TMI Blog1944 (9) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... om the Indian business was invested in any form in India, and that all sums as received were sent to the head office, and remittances were received for meeting claims etc. as and when the claims fell to be met, except to the extent of certain deposits kept in the Indian banks in current account which brought in no interest. In its revenue account, which was filed before the Income tax Officer, the assessee company, showed on the credit side items under the headings : (1) Reserves brought forward : Outstanding claims.... (2) Unexpired risks... (3) Premiums, less re insurance. On the other side the headings were : Claims paid, less re insurances Commission, less re insurance Branch expenses Head Officer expenses Reserves carried forward.... Outstanding claims Unexpired risks. It is common ground that the first item on the credit side represent claims which were put forth by the assured but which were not met and were pending investigation. The second item represents 40 per cent. of the premium income of the company in India in the previous year. The third item represents the whole premium received during the accounting year. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire insurance fund, at the beginning of each year, candidates to the forty per cent. of the premium income of the preceding year. This item includes the last item on the debit side of the revenue account for India for 1939. It further shows that this sum was invested, and interest, dividends and rents on this fund are credited to this account. The general accident insurance account and marine insurance account are similarly kept. The items of Reserve for unexpired risks of the three accounts are totalled and also taken to the balance sheet, and shown on the credit side. In the same way the items of Claims admitted or intimated but not paid are totalled and included in the balance sheet. The balance sheet, on the other side, shows investments of all the funds. From these facts the irresistible conclusion must follow that these funds, which were kept in the accounts as fire insurance fund etc., were invested by the head officer and shown as such in their balance sheet. When the matter came before the Income tax Officer, on these documents it was contended on behalf of the assessee company that as no investment was made in British India, there was no income from investments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appealed to the Tribunal. In the memorandum of appeal it had taken several grounds. Grounds 1 to 7 were, however, withdrawn at the time of hearing before the Tribunal. Ground 8 was that the appellants were a non resident company for the purposes of the Income tax Act. Ground 9 was that the appellants were not liable to be assessed on the computed interest of ₹ 7,615 nor any other interest earned abroad under the Income tax Act. The Tribunal, after considering whether the amounts shown in the balance sheet and in the insurance accounts were invested, investigated whether there was sufficient fund to meet the outstanding claims in the shape of liquid assets, and ascertained that liquid assets were not sufficient to meet such claims. It then recorded its finding of facts as follows : It is quite plain from the figures abstracted above that the sums represented by 40 per cent. of the premium receipts, which were described as reserves for unexpired risks, form part in their entirety of the investments of the company which earn interest and that practically the whole of the amount shown against outstanding claims was also invested in interest bearing sources. These investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessmen ? The first question largely depends on findings of fact. It can be divided in two parts : (i) Whether the whole or any portion of the interest was earned on the amount mentioned in the question; and (ii) if so, whether the assessee company is liable to be taxed on the whole or any portion of that interest under Section 42 (1) and (3) of the Ac ? I have summarized above the facts in relation to the investment of the funds and to premium income earned by the assessee company in British India. The Tribunal has found as a fact that the funds were invested and the income accrued thereon. In the course of its judgment the Tribunal had observed that, as this was an inference, it had submitted the matter for the Courts opinion. The correct question on this point would be : Whether there was evidence before the Tribunal on which it could come to that conclusio ? Having regard to the facts summarized above and the entries found in the balance sheet of the company, read along with the fire, marine and general accident account of the head office, (which entries admittedly include the entries of the revenue account of the assessee company), these can be no doubt that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which income tax was claimed by the Income tax Officer in Bombay. The question submitted by the Tribunal is limited to the figure mentioned in the reference. In arriving at the total it has not taken into consideration the balance of the profit shown at the foot of the revenue account. The Income tax Officer has also taken into consideration the fact that out of the premium income received in the India certain amount remained in India and was not remitted to the assessee companys home office. It is, therefore, futile to contend that interest on the whole premium income, in the accounting year, is assessed. In analysing the balance sheet and the different accounts of the head office, I have already shown that the two funds, so which the total is made by the Income tax Officer, were specifically shown in the balance sheet against the investments made in England. As questions (ii) and (iii) submitted by the Tribunal for out opinion deal with the rate of interest and calculation of interest income, before dealing with Section 42 (3), it will be convenient to deal with those questions. The next question is about the rate at which income has to be calculated on this investment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and to the Commissioner. Under sub section (3) the appeal has to be filed in the prescribed form and verified in the prescribed manner. Under sub section (3) the appeal has to be filed in the prescribed form and verified in the prescribed manner. Under sub section (4) the Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate the orders to the assessee and to the Commissioner. In pursuance of the powers given to the Tribunal to frame rules, it has framed and published rules. In addition to prescribing the form and specifying that separate grounds for appeal should be distinctly set out, rule 21 provides as follows : The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground of objection not set forth in the grounds of appeal; but the Tribunal, in deciding the appeal, shall not be confined to the grounds of objection set forth in the grounds of appeal or taken by leave of the Tribunal under this rule : Provided that the Tribunal shall rest its decision on any other ground unless the party who may be affected thereby h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant; it recognizes the principle that the judgment of the lower Court may be supported on any ground, even though it is not raised in the memorandum of appeal. That, however, does not allow the Tribunal to suggest another mode of assessment altogether. In this case the facts are somewhat peculiar. The interest income of the assessee company earned in the United Kingdom is sought to be taxed, under certain rules adopted by the Income tax Officer as found in the Act. The Appellate Tribunal has sought to rely on rule 8. That rule runs as follows : The profits and gains of the British Indian branches of an insurance company not resident in British India, in the absence of more reliable data, may be deemed to be proportion of the total world income of the company corresponding to the proportion which its British Indian premium income bears to its total premium income. In the first place, this rule of assessment is to be adopted in the absence of more reliable data. Therefore, if the Appellate Tribunal thought of adopting this rule, the first question for consideration was whether more reliable date were available or not. This question cannot be raised, debat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company it is urged that it builds up funds, as an insurance company, although the Insurance Act does not require it to do so. The premium collected and received in India is remitted to the United Kingdom, invested there, and interest is earned thereon. This is a business transaction of the assessee company and is as much a part of its business as the earning of premium on insurance policies. It is, therefore, contended that as portions of these operations took place in the United Kingdom, there must be an apportionment of the interest income, and what could be reasonably attributed to that part of the operation carried out in the United Kingdom, should be exempted from tax. On behalf of the Commissioner it is urged that this is not a proper reading of Section 42 (3) at all. The business operations of the assessee company are advertising his business, canvassing business and receipt of premia. It is contended that you cannot separate each of these items as an independent operation all allocate the interest income to a particular portion. In our opinion, this argument of the Commissioner is unsound. The investment of premia is as much a part of the business of the insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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