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TMI Blog1974 (9) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ased to carry on any class of insurance business. By the letter dated the 29th January, 1960, the Controller of Insurance cancelled the certificate of registration granted to the assessee-company as an insurance company with effect from the 14th March, 1960, under section 3(4) of the Indian Insurance Act, 1938. Since then the assessee, according to the revenue, had not been doing any insurance business. The aforesaid explanatory note was circulated to the shareholders for getting certain resolution passed for amendment of the memorandum of association so as to enable the assessee to carry on investment business more economically and efficiently. Such alteration of the memorandum, however, took place in 1967. For the assessment year 1962-63, which is under reference, the relevant previous year of the company ended, as mentioned hereinbefore, on the 31st December, 1961. In the auditors' report for this year it was stated that the company had not transacted any insurance business and that the certificate of registration had been cancelled by the Controller of Insurance with effect from the 14th March, 1960. The directors' report appended to the accounts of the same year also mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to pay additional super-tax under section 104 of the Act. The assessee appealed to the Appellate Assistant Commissioner and contended that it did insurance business because it was still governed by the provisions of the Insurance Act, 1938. The Appellate Assistant Commissioner noticed that the income from business was Rs. 28,665 which was confined to receiving the arrear premiums. It was, therefore, held by him that the insurance business was not the main business during the relevant year because the income from this source represented only 19% of the total income. The Appellate Assistant Commissioner, accordingly, held that the assessee was rightly treated as an investment company. There was a further appeal to the Tribunal. After examining the provision as then in force and pointing out that the amendment subsequently made to the definition which did not apply to this year, the Tribunal held that, having regard to the nature of the income derived this year, the assessee was liable to be treated as an investment company. In the premises, under section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court : " Whether, on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract the applicability of clause (i) of the second Explanation to section 23A. The Division Bench of the Gujarat High Court held that as the dealing in and holding of investments were activities of an allied nature in the sense that both dealt with investments, both of them had been clubbed together and it would be sufficient compliance with clause (i) of the second Explanation to section 23A if the business consisted wholly or mainly in the dealing in investment or holding of investments or both. Though strictly speaking a company which was merely holding investments could not be said to be carrying on business, as there could not be business of holding of investments, in so far as the legislature had used the word "business" in the section in relation to holding of investments, according to the Gujarat High Court, the legislature must have had in mind the "business" in holding of investments, meaning thereby, real, substantial, and systematic or organised course of activity or conduct of making and holding of investments with a view to gaining income from the investments as business as distinguished from mere holding of investments. The Division Bench further held that the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax v. Distributors (Baroda) P. Ltd. There the Supreme Court held that clause (i) of Explanation 2 to section 23A of the Indian Income-tax Act, 1922, concerned itself with a company whose business consisted "wholly or mainly in the dealing in or holding of investments". The word "mainly" in that clause as well as in the main section 23A must necessarily take its colour from the word "wholly" preceding that word in those provisions. A company which came within the scope of those provisions must be one whose primary business must be "dealing in or holding of investments". If a company engaged itself in two or more equally or nearly equally important business activities then it could not be said that the business consisted "wholly or mainly" in dealing in a particular activity. Even in cases where a company had more than one business activity and one of its activities was more substantial than the others, unless that activity was the primary activity of the company, it could not be said that the company was engaged "wholly or mainly" in any one of its business activities. Section 23A applied only to cases where the primary activity of the company was in the dealing in or holding of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there was change in the memorandum of association and such change was sanctioned by a special resolution of the company at a general meeting on 26th June, 1967, and was approved by an order of this High Court on 19th September, 1967. Therefore, the changes in the memorandum of association had not been effected in the year with which we are concerned. In this connection, we may refer to certain provisions of the Insurance Act. Section 2D of the Insurance Act, 1938, provides as follows: " Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied or not otherwise provided for. " Counsel for the assessee contended before us that by virtue of the provisions of section 2D various provisions of the Insurance Act, 1938, were applicable to the assessee in the year in question. He drew our attention to sections 2(9)(b), 3, 6, 7(1), 7(8), 8, 9, 10, 11, 12, 14, 15, 17, 18, 19, 20, 21, 23, 25, 29(i), 30, 31, 33, 40(c), 46, 48, 53(2)(b), 53A, 55, 58, 59, 60 and 61 in support of his contention that there were various obligations of an insurer wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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