9911796707
TMI Blog1965 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ?" The relevant facts and circumstances are as follows : The respondent, the Calcutta Hospital and Nursing Home Benefits Association Limited, hereinafter referred to as the assessee, is a mutual insurance concern carrying on miscellaneous insurance business. The principal objects for which the association was established were : " (1) By means of insurance on the mutual principle to provide, or help towards providing, anywhere in the world for the expense of accommodation and treatment in hospitals and nursing homes and of private nursing for members and their dependants ; (2) To organise insurance on the mutual principle under rules and regulations to be framed for the purpose with the object of providing such hospital, medical, surgical, nursing and allied services as before mentioned, of supporting and assisting hospitals, in Calcutta or elsewhere ; of relieving members or their dependants, in whole or in part from the payment of hospital and other charges while in receipt of such hospital, medical, surgical, nursing and allied services ; and of reimbursing and repaying to members or their dependants in whole or in part, all payments for such hospital and other charges whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, and after deducting depreciation, he assessed the total income at Rs. 2,651. On appeal, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer. Following the decision of the Bombay High Court in Bombay Mutual Life Assurance Society Ltd. v. Commissioner of Income-tax he held that the income was assessable to income-tax and that under rule 6 of the Schedule to the Income-tax Act it was permissible for the Income-tax Officer to add the reserves to the income disclosed in the profit and loss account. On further appeal, the Appellate Tribunal found no difficulty in holding that section 2(6C) of the Income-tax Act, according to its true interpretation, included income or the profits of any insurance company of mutual assurance and the said profits shall be taken to be the balance of the profits disclosed by the annual accounts. Regarding the reserve, the Tribunal held that the provision for reserve was not an expense to be deducted from the profits disclosed by the assessee-company in order to arrive at the profits within the meaning of rule 6, and the Income-tax Officer was entitled to add back the reserve. The High Court held that the surplus, miscalled pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional Solicitor-General, appearing on behalf of the appellant, contends that the Bombay High Court was right in holding that " section 2(6C) imports into the definition of 'income', which is to be found in the charging section 3, these profits which may not be profits in the ordinary sense of the term but which are made profits by reason of rule 2 of the Schedule because rule 2 really gives an artificial extension to the meaning of the word 'profits' when it says that 'profits and gains shall be taken to be'. Therefore, a new class of artificial income is created by this rule and that artificial income is included into the meaning of section 3 by reason of this rule ". Mr. Sampath Iyengar, learned counsel for the assessee, relying on the decision of the House of Lords in Ayrshire Employers Mutual Insurance Association Ltd. v. Commissioners of Inland Revenue, contends that the Legislature has not made its intention clear because it has used the word " profits " in section 2(6C) under a misapprehension that the surplus of a mutual insurance company carrying on Insurance business is profits. He says that in Ayrshire Employers Mutual Insurance Association case the legislature had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with non-members, and the profit or surplus aforesaid shall be determined for the purposes of that provision or rule on the same principles as those on which profits or gains arising from transactions with non-members would be so determined. " The section adopted the device of a deeming provision. The profits arising from the transactions of a company or society with its members were deemed to be profits arising from transactions with non-members. Parliament assumed that the latter were taxable. As this hypothesis was wrong, Parliament failed in its objective. But the Indian legislature did not adopt any deeming device. It defined " income " to include profits of any business of insurance carried on by a mutual insurance association. What are those profits is then explained by reference to the Schedule. The effect of this in substance is to incorporate rule 6 into the definition. If the legislature had defined income to include profits of insurance carried on by a mutual insurance association computed according to rule 6, very little would have remained arguable. It is, however, urged that in rule 6 also the word "profits" means taxable profits. But rule 6 speaks of balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is bound to accept the balance of profits disclosed by the annual accounts, copies of which have been submitted to the superintendent of insurance. He can only adjust this balance so as to exclude from it any expenditure other than expenditure which may under the provisions of section 10 be allowed for in computing the profits and gains of a business. We are not concerned here with the latter part of rule 6 dealing with profits and losses on the realisation of investments, and depreciation and appreciation of the value of investments. This court examined the provisions of the Insurance Act in connection with the Schedule in Pandyan Insurance Co. Ltd. v. Commissioner of Income-tax, and arrived at the conclusion that the Insurance Act " makes detailed provisions to ensure the true valuation of assets and the determination of the true balance of profits of an insurance business " and that rule 6 should be construed in the light of this background. Examining rule 6 in the light of this background, it seems to us that the intention of the rule is that the balance of profits as disclosed by the accounts submitted to the Superintendent of Insurance and accepted by him would be binding o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
