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PETITIONER: THE NEPTUNE ASSURANCE CO.  LTD.

       Vs.

RESPONDENT: THE LIFE INSURANCE CORPORATION OF INDIA AND, ANOTHER

DATE OF JUDGMENT: 08/11/1962

BENCH: SARKAR, A.K. BENCH: SARKAR, A.K. DAS, S.K. KAPUR, J.L. DAYAL, RAGHUBAR

CITATION:  1963 AIR  900            1963 SCR  Supl. (1) 980

ACT: Insurance-Life  Insurance Corporation-Vesting of  rights  in Corporation-All   rights  appertaining  to  life   insurance business of insurer-lnsurer getting income-tax  refund--Such refund,  when accrues-Such refund, if appertaining  to  life insurance  business--Insurance Act, 1938 (4 of 1938)  ss.10, 13--Indian      Income-tax     Act.     1922     (11      of 1922)ss.16(2),18,48,49B--Life  Insurance  Corporation   Act. 1956 (31 of 1956), s.7

HEADNOTE: The  appellant company was carrying on both life  and  other kinds  of insurance business.  On the coming into  force  of the Life insurance Corporation Act, 1956, by virtue of s.  7 all rights appertaining to the life insurance business of an insurer  became vested in the Corporation on  the  appointed day,  that is,    September     1956.  Under the  provisions of  the  Indian  Income-tax Act, 1922,  an  assessee  became entitled to a refund where the tax deducted from the  income of  his securities or the amount by which the dividend  paid to  him on his shares had to be increased under ’s.  16(2)of that  Act  for  computation of his  income,  or  both  taken together,  exceeded  the amount of tax payable by  him.   By virtue of the provisions, under the orders of assessment  to income-tax  for the year 1955-56 and 1956-57, the  appellant became  entitled  to certain refunds, but  these  assessment orders  were made after September 1, 1956.   The  respondent Corporation  claimed  to  be entitled  to  portions  of  the aforesaid  refunds under the provisions of s. 7 of the  Life Insurance Corporation Act.  The question was (1) whether the right  to refund was a right existing on September 1,  1956, and  (2)  whether  it  appertained  to  the  life  insurance business of the appellant within the meaning of s. 7. Held : (1) that the right to the refund which accrued to the appellant  existed on September 1, 1956.  Though the  actual assessment only particularised the amounts of refund, it did not create the right, for the right came into existence as  981 soon  as, according to the relevant Finance Act,  it  became ascertainable that the tax deducted at source or treated  as

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paid on its behalf exceeded the tax payable. (2)that  the right to the refund was one  appertaining  to the  life  insurance business.  The income from  shares  and securities  held  by  the  appellant  as  provided  by   the Insurance Act, 1938, and appertaining to the life  insurance business  must  itself be treated as  appertaining  to  that business;  and when it was refunded as having been  utilised in  payment  of the tax in excess of what was due  it  could not  change its previous nature, and would still remain  the income  of  the life insurance business.  The right  to  the return  of  this income would, therefore, also  be  a  right appertaining to the life insurance business. The  proportion  in which the refund was to  be  distributed between  the  life business and the  general  business  laid down.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 386 of 1961. Appeal by Special leave from the order dated August 3, 1959, of  the Life Insurance Tribunal, Nagpur, in case No.  24/XII of 1959. Purshottam   Pricumdas, F. S. Nariman, R. N. Modi,  ’S.   N. Andley, Rameshwar Nath and P.L. Vohra,for the appellant. M.,C.  Setalvad, Attorney-General for India, S.T. Desai,  S. J. Banaji’ and K. L. ’Hati, for respondent. 1962.   November 8. The judgment of the Court was  delivered by SARKAR,  I.-The:  appellant used to carry on both  life  and other kinds ’of insurance business’ It was what is called in the  Life  Insurance  Corporation  Act,  1956  a  "composite insurer." The  respondent  Corporation  was created  by  this  Act  on September  1,  1956.and under s. 7 of the Act the  terms  of which we will have to set out later, all 982 rights  appertaining  to the life insurance business  of  an insurer,  which  in  the  Act  is  called  the   "controlled business",  because vested in the respondent Corporation  on the  appointed day, that is, September 1, 1956.   Under  the orders of assessment to income-tax for the years 1955-56 and 1956-57,  the appellant became entitled to  certain  refunds under  the  provisions  of the Income-tax  Act,  1922.   The respondent Corporation claimed a part of those refunds under s.  7  and this claim was resisted by the  appellant.   This dispute  was  taken  to  the  Life  Insurance  Tribunal  for decision under the Act of 1956 and this Tribunal decided it- in favour of the respondent Corporation.  The present appeal is against the judgment of the Tribunal. The  provisions of the Income-tax Act under which the  right to  refund  arose have to be briefly referred to  before  we proceed  to  consider  the questions,  that  arise  in  this appeal.   Section  16(2)  states that  for  the  purpose  of inclusion in the total income of an assessee, dividend  paid to  him  shall’  be increased to such amount  as  would,  if income-tax at the rate applicable to the total income of the company  were deducted therefrom, be equal to the amount  of the  ’dividend.  Sub-section (3) of s. 18 requires that  out of  the income chargeable as interest on securities  income- tax  has to be deducted at the source at the  maximum  rate. Sub-section  (4) of this section provides that all  sums  so deducted  shall  be  deemed to be  income  received  by  the assessee in computing his income, and under sub-s. (6) these deductions  have  to be paid to the credit  of  the  Central

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Government.  Sub-section (5) states that any deduction  made in  accordance with the provisions of this section  and  any sum by which a dividend has been increased under sub.s.  (2) of  s.,  16 shall be treated as a payment of  income-tax  or super  tax  on behalf of the person from  whose  income  the deduction was made or of the shareholder, as the case  may, be.  Section 49, B provides where any dividend has been paid or deemed                             983 to  have been paid to an assessee who is a shareholder of  a company which is assessed to income-tax such assessee  shall if the dividend is included in his total income be deemed to have paid himself in respect of such dividend income-tax  of an amount by which the dividend has been increased under  s. 16(2).    Section   48  is  in  these  terms   :   "If   any company ......... satisfies the Income tax Officer that the. amount  of tax paid by him or treated as paid on his  behalf for any year. exceeds the amount with   which he is properly chargeable...  he  shall be entitled to refund  of  any such excess."Shortly put, the    result.     of      these provisions is that anassessee  becomes  entitled  to   a refund  where  the  tax  deducted from  the  income  of  his securities  or the amount by which the dividend paid to  him on  his  shares  has  to be increased  under  s.  16(2)  for computation  of his income, or both taken together,,  exceed the amount of tax payable by him. Now  a  reference has to be made to s. 10 of  the  Insurance Act,  1938.   Under sub-s. (2) of this  section  an  insurer carrying  on  business of life insurance has to carry  to  a separate   fund,  called  the  life  insurance  fund,   ’all ;receipts due in respect of that business and the assets  of this fund have to be kept distinct and separate from all his other  assets.   Subsection  (3)  provides  that  the   life insurance  fund shall not be applied directly or  indirectly for  any  purposes other than those of  the  life  insurance business the insurer,.  There is no reason to doubt that the appellant carried out the provisions of S. 10(2) and created the  life  insurance  fund and it is not  in  dispute  that various  shares  and’  securities appertained  to  the  life insurance fund ’of the, appellant’s business.  Various other securities,  and  perhaps also shares’  appertained  to  the general business (if the appellant. We now come to the details of the dispute that arose between the  parties.; The previous years of the appellant for  the’ assessment years 1950-56 and 984 1956-57 were respectively the calendar years 1954 and  1955. In  each  of  these years various sums  became  due  to  the appellant  as  interest on securities and  as  dividends  on shares held by it.  The assessment orders in respect of  the aforesaid assessment years earlier mentioned, showed that in the  first  assessment  year credit had been  given  to  the appellant  in the sum of Rs. 48,271.56 on account  of  taxes earlier paid in respect of its life department I and in  the sum  of Rs. 3,245.25 on the same account in respect  of  its general  department.  The figures of taxes earlier paid  for which credit had been given in its assessment for the second assessment year were, Rs’ 48,271’ 56 in respect of the  life department  and  Rs.  3,196.25 in  respect  of  its  general department.  The appellant’s income for the assessment  year 1955-56  was  assessed  on September  29,  1956,  and  later revised  on  May  21, 1957, and for  the  year  1956-57,  on January 31, 1957.  The assessment order for the year 1955-56 showed a profit of Rs. 1,50,191/- in the life department and a loss of Rs. 23,667/- in the general department and it  was

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thereupon assessed on a total income of Rs. 12,6,524/-.  The tax  due  on this income being less than the tax  for  which credit  had been given as tax previously paid, a sum of  Rs. 12,867.58 was found refundable to the appellant.  In respect of  the assessment year 1956-57, the position was  that  the life department had made a profit of Rs. 1,51,835/- and  the general  department  had incurred a loss of  Rs.  2,06,083/- with  the result that in that year the appellant had on  the whole incurred a loss and did not have to pay any tax.   The entire amount of tax credited as earlier paid in respect  of this year’s assessment, therefore, became refundable.  These assessment orders were however made after the appointed day, namely,  September 1, 1956.  It has been the common case  of the  parties that the amounts of tax credited as  previously paid as earlier mentioned were the deductions uuder s. 18(3) of the Income-tax Act  985 and the amount added to the dividend under s. 16(2) of  that Act. The  respondent  Corporation  claimed to be  entitled  to  a refund  of Rs. 9,622.43 out of the amount  found  refundable for  1955-56 and Rs. 48,271.56 out of the amount  refundable for 1956-57 under the provisions of s. 7 of the Act of 1956. As we have earlier stated the Tribunal allowed this claim of the Corporation.  Now, s. 7 is in these terms :               S.    7. (1) On the appointed day there  shall               be   transferred   to  and   vested   in   the               Corporation  all  the assets  and  liabilities               appertaining to the controlled business of all               insurers.               (2)The  assets appertaining to the  controlled               business  of  an insurer shall  be  deemed  to               include   all  rights  and  powers,  and   all               property,   whether  movable   or   immovable,               appertaining   to  his  controlled   business,               including,   in  particular,  cash   balances,               reserve  funds, investments, deposits and  all               other  interests and rights in or arising  out               of  such property as may be in the  possession               of  the  insurer and all books of  account  or               documents relating to the controlled  business               of  the  insurer; land  liabilities  shall  be               deemed  to include all debts, liabilities  and               obligations of whatever kind then existing and    appertaini ng        to               the controlled business of the insurer.  x    x    x      x  x    x  x    x    x      x  x    x The  question  is whether the’ right to refund was  a  right existing on September 1, 1956 and whether it appertained  to the  life  insurance business of the  appellant  within  the meaning ’of s. 7. When s. 7 mentions a right  "’appertaining to  his  controlled business" it obviously  contemplates   a right  existing  in  relation  to  that  business,  for  the business not being 986 a legal person,  could not own any right.  The right had to be owned by the insurer to whom the business belonged but it had  to  be  a  right which he  owned  in  relation  to  his controlled business. Now  as  to the first part of this question it seems  to  us plain  that the right to the refund existed on September  1, 1956.   It is no doubt true that the amounts of  the  refund had  not been ascertained till the orders of assessment  had been  made and these had been made later than  September  1,

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1956.   But that does not affect the question.  It  is  well established  that under the Income-tax law the liability  to be charged to tax, if any, exists all along.  The amount  of liability depends on the Finance Act of the year  concerned. That  is the effect of s.3 of the Income-tax Act which  says that the tax at the rates mentioned in the Finance Act shall be  charged for the year specified in that Act.  So  it  was said  in Messrs Chatturam Horilran Ltd. v.  Commissioner  of Income-tax, Bihar and Orissa(1).               "’The  Income-tax Act is a standing  piece  of               legislation   which   provides   the    entire               machinery  for  the levy of  income-tax.  :The               Finance   Act   of  each  year   imposes   the               obligation  for the payment of  a  determinate               sum   for  each  such  year  calculated   with               reference to that machinery". Now  the Finance Acts for the years 1955 and 1956, like  all other such Acts, provided the rates at which income-tax  was payable  for the assessment years commencing from 1st  April of the year in which the Acts were respectively passed.   It would  follow that on the 1st of April in 1955 and  in  1956 the  amounts  of the tax payable by  the  appellant  became- determinable for the income was then capable of  computation and  the  rate  was  also known.   So  on  these  dates  the appellant  became entitled to a refund of the amount of  tax deducted at the source or treated as (1)  [1955]2 S.C.R. 290,297.  987 paid  on its behalf under the provisions of  the  Income-tax Act earlier mentioned which was in excess of the tax payable by  it  for  each  of  these  years.   The  assessment  only particularised the amounts; it did not create the right, for the  right came into existence as soon as according  to  the relative  Finance Act it became ascertainable that  the  tax deducted  at  source or treated as paid on  its  behalf  had exceeded  the  tax payable.  That right, therefore,  was  an asset  contemplated  ’in  s. 7 of the  Act  of  1956.   This disposes  of the first part of the question that  arises  in this case. We  turn  now  to the other part of  the  question,  namely, whether the right to the refund ’was one appertaining to the life insurance business.  That question has to be decided by reference to the Insurance Act because it is that Act  which treated   the  different  kinds  of   insurance   businesses separately, Some of the sections of that Act have now to  be referred  to.  It is not in dispute 1 that the appellant  in an insurer within the meaning of the Aci.  Subsection (1) of s.  10 of the Act requires an insurer like the appellant  to keep  a  separate account of all receipts  and  payments  in respect of each separate class of insurance business carried on  by him.  We have earlier referred to the provisions  ’of sub-s.  (2)  and  sub-s. (3) of this  section.   Section  11 provides that an insurer like the appellant shall keep (a) a balance  sheet in accordance with the third Schedule to  the Act  and (b) a revenue account in accordance with the  third Schedule  in  respect of each class  of  insurance  business carried on by him.  Now Regulation (2) in the first Schedule provides  that  the  balance sheet  of  the  life  insurance business  shall  be  prepared as  a  separate  document.   A specimen  form  of  a  balance-sheet  is  set  out  in  this Schedule.   That form shows that shares and securities  held by an insurer in connection with its life insurance business have to be set out separately.  Again, the form of 988 the revenue account which, as we have earlier stated, has to

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be  drawn up separately for each kind of insurance  business carried  on  by  the  insurer  requires  the  interest   and dividends  coming  to  the account  of  the  life  insurance business to be shown separately after deducting the  income- tax  payable  thereon.  A note to the form  states  that  in making  these  deductions on account of  income-tax  rebates allowed  on  income.  tax  must be taken  out  of  the  tax. Section  13  of the Act requires every insurer  carrying  on life insurance business to make an actuarial valuation every three  years and to submit a report in accordance  with  the fourth Schedule.  The regulations in this Schedule require a consolidated revenue account in form G contained in it to be annexed  to the actuarial report.  That form again  requires that  interest  and  dividends, which  must  necessarily  be interest  and dividends appertaining to the  life  insurance business  because,the  report concerns  the  life  insurance business  only to be .set out.  All these provisions to  our mind  indicate what is contemplated by the Insurance Act  to be  an  asset appertaining to the life  insurance  business. These  are  assets of the life insurance fund  mentioned  in sub-s.  (2)  of  s. 10 of the Act.  It is  because  the  Act treats  particular  assets  as  appertaining  to  the   life insurance  business  that it made  detailed  provisions  for these assets to be shown separately in the accounts.  If  an asset  appertained  to the life insurance  business,  it  is obvious that income from it, would also appertain Therefore, the  income from  its fruit, namely, the  to that  business. shares  and  securities appertaining to the  life  insurance business  must  itself be treated as  appertaining  to  that business.  That is why   the  forms of accounts set  out  in the Schedules requires this income to be shown separately in the  several   accounts that have to be kept  for  the  life insurance business. Indeed  it has not been disputed by learned counsel for  the appellant-as it could not be in view  989 of the provisions of the Insurance Act earlier referred  to- that many of the shares and securities held by the appellant appertained to its life insurance business.  Neither aid  we understand  learned counsel to dispute that the income  from these  shares and securities itself appertained to the  life insurance  business.  It is in respect of this income  that, as  earlier mentioned, in each of the years 1954 and 1955  a sum  of Rs. 48,271.56 had been credited in  the  appropriate assessment  order as tax previously paid.   Learned  counsel however said that though the income appertained to the  life insurance   business,  the  right  to  the  refund-did   not appertain to any business.  According to him, it is a  right created  by  s.  48 of the Income-tax  Act  and  under  that section it is a right belonging to the assessee who in  this case  is the appellant.  It seems to us that this.  approach is misconceived and cannot decide the question as to whether the  right  to  the refund  appertained  to  any  particular business within the meaning of s. 7 of the Act of 1956.   We have earlier stated that life insurance business not being a legal  person cannot be the owner of any right.  All  rights appertaining to the business including a right ’to refund of taxes paid before assessment must necessarily belong to  the owner  of the business.  Such lights may however be  treated by the owner if he so chooses, as appertaining severally  to the  different  businesses carried on by him.  Or  again,  a statute   may  require  these  rights  to  be   treated   as appertaining severally to different businesses carried on by him.  The latter is the case here.  The Income’-tax Act  was not concerned with the various kinds of business carried  on

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by  answer.   As we have earlier shown,  the  Insurance  Act treated  the various kinds of  insurance businesses  carried on  by  an insurer separately.  Likewise the  Act  ,of  1956 treated  the life insurance business as  something  separate from  other kinds of business carried on by an insurer.   We think that it would be misconception to refer to the Income- tax Act in interpreting the Act of 1956 for deciding whether a right to a refund 990 belonging  to  an insurer appertains to his  life  insurance business or to another kind of insurance business carried on by him. The right to the refund no doubt existed in the appellant on September 1, 1956, but it so existed in it as the proprietor of  both  the  life  insurance  business  and  the   general insurance   business.   The  right,  therefore,   may   have appertained partly to one business and partly     to     the other.  The income of the assets of the insurance   business or what is treated as such under s. 16(2) of the  Income-tax Act  of  such assets was utilised for paying the  tax  along with the income of other assets.  When it ’was realised that more  income-tax had been paid by such utilisation than  the law  justified, then the excess had to be refunded.  It  was the  income  so utilised in excess that had  to  come  back. Upon its return it could not change its previous nature ; it would  still  remain  the  income  of  ’the  life  insurance business.  A right to the return of     this  income   would therefore also be a right appertaining to the life insurance business.   The,  right  through appertaining  to  the  life insurance  business  no  doubt originally  belonged  to  the appellant  but  as  it appertained  to  its  life  insurance business, s. 7 of the Act of 1956 operated to transfer  this right  from it to the respondent   Corporation on  September 1, 1956. It was said that the amount deducted from the income of  the shares  and  securities  belonging  to  the  life  insurance business upon such deduction ceased to be the asset of  that business  and a right to its refund, therefore,  also  could not  appertain  to  that  business.   We  think  that   this contention is erroneous.  The deduction amounted to  payment of  tax before assessment and was, therefore, really in  the nature of a provisional payment.  It was provisional in  the sense that to the extent it was on final assessment later, found  to be in excess of the tax due, it would cease to  be payment of tax and become refundable.  Therefore, in a  991 case   where  the  deduction  was  returnable,  the   amount returnable  had  never  really ceased to  the  part  of  the assets.   We may here observe that the question whether  the amounts  added  to  the dividends’ under  s.  16(2)  of  the Income-tax  Act are deductions from income is one  on  which different opinions are possible.  We do not feel called upon to answer that question on this occasion.  If these  amounts are  not  deductions from income, the contention  now  under discussion would not arise in connection with them.  If they are, then what we have said in dealing with that  contention would apply to any deductions from dividends also. Then it was said that if any right to the refund is held  to appertain to the life insurance business in this case,  then that  business  would really be given the advantage  of  the loss  made  by  the general insurance business  for  it  was because of that loss that the right to the refund came  into existence.   It  seems  to us  that  this  consideration  is irrelevant  for deciding whether a right appertains  to  the life  insurance business.  That right-did not arise  because

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there  was  a loss in the general  insurance  business.   It would  be a misconception to consider it as so arising,  for the right arose because the appellant’s business as a  whole suffered  a loss or made a smaller income as the  case  was. No  question of one department of the  appellant’s  business taking advantage over another at all arises.  A right to the refund appertains  insurance business because it was a right to  the  life   to the refund of moneys  belonging  to  that business  which had been applied in excess of the amount  of tax for which the law made the appellant liable as the owner of the entire business. It remains now to discuss in, what proportion the refund  is to be distributed.  On this question no difficulty arises in respect of the year 1956-57.  In that year the entire amount deducted  at source or treated as paid as tax on  behalf  of the appellant 992 came  back.  Each department will, therefore, take  whatever was  deducted  from  or treated as paid in  respect  of  the income of its own assets.  The result is that the refund  of Rs.  51,468.81 for the year 195657 has to be distributed  as follows:  The  appellant,  will get  Rs.  3,196.56  and  the respondent  Corporation Rs. 48,271.25. In the  year  1955-56 however  the  refund  amounted to Rs.  12,867.68  while  the amount of tax deducted from the income of the life insurance department  or  treated  as paid from that  income  was  Rs. 48,271.56  and  that deducted or treated as  paid  from  the income  of the general department was Rs. 3,245.25. In  this year  the  general department incurred a  loss.   Therefore, considered  as  a separate business no tax would  have  been payable  out of  its assets and so,  as  between  the  two departments  no part of its income was liable to be  applied in  payment  of the tax.  The entire amount  of  Rs.3,245.25 should be refunded to it.  The balance Which must  represent the deduction out of the income of the business or an amount treated as paid that business and therefore appertaining  be made  over to the respondent corporation. the view taken  by the  Tribunal and with life insurance in respect of  to  it, should   This  is   it  we agree. This  would  put  the  tax liability  for  the  year  1955-56  entirely  on  the   life department  1 and that would be the correct thing to do  for that liability must appertain to the department which  alone made the profit. We  may add that in certain proceedings, to the  details  of which it is not necessary to refer, the amount of the refund has already been paid by the Government and out of that sum, the  appellant  has  been paid what we have held  it  to  be entitled to.  We declare that the respondent Corporation  is entitled to the balance which has already been paid to it on October 15, 1959, by respondent No.2 in  compliance with the order of this Court dated September 21, 1959. The appeal is dismissed with costs.                                        Appeal dismissed.   993