TMI Blog1979 (1) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case, the Tribunal was justified in holding that the basis adopted by the Life Insurance Corporation Act for paying the compensation in 1956 need not be the basis for determining the market value of the life insurance business of the company as on January 1, 1954, for the purpose of considering the capital gain on acquisition of the business by the Government ? 3. Whether, on the facts and in the circumstances of the case, the assessee was entitled to rebates and reliefs under the appropriate provisions of the Income-tax Act or the Finance Act in respect of dividends received by it from the companies and co-operative societies and in respect of interest on tax-free Mysore Government securities ? 4. If the answer to the above question No. 3 is in the affirmative, whether, on the facts and in the circumstances of the case, the amounts of dividends and interest on securities, in respect of which relief was due, were liable to be reduced by any portion of expenses incurred by the company for its business ? 5. Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under section 15B in respect of donations of Rs. 31,500, Rs. 3,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance. The question pertains to the assessment year 1960-61. In the assessee's books two debts were shown, one in the name of Kapila Textiles Ltd., which was in the amount of Rs. 7,631, and the other in the account of Kalyan Spinning Weaving Mills Ltd., which was for Rs. 5,296. In the case of the first debtor, the liquidation proceedings had not been completed in the year of account. In the case of the second debtor, a suit had been filed by New India against the said debtor in the Calcutta High Court. The amounts had been written off by the assessee in its own accounts for the year in question and the amounts of the debts written off in the accounts of New India had been accepted by the Controller of Insurance. The ITO, however, disallowed these debts on the ground that recovery proceedings could not be considered to have been completed in either case. The AAC upheld the decision of the ITO, confirming the disallowance in respect of both the debts. Before the Tribunal, it was contended on behalf of the assessee that under r. 6 of the Schedule to the I.T. Act, the ITO had the jurisdiction to go into the question and disallow expenditure but that the debts written off by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the assessee-company's life insurance business vested in the Central Government with effect from 19th January, 1956. The said Act, which replaces the Ordinance, described itself as an Act to provide for taking over in public interest the management of life insurance business pending nationalisation thereof (underlining supplied). Under the said Act it was, inter alia, provided that pending appointments of custodians by the Government, persons in charge of management of such business, i.e., life insurance business of the various insurers immediately before 19th January, 1956, were to remain in charge of that business but for and on behalf of the Central Government and life insurance business was to be carried on by such persons in accordance with the directions of the Central Government and subject to the provisions of the said Act. Under s. 4 of the said Act, the Central Government had the power to appoint any person as custodian for the purpose of taking over the management of life insurance business. Under s. 7 of the said Act each insurer was entitled to compensation in respect of the vesting in the Central Government of the management of the life insurance business and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be decided by keeping before oneself not only the provisions of the said Act but the said Act as well as the Life insurance Corporation Act, 1956 (hereinafter referred to as the Nationalisation Act for the sake of brevity), which came into effect on 1st September, 1956, which completed the process of nationalisation. In the view of the AAC, full compensation had been awarded under the later Act, i.e., the Nationalisation Act, for taking away the life insurance business of Indian insurers and vesting it in the Central Government. The compensation under the Ordinance and the said Act was paid in respect of the management of the life insurance business, whereas compensation in respect of the taking over of the business was provided for under the Nationalisation Act. In the view of the AAC, the vesting of the management could not be equated with complete seizure of property or nationalisation itself. The compensation for management, therefore, did not, in his view, partake of the character of compensation for taking over the entire business itself ; it was rather a payment for the loss of business profits. The AAC, therefore, agreed with the ITO that the management compensation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his and the reference was at the instance of the Commissioner. It is clear that the Madras High Court was not directly concerned with the question whether the amount was a capital receipt or not. Mr. Joshi has taken us through the observations to be found at pages 615 and 616 of the report. To some extent, these observations support the case of the revenue, but they must be regarded as obiter, since the point with which we are concerned, as arising in question No. 1 referred to us, was not being canvassed before the Madras High Court. On the other hand, the point was directly considered and decided against the revenue in two other decisions, to which our attention was drawn at the bar. The first of these two decisions was that of the Delhi High Court in Lakshmi Insurance Co. (P.) Ltd. v. CIT [1971] 80 ITR 575. The assessee, before the Delhi High Court, had been paid the sum of Rs. 56,028 as compensation under s. 7 of the said Act and the question being considered by the Delhi High Court in the reference was whether that amount was income in its hands and liable to tax. The Delhi High Court approached the question in the same manner as was done by the Tribunal in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n United India Life Assurance Co.'s case [1966] 62 ITR 610. As far as the latter case was concerned, it was observed, and rightly so, that the point whether the amount of management compensation was a capital or a revenue receipt was not in issue in the said case. The Calcutta High Court, accordingly, held in National Insurance Co.'s case [1978] 113 ITR 37 that where the assessee had been permanently deprived of its right to manage its life insurance business by the Central Government in exercise of its paramount power for which it has been paid certain compensation as determined by law, the compensation was paid not for inflicting any injury on any stock-in-trade or circulating capital of the assessee but for the total and outright deprivation of the right of management of its life insurance business. According to the Calcutta High Court, therefore, the amount of compensation received by the assessee was not assessable as a revenue receipt in its hands. Perusing this judgment, therefore, it is clear that the Calcutta High Court has expressed its total concurrance with the approach and conclusions of the Delhi High Court. It appears to us that the view taken by the Delhi and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him. The ITO determined the fair market value of the life insurance business of the company as on the said date, viz., January 1, 1954, applying the formula laid down in para. 1, Expln. 2 (of the Schedule to the Life Insurance Corporation Act, 1956). On that basis he arrived at the fair market value of the life insurance business as on January 1, 1954, at Rs. 36,69,262 and he took the difference between that amount and the compensation received by the company as capital gains accruing to New India. The amount of capital gains so determined came to Rs. 13,38,350. The assessee took up the matter before the AAC, who took a different rate of growth. The figure of annual average surplus worked out by the AAC was also different. He also changed the multiplier from 20 to 13.33 on the ground that the rate of expected return could not be 5% but should be 7.5 per cent. to make allowance for the element of risk involved in the business. On that basis the AAC arrived at the fair market value of the life insurance business as on. January 1, 1954, at Rs. 39,07,184, which would result in the reduction of the figure of capital gains arising to the company. When the matter came up before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher allocation being earmarked for shareholders. It appears to us that there is no infirmity in the approach of the Tribunal that in considering the value of the acquired asset as on January 1, 1954, it is not bound by the formula for determining compensation payable under the Nationalisation Act. In this view, we derive support from the approach of the Madras High Court in United India Life Assurance Co.'s case [1966] 62 ITR 610. Thus, question No. 2 also will be required to be answered in favour of the assessee. Thus, the questions referred to us are answered as follows : Question No. 1.--The amount of Rs. 1,50,983 was a capital receipt not liable to be included in the assessee's business profits. Question No. 2.--In the affirmative and against the revenue. Questions Nos. 3, 5, 6 and 7.--Mr. Joshi states that these questions may be answered in favour of the assessee. Accordingly, the questions are so answered as it would appear that the principles laid down in the decisions of this court in CIT v. New India Assurance Co. Ltd. [1969] 71 ITR 761 and Life Insurance Corporation of India v, CIT [1978] 115 ITR 45 and of the Supreme Court in Jaipuria Samla Amalgamated Collier ..... X X X X Extracts X X X X X X X X Extracts X X X X
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