1962 (11) TMI 47 - SC - Income Tax

Whether the right to refund was a right existing an September 1, 1956? Whether it appertained to the life insurance business of the appellant within the meaning of section 7? Whether the right to the refund was one appertaining to the life insurance business? Held that - Appeal dismissed. As 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 life insurance business or an amount treated as paid in respect of that business and therefore appertaining to it, should be made over to the respondent Corporation. This is the view taken by the Tribunal and with it we agree

Summary

Issues involved:
1. Entitlement to refund of taxes under the Income-tax Act, 1922.
2. Applicability and interpretation of Section 7 of the Life Insurance Corporation Act, 1956.
3. Determination of whether the right to refund appertained to the life insurance business.
4. Proportionate distribution of the refund between life insurance and general insurance departments.

Issue-wise detailed analysis:

1. Entitlement to refund of taxes under the Income-tax Act, 1922:
The appellant was entitled to certain refunds under the Income-tax Act, 1922, for the assessment years 1955-56 and 1956-57. The relevant provisions include Section 16(2), which deals with the inclusion of dividends in the total income, and Section 18(3), which mandates the deduction of income tax at the source from interest on securities. Section 48 allows a company to claim a refund if the tax paid exceeds the amount properly chargeable. The appellant claimed refunds based on these provisions, as the tax deducted at source or treated as paid exceeded the actual tax liability.

2. Applicability and interpretation of Section 7 of the Life Insurance Corporation Act, 1956:
Section 7 of the Life Insurance Corporation Act, 1956, transfers all assets and liabilities appertaining to the controlled business of an insurer to the respondent Corporation on the appointed day (September 1, 1956). The appellant's right to the refund, existing on September 1, 1956, was contested by the respondent Corporation, which claimed that this right appertained to the life insurance business and thus vested in the Corporation under Section 7. The court had to determine whether this right was an asset appertaining to the controlled business.

3. Determination of whether the right to refund appertained to the life insurance business:
The court examined the provisions of the Insurance Act, 1938, particularly Section 10, which mandates the separation of life insurance funds from other assets. The court noted that the income from shares and securities appertaining to the life insurance business should also be considered as appertaining to that business. The court concluded that the right to the refund, arising from excess tax paid on income from life insurance assets, appertained to the life insurance business. This interpretation was supported by the requirement to show income from life insurance assets separately in the accounts and balance sheets as per the Insurance Act.

4. Proportionate distribution of the refund between life insurance and general insurance departments:
For the assessment year 1956-57, the entire amount of tax credited as previously paid was refundable, with Rs. 48,271.25 attributable to the life insurance department and Rs. 3,196.56 to the general insurance department. For the year 1955-56, the refund of Rs. 12,867.68 was to be distributed, with Rs. 3,245.25 attributable to the general insurance department and the balance to the life insurance department. The court agreed with the Tribunal's decision that the tax liability for 1955-56 should entirely fall on the life department, which made the profit.

Conclusion:
The court dismissed the appeal, affirming that the respondent Corporation was entitled to the refunds appertaining to the life insurance business as per Section 7 of the Life Insurance Corporation Act, 1956. The appeal was dismissed with costs, and the respondent Corporation was declared entitled to the balance of the refund already paid by the Government.