TMI Blog1963 (5) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... e business yielded a profit in these years. The assessee claimed that set-off should be permitted under section 24(2) of the Act of so much of the losses of the life insurance business as had not already been set off against the profits of the general insurance business. The Income-tax Officer refused the set-off, being of the view that the life insurance business and the general insurance business are distinct and separate from each other, and, therefore, the losses carried forward from the life insurance business were not eligible to be set off against the profits from the general insurance business. It is not necessary to set out the figures of losses in the life business or the profits from the general business against which this set-off was asked for. On appeal, the Appellate Assistant Commissioner accepted the view of the Income-tax Officer as correct, relying upon an unreported decision of the Bombay High Court in Income-tax Reference No. 11 of 1956 of that court. On a further appeal to the Tribunal, it was claimed that though there was a common management and common staff in respect of both parts of the business and expenses were incurred in a single account, they were late ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1), so much of the loss as is not so set off or the whole loss, where the assessee had no other head of income, shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year ... The rest of the section deals with the period for which such carry forward can be effected. This provision, therefore, contemplated that a loss should have been sustained in a business, profession or vocation and that loss had not been wholly set off under sub-section (1), that is to say, against the income, profits or gains from any other head of income, and only such of the loss as is not so set off or the whole of the loss where the assessee had no other head of income was entitled to be carried forward, But it could be carried forward and set off against the profits and gains of the assessee from the same business, profession or vocation of the succeeding year. This provision therefore required that in order to enable the carry forward and set-off in the succeeding year, the business in which the loss was incurred should have been carried on in the subsequent year. Prior to the amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that we have to deal with is whether the carried forward loss could be set off only against the profits and gains of the life insurance business, that is to say, whether the view taken by the department and the Tribunal that the business of life insurance was distinct and different from that of general insurance, is correct. Section 24(2), as it previously stood, permitted the set-off against the profits and gains of the assessee from the same business. What then is the business of the assessee and would it be correct to say whether an insurance business, a composite one taking in both life insurance and general insurance, can be split up and regarded as two different businesses for the purpose of the expression the same business occurring in section 24(2) ? Considered from the layman's point of view, it seems difficult to hold that a business of insurance can be split up in this artificial manner into as many kinds of business as there are kinds of insurance, such as, life, fire, marine, accident or the like. As a business, undoubtedly, it is one and indivisible, and whatever parts of that business the assessee may or may not carry on it seems reasonable to hold that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from the business of general insurance in so far as the Indian Income-tax Act is concerned. The Tribunal has mainly relied upon an unreported decision of the Bombay High Court. Before we deal with that decision, we may refer to Zenith Insurance Co. Ltd. v. Commissioner of Income-tax [1954] 26 ITR 256, 262, 263 , which was an earlier stage of the same decision of the Bombay High Court. In this reported decision, the High Court called for a further statement of the case on a question which the High Court framed as below: Whether there is any evidence to justify the finding of the Tribunal that life insurance business of the assessee company and the other insurance business was not the same business ? Originally, the Tribunal had referred two questions which were : 1.Whether all insurance business covered by section 10(7) of the Schedule of the Act is not the same business ? 2.Whether the losses in the life insurance business can be set off under section 24(2) against the profits of any business of insurance other than life insurance ? In framing the further question set out above and calling for a statement of the case, Chagla C.J. observed : Now, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are not concerned with what the general practice is, nor are we concerned with what several or a majority of insurance companies do. What we are concerned with, and what we are interested in, is to find out what this particular insurance company does. Therefore, it seems to us that although we are not prepared to ask the Tribunal to refer the question as formulated by the assessee, which raises a general question with regard to all insurance companies, we are prepared to accede to the request of the assessee and ask the Tribunal to refer to us a question of law which has relevance with regard to the facts found with regard to the specific insurance company ... When the matter came for final decision after the statement of the case by the Tribunal, the learned judges accepted the position that there was an essential difference in life insurance business and general insurance business. They thought that while general insurance business is a contract of indemnity, a life insurance contract is an entirely different type of contract, that the law required separate accounts to be kept and a separate fund to be maintained for the life insurance business. The learned judges, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd other qualifications and training different from each other. On the above features, the Tribunal followed the decision of the Bombay High Court. To our minds, this decision of the Bombay High Court did not proceed upon an abstract consideration whether when a composite insurer carried on both life business as well as general insurance business, the two parts of the business should always be regarded as separate and distinct from each other for the purpose of applying the various provisions of the Income-tax Act. On the other hand, both in the order calling for a further statement of the case and the decision which followed it, there are observations of the learned judges of the Bombay High Court to show that they were not prepared to ask the Tribunal to refer the question as formulated by the assessee which raised a general question with regard to all insurance companies. They only directed the Tribunal to refer a question of law which was relevant with regard to the facts found in respect of the specific insurance company before them. The question was directed only to a determination whether there was no evidence to justify the finding of the Tribunal that the life insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er any portion of those refunds could be regarded as pertaining to the life insurance business, so that the Life Insurance Corporation would become entitled thereto. The contention of the insurer was that no part of the refunds which had become payable to the insurance business could be allocated to the life insurance part of the business and that even though that part of the business had vested in the Life Insurance Corporation, no portion of the tax refund could go to the benefit of the Corporation. Their Lordships ultimately reached the conclusion that if an asset pertained to the life insurance business, then its fruit, viz., the income from it, would also pertain to that business. Their Lordships pointed out that while the Income-tax Act was not concerned with the various kinds of businesses carried on by the insurer, it was the Insurance Act that treated the various kinds of insurance businesses carried on by an insurer separately, and likewise the Life Insurance Corporation Act treated the life insurance business as something separate from other kinds of businesses carried on by an insurer. They observe that it would be a misconception to refer to the Income-tax Act in inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal classes of insurance business carried on by a composite insurer were different businesses. Looking at the substance of the matter, we are unable to see any real or justifiable reason for the splitting up of the business in this manner for the purposes of the Income-tax Act. We may point out that under the English Act, Income Tax Act, 1952, a special provision has been enacted, whereby the life insurance business carried on by a composite insurer has been declared to be a separate and distinct business from the other classes of insurance business. It is section 426 and it is as follows : 426. Separation of different classes of business carried on by companies.-(1) Where an assurance company carries on life assurance business in conjunction with assurance business of any other class, the life assurance business of the company shall, for the purposes of this Act, be treated as a separate business from any other class of business carried on by the company. (2) Where an assurance company carries on both ordinary life assurance business and industrial life assurance business, the business of each such class shall, for the purposes of this Act, be treated as though it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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