# India United Mills Ltd v. Commissioner of Excess Prefits Tax, Bombay. Vtnkatarama AYJar J

- **Citation:** [1955] 1 S.C.R. 822
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** CIVIL APPELLATE JuR1smcnoN : Civil Appeal No. 144 of 1953
- **Bench:** Mehr Chand Mahajan C.J, s. R. DAS, Ghdlam Hasan, Bhagwati, Venkatarama Ayyar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/india-united-mills-ltd-v-commissioner-of-excess-prefits-tax-bombay-vtnkatarama-1204
- **Pages:** 8

## Headnote

Indian Income-tax Act (XI of 1922), s. 10(7) and schedule Rule
2(a)(h) as published in 1939-Inco1ne-tax on insurance companyHotv ascertained-Statement of Depa1·tn1ental Representative, Effect
of-Insurance Act (JV of 1938) s. 2(11)-Life Insurance business.
In accordance with the provisions of s. 10(7) of the
Indian
Income-tax Act, 1922, the profits and gains of Life Insurance business for the periods 1943-1944
to 1946-1947 are to
be computed
under Rule 2(a) and Rule 2(b) of the rules published in 1939 and
contained in the schedule to the Act.
This computation should be
mac1e separately and independently once under Rule 2( a) and again
•
under Rule 2(b ).
On such computation income-tax is to be levied
,,
on the greater
of the t\VO amounts so co1nputed.
It is erroneous
•·
to adopt the computation made under Rule 2(b) as the
basis for
computation under llule 2(a),
Mere
statement of the Departn1ental Representative
of
the
Income-tax Department to the Tribunal referred
to
in
the order
of the Tribunal cannot have the effect of a finding of fact by the
Tribunal.
Business of a con1pany \Vhich consists in
granting terminable
pensions or annuities dependent on hu1nan life in favour
of the
subscribers or their non1inees,
is an insurance
business within the
. ...t..
meaning of s. 2(11) of the Insurance Act, 1938.
-
.S.C.R.
SUPREME COURT REPORTS
823
CIVIL
APPELLATE
JuR1smcnoN :
Civil
Appeal
No. 144 of 1953.
Appeal from the Judgment and Order dated the
28th November, 1951, of the High Court of Judicature
at Calcutta in Reference No. 40 of 1950.
Sukumar Mitra (S. N. Mukherjee, with him) for the
appellant.
C. K. Daphtary, Solicitor-General of India, ( G. N.
Joshi, with him) for the respondent.
1954. November 1.
The Judgment of the
Court
was delivered by
VENKATARAMA
AYYAR J.-This is an appeal
from
the
judgment of the High Court of
Calcutta on a
reference under section 66(1) of the· Income-tax
Act.
The appellant is a Company which came into existence
in 1870 as an unregistered association, and in 1906 it
was
registt"red under the
provisions
of the
Indian
Companies Act. Its business
consists
exclusively
in
,granting terminable pensions or annuities dependent on
human life in favour of the
subscribers
or their nominees. The dispute in this appeal relates to the assess-
·Jf
ment of the profits of the
Company for income-tax for
the
periods,
1943-1944,
1944-1945,
1945-1946
and
1946-47.
To follow the points in issue, it will be useful to refer
to the
statutory
provisions
bearing on the matter.
Section 2(11) of the Insurance Act, 1938, defines "life
insurance
business"
as
meaning
"the
business
of
·effecting contracts of insurance upon human life" and
as including "the
granting
of annuities upon human
life." The business of the appellant
Company
would
therefore be life insurance business as defined in section
2(11) of the Insurance Act. Under section 10(7) of the
Indian Income-tax Act, the profits and
gains
of
any
business of insurance are to be computed in accordance
with the Rules in the Schedule to the
Act.
Rule 2 in
·the Schedule is as follows :
"The profits and gains of life insurance
business
shall be taken to be either1954
Gtmral Family
Pension Fund
v.
The Commissioner
of lncom.-tax,
West Bengal.
1954
General Family
Pension Fund
v.
T~ CommissWner
of Incom~-tax,
West Be11gal.
V tnkatarama
Ayyar J.
824
SUPREME COURT REPORTS
[1955}
(a) the gross external incomings of the preceding
year from that business less the management expenses.
of that year,
or
(b) the annual
average of the surplus arrived
at
by adjusting the surplus
or deficit
disclosed
by the
actuarial
valuation for the last intervaluation
period
ending before the year for which the assessment is to
be made, so as to exclude from it any surplus or deficit
included therein which was made in any earlier intervaluation period and any expenditure which may under
section 10 of this
Act
be allowed
for in computing
the profits and gains of a business,
whichever
is the
greater.''
Rule 5(ii)
defines

## Text

1954
India United
Mills Ltd.
v.
Commissioner of
Excess Prefits
Tax, Bombay.
Vtnkatarama
AYJar J,
1954
Novttnber I.
822
SUPREME COURT REPORTS
[1955]
relief granted, and that when the Excess
Profits Tax
Officer finds that an assessee to
whom relief had
been
granted under section 26(3) has utilised the buildings,
plant or machinery in business after the termination of
the war, he is entitled to proceed under section 15 of
the ·Act.
In the result, the appeal fails, and is dismissed with
costs.
Appeal dismissed.
GENERAL FAMILY PENSION FUND
I '
THE COMMISSIONER OF Il'iCOME-TAX,
WEST BENGAL,
[MEHR CHAND MAHAJAN C.J., s. R. DAS,
GHDLAM HASAN, BHAGWATI and
VENKATARAMA AYYAR JJ.]
Indian Income-tax Act (XI of 1922), s. 10(7) and schedule Rule
2(a)(h) as published in 1939-Inco1ne-tax on insurance companyHotv ascertained-Statement of Depa1·tn1ental Representative, Effect
of-Insurance Act (JV of 1938) s. 2(11)-Life Insurance business.
In accordance with the provisions of s. 10(7) of the
Indian
Income-tax Act, 1922, the profits and gains of Life Insurance business for the periods 1943-1944
to 1946-1947 are to
be computed
under Rule 2(a) and Rule 2(b) of the rules published in 1939 and
contained in the schedule to the Act.
This computation should be
mac1e separately and independently once under Rule 2( a) and again
•
under Rule 2(b ).
On such computation income-tax is to be levied
,,
on the greater
of the t\VO amounts so co1nputed.
It is erroneous
•·
to adopt the computation made under Rule 2(b) as the
basis for
computation under llule 2(a),
Mere
statement of the Departn1ental Representative
of
the
Income-tax Department to the Tribunal referred
to
in
the order
of the Tribunal cannot have the effect of a finding of fact by the
Tribunal.
Business of a con1pany \Vhich consists in
granting terminable
pensions or annuities dependent on hu1nan life in favour
of the
subscribers or their non1inees,
is an insurance
business within the
. ...t..
meaning of s. 2(11) of the Insurance Act, 1938.
-
.S.C.R.
SUPREME COURT REPORTS
823
CIVIL
APPELLATE
JuR1smcnoN :
Civil
Appeal
No. 144 of 1953.
Appeal from the Judgment and Order dated the
28th November, 1951, of the High Court of Judicature
at Calcutta in Reference No. 40 of 1950.
Sukumar Mitra (S. N. Mukherjee, with him) for the
appellant.
C. K. Daphtary, Solicitor-General of India, ( G. N.
Joshi, with him) for the respondent.
1954. November 1.
The Judgment of the
Court
was delivered by
VENKATARAMA
AYYAR J.-This is an appeal
from
the
judgment of the High Court of
Calcutta on a
reference under section 66(1) of the· Income-tax
Act.
The appellant is a Company which came into existence
in 1870 as an unregistered association, and in 1906 it
was
registt"red under the
provisions
of the
Indian
Companies Act. Its business
consists
exclusively
in
,granting terminable pensions or annuities dependent on
human life in favour of the
subscribers
or their nominees. The dispute in this appeal relates to the assess-
·Jf
ment of the profits of the
Company for income-tax for
the
periods,
1943-1944,
1944-1945,
1945-1946
and
1946-47.
To follow the points in issue, it will be useful to refer
to the
statutory
provisions
bearing on the matter.
Section 2(11) of the Insurance Act, 1938, defines "life
insurance
business"
as
meaning
"the
business
of
·effecting contracts of insurance upon human life" and
as including "the
granting
of annuities upon human
life." The business of the appellant
Company
would
therefore be life insurance business as defined in section
2(11) of the Insurance Act. Under section 10(7) of the
Indian Income-tax Act, the profits and
gains
of
any
business of insurance are to be computed in accordance
with the Rules in the Schedule to the
Act.
Rule 2 in
·the Schedule is as follows :
"The profits and gains of life insurance
business
shall be taken to be either1954
Gtmral Family
Pension Fund
v.
The Commissioner
of lncom.-tax,
West Bengal.
1954
General Family
Pension Fund
v.
T~ CommissWner
of Incom~-tax,
West Be11gal.
V tnkatarama
Ayyar J.
824
SUPREME COURT REPORTS
[1955}
(a) the gross external incomings of the preceding
year from that business less the management expenses.
of that year,
or
(b) the annual
average of the surplus arrived
at
by adjusting the surplus
or deficit
disclosed
by the
actuarial
valuation for the last intervaluation
period
ending before the year for which the assessment is to
be made, so as to exclude from it any surplus or deficit
included therein which was made in any earlier intervaluation period and any expenditure which may under
section 10 of this
Act
be allowed
for in computing
the profits and gains of a business,
whichever
is the
greater.''
Rule 5(ii)
defines "gross
external
incomings"
as.
including profits on the sale or the granting of annuities.
These Rules came into force in 1939.
In 1945 the assessment of the profits of the appellant
Company for the years 1943-1944,
1944-1945 and
19451946 was taken up by the
Income-tax
Officer.
Under
Rule 2, what the Income-tax Officer had to do was to.
compute the
profits of the
Company under the two·
heads (a) and (b) in that Rule and to adopt whichever
was higher as assessable profits.
What he actual! y did
however is uncertain, because the orders of assessment
themselves have
not been exhibited as
part of the·
record.
From the
order of the
Tribunal elated
5th
March,
1949, it appears that
the
Income-tax
Officer
firstly determined the profits under
Rule 2(b) on tl1e
basis of actuarial valuation after making certain adjustments; and secondly on the basis of the figure arrived at
under Rule 2(b ), he worked out the profits under Ruk
2(a) by making further adjustments. These orders were
made
on 14th
July, 1945.
The company
preferrccl
appeals against them to the Appellate
Assistant
Commissioner, who held by his order dated 30th November,
1945, that the annuity business contemplated by
Ruk
5(ii) was "purely annuity business", that the business
carried on by the Company was "an admixture between
an annuity and life insurance", and that there had been
no adequate investigation
by the
Income-tax
Officer
of the nature of tlie business
of the
Company.
He
'
•
•
-
--·
S.C.R.
SUPREME COURT REPORTS
825
accordingly
remanded °r:he
case for
further
enquiry
and for passing fresh orders of assessment.
By the time the matters came up for further enquiry
before the Income-tax Officer in pursuance of the
order
of remand, the assessment of the profits of
the
Company for the year 1946-47 had also to
be made.
By
order
dated 23rd
December,
1946,
the
Income-tax
Officer determined the assessable profits of the
Company
for all the four years.
He held that
there was no
element of insurance in the business of the
Company,
and that the computation should be made under
Rule
2(a).
Then he proceeded to assess
the profits
under
that Rule precisely in the manner adopted by him in
his order dated 14th
July, 1945.
He first
took
the
annual adjusted surplus calculated
according
to the
actuarial valuation under
Rule 2(b) and after
making
certain
adjustments,
adopted it as the figure
under
Rule 2(a).
These orders were clearly erroneous.
The
statement that there was no element of life insurance
in the policies was rightly held to be erroneous by the
Tribunal and has not been sought to be supported. If
the annuity
business of the
Company
was
not life
insurance business, then even
Rule 2(a) would have no
application. The
Income-tax
Officer was likewise in
error in adopting the figures reached
under Rule 2(b)
as the basis for computing the profits under Rule
2(a)
without an independent
enquiry
into the materials
requisite under that
Rule.
The
Company took up the matter in appeal to the
Appellate Assistant
Commissioner, who
by his order
dated 26th
September, 1947,
held that the
annuity
business of the appellant was life
insurance
business,
and that the profits should be computed under
Rule 2.
He further held that in the absence of a profit and loss
statement for the previous year, the
Income-tax Officer
could
only
act
on the
materials
furnished
by the
actuarial valuation as a guide
for
computation
under
Rule 2(a).
He
therefore
confirmed
the
orders of
assessment.
The Company then appealed to the Tribunal. By its
order dated 5th March,
1949, the
Tribunal held that
the business of the Company was "in a way" msurance,
I95f
General Family
Pension Fund
v.
The Commissiontr
of Income-tax,
West [Bengal.
Venkataratna
A,Y;·ar J.
1954
General Family
Pension Furul
v.;:
TW Commissioner
o.f Income-tax,
Wrst Bengal.
Venkatarama
Ayyar].
~26
SUPREME COURT REPORTS
f19551
and that computation of the ptbfits should be made in
accordance with
Rule 2, after determining the profits
both under Rule 2(a) and Rule 2(b). It took exception
to the modus adopted
by the
Income-tax
Officer
in
computing the
profits under
Rule 2(a), and observed
that he should have made in<lependent enquiry
under
Rule 2(a), and determined the profits and not merely
adopted the figures computed
under
Rule 2(b) as the
basis for computing the profits
under Rule 2(a).
The
Tribunal
accordingly
remanded
the
matter
to the
Income-tax
Officer for further enquiry for determining
the profits in terms of Rule 2(a).
·
Dissatisfied with this order, the
respondent applie<l
for reference
under section 66(1)
of the Income-tax
Act, and on that application, the following
questions
were referred to the decision of the High Court :
1. "\Vhether in the facts and circumstances
of the
case the business of
the assessee-Company
consisted
wholly of annuity
business or
whether
it contained
some elements of
ordinary
life insurance business as
distinct from annuity business.
2. Whether the
Income-tax Officer was justified in
making an estimate for calculations under Rule 2 (a) of
the
Schedule attached to section 10(7) of the Incometax Act."
The reference was heard by Chakravarti and S. R. Das
Gupta JJ. They held that the first
question
did not
arise on the order of the
Tribunal,
but all the same
expressed their opinion thereon in the following terms :
"Its business is
wholly a business
of
granting
annuities on· human life, and no part of its business is
ordinary life insurance business."
As we are not concerned with this matter in this
appeal, there is no need to further refer to it.
On the second question, they observed that business
in annuities dependent on life
as
contrasted with
"annuities
certain" would
be
insurance
business
as
defined in section 2(11) of the
Act, and that the profits
of that business being "gross
external incomings" as
defined in
Rule 5(ii) must be determined
under Rule
2(a). Dealing next with the objection of the appellant
that there had been no
proper
determination
of the
'
•
. ,
J
...
,.
.)._.
S.C.R.
SUPREME COURT REPORTS
827
profits under Rule 2(a), they held that in the absence
of profit and loss statements for the previous years and
other materials the
Income-tax Officer had
no course
open to him except to adopt the figures computed under
Rule 2(b) as a basis for computation under
Rule 2(a).
The second question was accordingly
answered in the
affirmative.
It is against this decision that the present
appeal has
been
preferred on a certificate
granted
under section 66A (2).
Mr. Mitra for the appellant
does not dispute the
position that the business of the
Company on annuity
policies dependent on human life is msurance
business
as defined in section 2(11), and that the profits of the
business should therefore be computed in
accordance
with Rule 2 in the
Sehedule to the
Income-tax Act.
His contention is that the Income-tax Officer had failed
to make the computation in accordance with Rule 2( a),
and that the
Tribunal was
right in remanding the
matter for a correct computation of the
profits in
accordance with that
Rule.
This contention must, in
our opinion, succeed.
Under
Rule 2, the Income-tax
Officer has to determine under clause
(a) what the
grnss external incomings of the previous year were, and
deduct out of them the managing expenses for that year.
He has also to find out in terms of clause (b) the annual
average surplus on the basis of actuarial
valuation in
the manner prescribed therein. He has then to adopt
whichever is
higher as the assessable
profits
of the
year. Now the complaint of the appellant is that while
a computation was made under clause (b) no independent computation was made under clause (a), and that
therefore
the
profits had not
been
determined
as
required by the
Rules. It is a fact that no independent
computation has been
made
under
Rule 2(a), and
therefore there has been no compliance with the
Rule.
The learned Judges declined to uphold this objection on
the ground that
the
Company
did
not place
any
materials before the Income-tax Officer so as to enable
him to make a determination under Rule 2(a), and
that in the absence- of any materials
the
Income-tax
Officer was justified in acting on the actuarial report
for computing the profits even under Rule 2(a).
1954
General Family
Pension Fund
v.
The Commissionerof lnrome·tax,
West Bengal.
Venkatarama
AY.1ar ].
1954
General Fami(y
Pensi-on Fund
v.
T ht Commissioner
'!,f Income·lax,
l1' est Bengal.
Venkatarama
Ayyar J.
828
SUPREME COURT REPORTS
f1955]
The argument of the appellant is that having regard
to the stand
taken
by either side at the stage of
investigation
and to
the opinion expressed by
the
Income-tax Officer that there was no element of insur-
·ance in the annuity business of the
Company, the true
position under the Rules had been missed by all of
them, with the result that there was no attempt made
to compute the profits in terms of the
provisions
of
Rule 2(a), that the appellant had not wilfully failed to
produce any evidence, and that the observation
of the
learned
Judges that no profit and loss statement had
been produced was based on a misapprehension, as no
such statement had to be prepared
by
an
Insurance
Company.
V.f e must now turn to the statement of the case by
the Tribunal to see what had really
happened
before
the Income-tax
Officer, for the last word on questions
of fact is with it, and that is
binding on the Courts.
Neither in the statement of the case by the
Tribunal,
nor in its order of remand is there any finding that the
requisite materials had been withheld by the appellant.
The only statement bearing on this
question
in the
order of the Tribunal is as follows :
" ...... the
Departmental
Representative
admitted
before us that the calculations purported to have been
made under Rule 2(a) were not in accordance with the
requirements of Rule 2(a), but it was explained that as
the information necessary for determining income under
Rule 2 (a) was not available, an estimate was made and
the income
determined under Rule 2 (b) was
adopted
for determining the income under Rule 2(a)."
What is referred to in this passage is only a statement of the
Departmental
Representative and not a
finding. On the other hand, the
whole tenor
of the
judgment of the
Tribunal is that there had
been no
determination of the profits under Rule 2(a) by reason
of the erroneous view taken by the Income-tax Officer
as to the true nature of the business of the
Company.
If there had been a finding by the
Tribunal that the
requisite materials had been called for and withheld by
the appellant, the decision of the High Court would be
unassailable, and, indeed, that was the only one that
•
\
..
S.C.R.
SUPREME COURT REPORTS
829
could have been reached. But in the absence of such
a finding, we are unable to see any ground on which
the order of the
Tribunal could be upset in a reference
under section 66 ( 1). Vvhen once it is found that there
was no proper determination of the profits as required
under Rule 2(a)-and that was indeed
conceded-and
there was no justification for it such as the High Court
thought there was, the only order that could properly
be made was to remand the case for
further enquiry
and fresh disposal in accordance with law. That
was
the order which was passed by the
Tribunal, and that,
in our opinion, was right.
This appeal will accordingly be allowed,
and
the
second question referred by the
Tribunal answered in
the negative. The
result of this
will
be that the
Income-tax
Officer will proceed to enquire into
the
profits of the appellant
Company for
the
years in
question in accordance with the requirements of Rule 2.
Under the circumstances, we direct that the parties do
bear their respective costs both here and in the High
Court.
Appeal allowed.
NAVINCHANDRA MAFATLAL
THE COMMISSIONER OF INCOME-TAX,
BOMBAY CITY.
[MEHR CHAND MAHAJAN C.J., s. R. DAS,
GHULAM HASAN, BHAGWATI
and VENKATARAMA AYYAR JJ.]
Indian Income-tax Act (XI of 1922) s.
12-B-Government of
India Act, 1935 (26 Geo. 5 CH. 2) Seventh Schedule, List I, Item
54-Tax on capital gains, if ultra vires-Capital gains, if income
-Legislative
practice-Interpretation
of
words-Words used in
Constitution Act.
Section 12-B of the Indian Income-tax Act, 1922 (inserted by
Act XXII of 1947) which imposed tax on 'Capital gains' is not
ultra vires the Government of India Act, 1935. The term 'Capital
1954
General Family
Pension Fund
v.
The Commissionr
of Income-tax,
West Bengal
Vmkatarama
4vyar J.
1954
November 1.