TMI Blog1970 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... on life insurance business up to January 18, 1956. On January 19, 1956, the President of India promulgated the Life Insurance (Emergency Provisions) Ordinance, 1956 (1 of 1956), which was replaced on March 21, 1956, by the Life Insurance (Emergency Provisions) Act, 1956 (IX of 1956). The Ordinance and the Act were passed to provide for the taking over, in the public interest, of the management of the life insurance business pending nationalisation thereof. The assessee-company's business consisted wholly of the business of life insurance and, therefore, the whole of its business was "controlled business" as defined in the said Act. By section 3 of the said Act, the management of the assessee-company, amongst others, vested in the Central Government and this section provided that pending the appointment of a custodian for the controlled business of any insurer, the persons in charge of the management of such business immediately before the appointed day were to be in charge of the management of business for and on behalf of the Central Government and the business was to be carried on by them subject, inter alia, to such directions as may be given by the Central Government. Sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, and where such compensation or any part thereof cannot be so paid out the Central Government shall make due provision for the payment of such compensation or part thereof as the case may be. (2) The compensation payable under section 7 shall be distributed among the persons entitled thereto by the Central Government in such manner as may be prescribed by rules made in this behalf: Provided that in the case of an insurer who is a company the Central Government shall have due regard to the wishes of the members expressed by them at any general meeting convened for the purpose." The result of the said Ordinance and the said Act, shortly stated, was that the insurer was divested of its own management which vested in the Central Government to be exercised through a custodian to be appointed by it and for such divesting the insurer was to be paid compensation as provided in sections 7 and 8 of the said Act. The compensation provided was payable for every month during which the management of the insurer remained vested in the Central Government and was equivalent to one-twelveth of the annual average of the share of the surplus allocated to the shareholders as disclosed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and the said Act no insurer could have a management of its choice and its business was to be managed by the Central Government through a custodian appointed by it and, until such appointment, the persons in charge of the management of the business of an insurer were to be in charge for and on behalf of the Central Government. The existing management of an insurer, therefore, ceased to be a management of its choice at and from the appointed day and compensation was paid for the divesting of the existing management of the insurer and vesting the management of the insurer in the Central Government. The insurer, therefore, was precluded as from the appointed day to carry on its business through a management of its choice. One of the two questions which were decided by the Supreme Court in the second Sholapur case : Dwarakadas Shrinivas v. Sholapur Spinning Weaving Co. Ltd., was whether the provisions of the Ordinance in that case for taking over the management and administration of the company contravened the provisions of article 31(2) of the Constitution. Section 3 of the Ordinance which was being considered by the Supreme Court gave power to the Central Government to appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a capital receipt rather than a revenue receipt or income. The argument on behalf of the revenue is that the assessee-company still carried on its business despite the divesting of its management and, therefore, it is not a case of sterilisation of a capital asset. Reliance is placed upon the decision of the Supreme Court in Commissioner of Income-tax v. Shamsher Printing Press where compensation paid for requisitioning the premises in which the press of the assessee was housed and which had been paid on account of the compulsory vacation of the premises, disturbance and loss of business was held to be a revenue receipt. This case has application to the facts of the present case as the assessee was not invested of its business or of the right to manage is business but, as held by the Supreme Court, was paid compensation for loss of profits as a result of the requisitioning of the premises. Another case relied upon by the revenue is the opinion of the Privy Council in Commissioner of Income-tax v. Shaw Wallace and Co. Ltd. In this case the assessee was paid compensation for cessation of two of its agencies and the question was whether such compensation was in the nature of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first consideration before holding a receipt to be profits or gains of business within section 10 of the Income-tax Act was to see if there was a business at all of which it could be said to be income. The primary condition of the application of section 10 was that tax was payable by an assessee under the head "Profits and gains of a business" in respect of a business carried on by him. Where an assessee did not carry on business at all, the section could not be made applicable, and any compensation for requisition of assets that he received could not bear the character of profits of a business; (ii) that "business" denoted an activity with the object of earning profit. To say that a business was being carried on meant no more than that profit was being earned by a process of production; (iii) that the measure and method of its payment was not decisive of the character of a payment of compensation; and (iv) that the compensation paid to the assessee cannot partake of the character of profit if business has not been done by the assessee. Applying these principles, we are of the opinion that the assessee-company having been divested of its management did not and could not car ..... X X X X Extracts X X X X X X X X Extracts X X X X
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