of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as information which led to the belief that there has been escape from assessment or under-assessment. Suppose a mistake in the original order of assessment is not discovered by the Income-tax Officer himself on further scrutiny but it was brought to his notice by another assessee or even by a subordinate or a superior officer, that would appear to be information disclosed to the Income-tax Officer. If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. It is difficult to accept the position that while what is seen by another in the record is information what is seen by the Income-tax Officer himself is not information to him. In the latter case he just informs himself. It will be information in his possession within the meaning of section 34. In such cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment or under-assessment. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the discretion of the Department, the department being given the right to choose the method of computation more favourable to revenue. We have already pointed out that the assessment for each of the years of account 1941 to 1944 was based on the first actuarial report for the inter-valuation period that ended on March 14, 1941. The factual position was as follows. In 1940 there was an assessed loss of ₹ 2,870, assessed under rule 2(a), which the assessee was allowed to carry forward. The profits of 1941 were assessed again under rule 2(a) (Rs. 1,726) which was more favourable that the assessment under rule 2(b). That left an unabsorbed loss of ₹ 844, which was set off towards the assessed profits of 1942. The profits of each of the years 1942, 1943 and 1944 were assessed under rule 2(b), and it had necessarily to be the same, ₹ 1,238, in each of those years, because that was the annual average of the actuarial surplus of the preceding intervaluation period that had ended on March 14, 1941, adjusted under rule 2(b). There was no assessed loss to be carried forward in 1943, 1944 or 1945. When the income of 1945 had to be assessed, the second actuarial report fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of 1946. No doubt section 24 allowed the loss of more than one year to be carried forward; but in this case factually there were assessable profits in 1943 and 1944, which meant there was not loss to be carried forward to 1945, to be set off against the assessable income of that year. There was not loss that could be assessed as a loss under the special rules of compution applicable to the life insurance business in 1943 or 1944. There was nothing to be carried forward as a loss when computing the assessable income of 1945. The loss for 1945 was correctly computed under rule 2(b), and that loss of ₹ 18,960, alone was available to be carried forward in assessing the income of 1946. No doubt section 24 allowed the loss of more than one year to be carried forward ; but in this case factually there were assessable profits in 1943 and 1944, which meant there was no loss to be carried forward to 1945, to be set off against the assessable income of that year. The learned counsel for the Department pointed out that the assessment of profits and losses for each of the years that preceded 1946 had become final, and he relied on section 24(3) to bar the acceptance of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
