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TMI Blog1968 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion No. 2 as corrected. The circumstances under which the questions arise are as follows : The assessee is the Habib Insurance Co. Ltd., Bombay, and the year of assessment is 1950-51 corresponding to the account year being the calendar year 1949. The company was incorporated some time in December, 1942, and it commenced business from January 2, 1943. In an extensive " objects " clause contained in its memorandum of association the company was empowered to carry on several different businesses. After the commencement of its business in January, 1943, it began to do the business of " life insurance " and general insurance including fire, marine and miscellaneous insurance. Soon after it commenced business the company purchased eight properties in all, inclusive of the three under consideration and in respect of which the questions arise. These properties were three buildings in Bombay named Habib Mansion, Habib Villa and Khatiza Villa. By a resolution passed on December 8, 1949, these properties came to be transferred and the transfers were as follows : Habib Mansion was sold outright by the company and the two other properties, Habib Villa and Khatiza Villa, were transferred me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business ". In that year on its assets side it had shown " Landed property in India " of Rs. 10,47, 100 under " other classes of business ". This represents the total value of the eight properties which the assessee-company owned in Bombay of which three are the properties with which we are concerned in the present reference. It has also shown on the assets side " interest and rent outstanding " of Rs. 13,458-8-9 and on the liabilities side " rent received in advance " of Rs. 15-4-0 and " deposits from tenants " of Rs. 7,091-9-0. All these items it has shown under " other classes of business ". In the same year the company has disclosed that it had a reserve fund of Rs. 2,50,000 and other funds amounting to Rs. 93,255-5-0 under " life and annuity business ". In the profit and loss account for the year ended December 31, 1943, it showed an income from interests, rents, etc., of Rs. 95,028-11-4 and so far as its insurance business is concerned it showed the profits from its general insurance under the three heads " fire revenue account ", " marine revenue account " and " accident and miscellaneous account ". We are not here concerned with the figures pertaining to these items of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that, if there was a separate business, there would have been some material which the assessee could have produced to show that a separate " investment business " or " non-insurance business " was started at the very inception, but the assessee has not been able to produce any such resolution or other papers indicating the commencement of an " investment business " or " non-insurance business ". Secondly, they have found that no part of the income from such property was ever brought to tax under section 9 of the Indian Income-tax Act under which it ought to have been submitted for taxation between the years 1943 and 1949, because if these properties were the assets of a separate investment business, then the income arising out of these properties would be subject to tax under section 9. On the other hand, they were always treated as part of the assessee's business of insurance. Thirdly, the manner in which the assessee-company has throughout dealt with these properties is reflected in its accounts and according to the authorities on a plain reading of these accounts it is clear that these properties were throughout treated as the properties of the insurance business and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty assets were at all times acquired in the course of the assessee's insurance business and not as part of any non-insurance business. All these findings of the Tribunal have been disputed before us by Mr. Kolah on behalf of the assessee. Mr. Kolah has first of all referred to the memorandum of association of the company which he says empowered the company to start a business in the nature of an investment business in immovable property and that accordingly the company had invested out of its capital of Rs. 25 lakhs which was found surplus for the purposes of their insurance business an amount of over Rs. 10 lakhs for the purchase of eight properties of which these three form a part. The intention of the company clearly was to commence a business separate from its business of insurance, viz., of investing in immovable properties. He referred to the accounts, the balance-sheet for the year ended December 31, 1943, and pointed out that the purchase of these properties was reflected in the entry on the assets side " landed property in India " of Rs. 10,47, 100 under the head " other classes of business ". He says that the dichotomy adopted in the accounts themselves establishes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that capital to a new or separate business, there would certainly be placed on record the fact of the commencement of that business. Obviously, such a business could not be commenced without at least a resolution of the board of directors of the company. It is therefore undoubtedly an important circumstance to be taken into account that no such resolution has been produced to indicate (a) that a certain part of the capital of the company was at any time set apart for the commencement of a new business nor (b) to show that the properties purchased were earmarked as an asset of the new business. Even resolutions as to how the property after it was purchased, was to be treated, have not been produced nor even the sale deeds of these properties which would have shown who was the purchasing party. We are also in agreement with the remarks of the Tribunal that if these properties were initially acquired as the assets of a separate business, namely, the non-insurance business or the investment business as Mr. Kolah put it, the assessee was bound to have shown the income from these properties in its income-tax returns, as " income from property ", but the Tribunal has observed--and we th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance business ". It is these categories which are throughout the Act referred to as the " class " of insurance business. For instance, sub-section (1) of section 2C says : " Save as hereinafter provided, no person shall, after the commencement of the Insurance (Amendment) Act, 1950, begin to carry on any class of insurance business in India and no insurer carrying on any class of insurance business in India shall... carry on any such business unless ........... " Section 3(1) makes it obligatory on every person carrying on any " class of insurance business " in India to apply for registration and obtain a registration certificate. The provision in sub-section (1) is : " No person shall, after the commencement of this Act, begin to carry on any class of insurance business in India and no insurer carrying on any class of insurance business in India shall, ......... " In prescribing the particulars necessary for an application for registration under sub-section (2) of section 3 one of the requirements is " a statement of the class or classes of insurance business done or to be done ". No doubt section 2C was incorporated into the Act by the Amendment Act of 1950 with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lass of insurance business. " Here again the distinction between the different categories of insurance business is indicated by the use of the words " that class or sub-class of insurance business ". It is clear, therefore, in the first place that in the language of the Insurance Act whenever " a class or subclass " is referred to, it is " class or sub-class " of insurance business arid nothing else. The second and the more important point that emerges from the provisions of section 11 is that it makes it obligatory upon every insurer specified in section 2(9)(a)(ii) or section 2(9)(b) to prepare a balance sheet and a revenue account in the prescribed forms " in respect of all insurance business trailsacted by him, and in case of any other insurer in respect of the insurance business transacted by him. " In other words, what every insurer is obliged to do is to maintain an account of his insurance business and nothing else in the forms prescribed. The form arid the regulations for the preparation of these accounts to be found in the First Schedule also refer to the different categories of insurance business as " every class of business carried on by an insurer " (vide Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they must accordingly be read in the light of these provisions of the law. The form used is clearly the form prescribed by the two Schedules to the Insurance Act and must be understood in the light of the provisions of that Act. Therefore, when the form distinguishes between " life and annuity business " and " other classes of business ", under the expression " other classes of business " we can only understand other classes of insurance business, for the provisions of section 11 which are plenary prescribe the preparation of accounts only of insurance business. We cannot, therefore, accept the interpretation placed on their own accounts by counsel for the assessees. On the other hand, those accounts were clearly prepared in terms of the provisions of the Act and the forms prescribed, and understood in the light of those provisions the balance-sheet of the assessee has shown that the entire assets comprised of the landed property in India of Rs. 10,47,100 were shown as the assets of other classes of insurance business of the assessee and not of any supposed separate business of investment in property as was urged. The same conclusion also follows from a consideration of Form AA wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The circumstances of the present case are entirely different. In the light of what we have said, the resolution of the board of directors passed on the 8th December, 1949, when the transfer of these properties was sanctioned, can have no effect. All that the resolution says is : " Resolved that two buildings of the company named " Habib Villa " and " Khatiza Villa " at Bombay be and are hereby sold and transferred to the life departmentof the company at a price as per last valuation report, i.e., Habib Villa at Rs. 1,56,678 and Khatiza Villa at Rs. 1,82,678." The resolution says that one property may be sold and that the two other properties, Habib Villa and Khatiza Villa, be and are transferred to the life department of the company, but it is silent upon the question as to whose assets they were and that is the crucial question before us. Upon the interpretation put in the light of the provisions of the Insurance Act the accounts show that they were the assets of the insurance business of the company other than " life and annuity business and the resolution, therefore, can only mean that these assets were transferred from the assets of the "other classes of insurance business ..... 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