1931 (2) TMI 14 - HC - Income Tax

Summary

Issues:
1. Amendment of questions raised in the case under Section 66(2) of the Indian Income Tax Act.
2. Applicability of the principle in New York Life Insurance Company v. Stylea to the assessee-company.
3. Assessment of the income of the assessee-company derived from various sources.
4. Failure of the assessee company to make a return of income under Section 22(1) of the Indian Income Tax Act.
5. Application of Rules 25 and 35 for assessing the total income of the assessee-company.
6. Validity and binding nature of the existing assessment on the company.

Analysis:

1. The High Court of Bombay made a reference under Section 66(2) of the Indian Income Tax Act to amend the questions raised in the case. Following the view expressed by the High Court of Allahabad, the Court decided to raise the real question of whether the existing assessment is valid and binding on the company, in addition to the two questions originally raised. This decision was based on the power granted to the Court under Section 66(5) of the Act.

2. The Court examined the applicability of the principle established in New York Life Insurance Company v. Stylea to the assessee-company. The principle stated that premiums paid by policyholders of a mutual insurance company, who share in the profits, do not amount to taxable profits of the company. The Court found no reason why this principle should not apply to the assessee-company, especially concerning premiums paid by policyholders who become members of the company.

3. The assessment of the income of the assessee-company was crucial. The Court determined that the company should be charged on income derived from investments and profits from non-participating policies, excluding contributions from participating policyholders. The assessment was to be based on taxable sources of income accruing, arising, or received in India, as per the Indian Income Tax laws.

4. The failure of the assessee company to make a return of income under Section 22(1) of the Indian Income Tax Act was noted. The company's attempt to declare only certain income sources was deemed insufficient. Consequently, the Income Tax Officer had to make the assessment to the best of his judgment under Section 23(4) of the Act.

5. To assess the total income of the assessee-company, the Income Tax Officer applied Rules 25 and 35. Rule 25, applicable to Life Insurance Companies incorporated in British India, was deemed inapplicable to the present case. Rule 35 was applied in the absence of more reliable data, as confirmed by the Commissioner in the supplemental case. The assessment was based on the triennial valuation of the company's income sources.

6. The Court concluded that the existing assessment on the company was valid and binding. The assessment was considered substantially binding on the company, even though the Court arrived at this conclusion through a different approach than the Commissioner. The Court answered all three questions raised in the case in the negative, confirming the validity of the existing assessment.

In conclusion, the High Court of Bombay provided a detailed analysis of the issues raised under the Indian Income Tax Act, emphasizing the proper assessment of the company's income and the validity of the existing assessment.