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TMI Blog1973 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from September 1, 1956, and all the assets and liabilities pertaining to the controlled business of all the insurers thereafter stood statutorily transferred and vested in the Corporation. The assets and liabilities relating to the life department of the assessee-company having thus vested in the Life Insurance Corporation, the assessee-company continued to carry on only the general insurance business since September 1, 1956. The assessee-company in due course prepared its profit and loss account and the balance-sheet for the year ending December 31, 1955, which purported to allocate the common expenses incurred in respect of the business between the life insurance section and other parts of the business and it appears that the assessee decided to allot 5/6ths share of total expenses of the management to the life department and 1/6th share to the other section. This allocation was done subsequent to the Insurance Emergency Powers Act (Act No. 91 of 1956), which came into force on March 21, 1956, but without the consent of the Custodian. in the auditors' report dated June 29, .1956, presented to the shareholders of the assessee-company it was stated that since the control of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty to the allocation, that by the unilateral act of the assessee-company allocating expenses as it liked the assessee could not bind the Government or the Corporation and no liability could be cast on the Corporation by reason of such unilateral allocation. While dismissing the writ petition, the High Court, however, observed that this did not preclude the assessee from obtaining its just dues by taking appropriate proceedings and that it would, be equally open to the Corporation to claim that, far from being liable to pay anything to the assessee, it is the latter that should pay what is due on account. The assessee did not further pursue the matter against the Corporation by any independent claim. However, the Corporation moved the Life Insurance Tribunal for adjudication under the Life Insurance Act for accounting and claimed that the assessee-company was liable to pay to the Corporation certain amounts. In these proceedings the Life Insurance Tribunal held that the Life Insurance Corporation was entitled to recover from the assessee a certain sum appertaining to the life department but utilised by the general department for discharging its tax liability. After the dismissal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding did not make any difference. He further contended that the amount did not represent any trading loss; being an expenditure it cannot be claimed as a trading loss. Even as an expenditure no allowance could be made in respect of the same in the year of account 1961 for the expenditure was incurred in the year 1955. On the other hand, the learned counsel for the assessee submitted that under regulation 9 of Part I of the Third Schedule to the Insurance Act, 1938, in the case of a composite insurance business the expenses of management charged to the life insurance revenue account must not include, more than a reasonable proportion of the common expenses and under rule 17D of the Rules framed under the Insurance Act no insurer in respect of the Life insurance business, shall spend as expenses of management any amount exceeding the proportion prescribed under the rule. In the case of the assessee company the practice was to debit the expenses in the first instance to the general department and then allocate a portion of it to the life department. The learned counsel also stated that the amount so allocated. was in conformity with rule 17D during the earlier year. The allocation fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense could not be called a debt which became bad in 1941, when the suit was dismissed and that, therefore, the assessee was not entitled to the deduc tion claimed. We are of the view that the ratio of this judgment is fully applicable to the facts of the present case. The sum of Rs. 76,306 represented an expenditure incurred in the account year 1955. By making a wrong allocation of this expenditure towards the life insurance business and making an untenable claim from the Corporation the expenditure could not change its colour and character and become a debt owing from the Corporation. How the expenditure incurred in the year 1955, changed its character as a debt is not explained by the learned counsel for the assessee. It is true that if the expenditure had been properly incurred for the life business, on nationalisation, since the assets and liabilities stood transferred to the Corporation, it would have been a liability taken over by the Corporation. But so long as there is no admission of this expenditure as relatable to the life insurance business it cannot become a debt due and owing from the Corporation. At best, as stated in the above decision, the assessee had a claim aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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