TMI Blog1996 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ve is by the assessee challenging the High Court's decision only in respect of the seventh question decided against the assessee. That question is as under (at page 52) : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 29,39,959 being the refund of income-tax received by the Corporation during the inter-valuation period in respect of the income-tax up to the assessment year 1956-57 of the life insurance business of the erstwhile insurers whose business had been taken over by the Corporation, should be allowed as a deduction while computing the income of the assessee under rule 2(1)(b) of the First Schedule to the Income-tax Act, 1961?" In this appeal, no further reference to, the other six questions is necessary. The assessee, the Life Insurance Corporation of India (Corporation), is a statutory corporation established under the Life Insurance Corporation Act, 1956 ("the LIC Act" for short), with effect from September 1, 1956. The relevant assessment year is 1963-64 for which the accounting period ended on March 31, 1963. During the relevant assessment year, the assessee received refunds of income-tax of Rs. 3,02,90,898 in the life insurance busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r all practical purposes including the legal consequences flowing from the refund received by the Corporation as the successor of its predecessor in business. The Tribunal accepted the contention of the Revenue and held as under : " But only such portion of the refunds which has been included in the surplus or deficit made in the earlier inter-valuation period alone has to be excluded. On the analysis of the refunds and the assets to which they related, the Appellate Assistant Commissioner found that this sum of Rs. 2,73,50,939 only had entered into the surplus of the earlier intervaluation period out of Rs. 3,02,90,898. Therefore, only that portion is allowable under rule 2(1)(b) and has been rightly allowed by the Appellate Assistant Commissioner. Disallowance of the balance of the tax refund was quite in order because they did not come out of the assets which were included in the surplus of the earlier inter-valuation period." The abovequoted question was referred to the High Court for its decision at the instance of the assessee-Corporation, under section 256(1) of the Income-tax Act. The High Court upheld the view taken by the Tribunal. That decision of the High Court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inter-valuation period. It is, no doubt, true that the legal effect of section 7 of the Life Insurance Act is that the assets of the insurer who carried on the life insurance business are vested in the Life Insurance Corporation, but the legal effect of that vesting cannot be imported into the provisions of rule 2(1)(b) where a pre-condition has to be satisfied before a deduction in respect of the surplus is made, the pre-condition being that that surplus has to be shown as a surplus of the previous intervaluation period. There is no scope for reading into rule 2(1)(b) any additional powers for the income-tax authorities to so amend the figure of, surplus that is different from the actual surplus which is shown on the basis of the actuarial valuation. . . . . ." In substance, the High Court declined to give effect to section 7 of the LIC Act on its view that the provision in rule 2(1)(b) alone was decisive and it could not be given effect to, if the legal effect of section 7 of the LIC Act is to be taken into account. Apparently, the High Court took the view that rule 2(1)(b) cannot be reconciled with section 7 of the LIC Act. The question is whether this view is correct. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation from the appointed day, and so also all the liabilities. In other words, from the appointed day, the Corporation stepped into the shoes of all such insurers. Section 9 provides for the general effect of vesting of controlled business and sub-section (2) therein expressly enacts that the Corporation stepped into the shoes of the predecessor-insurer from the appointed day in respect of any suit, appeal or other legal proceeding of whatever nature pending by or against an insurer. This legal fiction enacted in section 7(2) includes within the assets transferred and vested in the Corporation of all such insurers any amounts which were due to the predecessor-insurer and which remained to be recovered. Section 9(2) enabled the Corporation to prosecute any legal proceeding of whatever nature for the purpose of recovering amounts due to the predecessor on the appointed day. There is no dispute that any liability of the insurer also stood transferred similarly to the Corporation. Accordingly, if any amount remained due towards taxes to be recovered from the predecessor, it was a liability transferred to the Corporation and the Corporation became liable to discharge the same. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l effect of section 7 of the LIC Act. The legal fiction enacted in section 7(2) of the LIC Act must be taken to its logical conclusion. For this reason, the amount of refund made to the Corporation because of the excess tax paid by the predecessor prior to the appointed day on which the Corporation was formed, must form a part of the assets of the predecessor which came to be transferred and vested in the Corporation on the appointed day in 1956 on the formation of the Corporation. For the same reason, this amount of refund, even though made later, must also be deemed to be included in the inherited opening balance shown by the Corporation in the earlier inter-valuation period which undisputedly had to be deducted under rule 2(1)(b). It follows that because of this legal fiction being required to be taken to its logical conclusion, the amount so refunded to the Corporation must be deemed to be included in the earlier inter-valuation period of the Corporation. On this conclusion, the requirement of rule 2(1)(b) is satisfied since the amount is deemed to be included in the earlier inter-valuation period of the Corporation itself. The expression "included therein" which is the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
