1961 (9) TMI 89 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income arising from the Borivli property is exempt from taxation under section 4(3)(xii) of the Indian Income-tax Act.
2. Whether the income arising from the Borivli property is assessable in the hands of the assessee for the assessment years 1952-53, 1953-54, and 1954-55.

Detailed Analysis:

Issue 1: Exemption under Section 4(3)(xii)
The primary issue revolves around whether the rental income from the Borivli property is exempt from taxation under section 4(3)(xii) of the Indian Income-tax Act. The assessee, a life insurance company, claimed that the rental income should be exempt under this provision. The Income-tax Officer rejected this claim, stating that the income of an insurance company is to be assessed as a whole under the rules in the Schedule to the Act, and not under separate heads of income. The Tribunal, however, held that the rental income from the Borivli property should be excluded from the total income as it is exempt under section 4(3)(xii).

Issue 2: Assessability in the Relevant Assessment Years
The second issue is whether the rental income from the Borivli property is assessable in the hands of the assessee for the assessment years 1952-53, 1953-54, and 1954-55. The Tribunal's view was that since the income is exempt, it should not be included in the total income for these years. The Commissioner of Income-tax challenged this view, leading to the reference to the High Court.

Judgment Analysis:

Exemption under Section 4(3)(xii)
The court examined the relevant provisions of the Act to determine whether the rental income from the Borivli property is exempt. Section 4(3)(xii) states that any income chargeable under the head "income from property" in respect of a building constructed between April 1, 1946, and March 31, 1956, is exempt for two years from the date of completion. The court noted that to claim this exemption, the income must be chargeable under the head "income from property."

The court found that while the building was indeed constructed within the specified period and the income was for the two years following its completion, the crucial factor was whether this income was chargeable under the head "income from property." Section 10(7) of the Act, which deals with the computation of income from insurance business, overrides sections 8, 9, 10, 12, and 18. It mandates that the profits and gains of an insurance business be computed according to the rules in the Schedule to the Act, not under the separate heads of income.

Assessability in the Relevant Assessment Years
The court concluded that the income from the Borivli property, being part of the insurance business income, should be computed under the rules in the Schedule to the Act. Therefore, it is not chargeable under the head "income from property." Consequently, the assessee is not entitled to claim exemption under section 4(3)(xii).

The court also addressed an alternative argument presented by the revenue, which stated that even if the exemption were applicable for the assessment year 1952-53, it would not apply for the years 1953-54 and 1954-55. However, given the court's primary finding, this alternative argument was rendered moot.

Conclusion:
The court held that the rental income from the Borivli property is not exempt from taxation under section 4(3)(xii) and is assessable in the hands of the assessee for the assessment years 1952-53, 1953-54, and 1954-55. The answer to the reframed question was in the affirmative, and the assessee was ordered to pay the costs of the department.