1984 (2) TMI 90 - HC - Income Tax

Summary

Issues:
1. Whether the company carried on the business of effecting contracts of insurance upon human life during the assessment years 1963-64 to 1966-67?
2. Whether the profit derived from the Life Insurance Department for the mentioned assessment years was computable as per the rules in the First Schedule to the Income-tax Act, 1961?

Analysis:
The judgment pertains to a reference under s. 256(1) of the Income-tax Act, 1961, involving the Jupiter General Insurance Company Limited, Bombay. The company, appointed an administrator by the Central Govt., was directed to cease issuing new life insurance policies in 1956. The Income Tax Officer (ITO) computed the income of the company for the assessment years 1963-64 to 1966-67 under r. 2(1)(a) and r. 2(1)(b) of Sch. I to the Act. The company contended that its income should be computed under r. 2(1)(b) due to restrictions on issuing new policies. The Tribunal held that the company's income should be computed outside the rules in Sch. I but allowed using similar rules with modifications for servicing existing policies.

Regarding the first issue, the Court analyzed the definition of "life insurance business" under the Insurance Act, which involves effecting contracts of insurance upon human life. The Court interpreted this to mean issuing new policies and not just servicing existing ones. As the company did not issue new policies during the relevant years, it was held not to be carrying on the business of effecting contracts of insurance upon human life. Therefore, the first issue was answered in favor of the company.

For the second issue, the Court held that since the company was not carrying on life insurance business as defined, its income from servicing existing policies could not be computed under the rules in the First Schedule. The second issue was also answered in favor of the company. The Court declined to address the method of income computation adopted by the Tribunal, as it was not a specific question referred for determination.

In conclusion, both issues were decided in favor of the company, and the Department was directed to pay the costs of the reference. The judgment clarified the interpretation of "life insurance business" and the computation of income for a company restricted from issuing new policies but servicing existing ones.