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TMI Blog1973 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... its and gains of the business for the year 1961 relevant to the assessment year 1962-63 ? " The assessee is a public limited company carrying on business in insurance. The accounting period adopted is the calendar year. Prior to the year 1956, the assessee was a composite insurance company carrying on business both in life and general insurance. With effect from January 19, 1956, the management of the life insurance or controlled business, on nationalisation, vested in the Government who acted through a custodian. The Life Insurance Corporation was established with effect from September 1, 1956, and all the assets and liabilities pertaining to the controlled business of all the insurers thereafter stood statutorily transferred and vested in the Corporation. The assets and liabilities relating to the life department of the assessee-company having thus vested in the Life Insurance Corporation, the assessee-company continued to carry on only the general insurance business since September 1, 1956. The assessee-company in due course prepared its profit and loss account and the balance-sheet for the year ending December 31, 1955, which purported to allocate the common expenses incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be liable to pay the sum of Rs. 76,306. The assessee then filed W. P. No. 979/58 (Vanguard Insurance Co. Ltd. v. Zonal Manager, South Zone Life Insurance Corporation of India) under article 226 of the Constitution of India in this court against the Life Insurance Corporation praying for the issue of a writ of mandamus to direct the Corporation to accept the balance-sheet for the calendar year 1955 and compel the Corporation to pay the assessee a sum of Rs. 76,306.38. This petition was dismissed by this court holding that neither the Custodian nor the Corporation was a party to the allocation, that by the unilateral act of the assessee-company allocating expenses as it liked the assessee could not bind the Government or the Corporation and no liability could be cast on the Corporation by reason of such unilateral allocation. While dismissing the writ petition, the High Court, however, observed that this did not preclude the assessee from obtaining its just dues by taking appropriate proceedings and that it would, be equally open to the Corporation to claim that, far from being liable to pay anything to the assessee, it is the latter that should pay what is due on account. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be accepted by the Life Insurance Corporation. The Tribunal, accordingly, held that the loss was in the nature of a trading loss correctly allowable in the year of account relevant to the assessment year 1962-63 and allowed the assessee's appeal. At the instance of the Commissioner of Income-tax the above question has been referred. In this reference, the learned counsel for the revenue submitted that the amount did not represent any debt or outstanding and the mere fact that the assessee treated the sum as an outstanding and showed it in the balance-sheets as an outstanding did not make any difference. He further contended that the amount did not represent any trading loss; being an expenditure it cannot be claimed as a trading loss. Even as an expenditure no allowance could be made in respect of the same in the year of account 1961 for the expenditure was incurred in the year 1955. On the other hand, the learned counsel for the assessee submitted that under regulation 9 of Part I of the Third Schedule to the Insurance Act, 1938, in the case of a composite insurance business the expenses of management charged to the life insurance revenue account must not include, more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissal of the suit the sum of Rs. 1,34,300 which was a debt due to them by the port trust authorities became a bad debt. Considering this question the learned judges of the Bombay High Court held that a bad debt presupposes the existence of a debt and at no time there was a debt due by the port trust authorities to the assessee. It was further held that what was paid by Ishardas was a proper payment of duty and it was properly debitable to the profit and loss account as an expense in the account year 1934, and not in the account year 1941, when the suit was dismissed. The expense could not be called a debt which became bad in 1941, when the suit was dismissed and that, therefore, the assessee was not entitled to the deduc tion claimed. We are of the view that the ratio of this judgment is fully applicable to the facts of the present case. The sum of Rs. 76,306 represented an expenditure incurred in the account year 1955. By making a wrong allocation of this expenditure towards the life insurance business and making an untenable claim from the Corporation the expenditure could not change its colour and character and become a debt owing from the Corporation. How the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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