VEERASWAMI, J. - (1.) THESE references arise out of the same order of the Tribunal and related to the same assessment year 1957-58. Two of them come up at the instance of the Commissioner of Income-tax, one under section 66(1) and the other under section 66(2) of the Income-tax Act, 1922, and the third at the instance of the assessee under section 66(1) of the Act. The assessee is a public limited company which carried on life insurance business. The Life Insurance (Emergency Provisions) Ordinance, 1956 (Ordinance No. 1 of 1956), was promulgated on January 19, 1956, which was replaced by the Life Insurance (Emergency Provisions) Act, 1956 (Act 9 of 1956), which came into operation on March 21, 1956. Pursuant to the provisions of the Ordinance, the management of the assessee vested in the Central Government with effect from January 19, 1956. The Life Insurance Corporation Act, 1956 (Act 31 of 1956), received the assent of the President on June 18, 1956, and came into force on July 1, 1956. The Life Insurance corporation as a corporation sole was brought into existence and on and from that date, by section 3, all the assets and liabilities of the assessee appertaining to its controlled business to transferred to and were vested in the Corporation. In September, 1957, the assessee received Rs. 63,034 as managerial compensation determined under section 6 of Act 9 of 1956, and in October, 1957, Rs. 14,70,293, towards acquisition compensation. An additional sum of Rs. 1,61,318 was also received as acquisition compensation by the assessee in October, 1958, thus in all Rs. 16,31,611. In response to a notice under section 22(2) of the Income-tax Act, the assessee filed a return showing "nil" income. But in Section D of the return, the assessee showed these amounts. The Income-tax Officer found that the business income of the assess for the period January 1, 1956, to January 18, 1956, worked out to Rs. 42,257 and the proportionate tax deducted to Rs. 22,091. He also considered that the sum of Rs. 63,034 was chargeable to tax as from other sources under section 12. As regards acquisition compensation, he was of the view that the fair market value of the assets of the assessee as on January 1, 1954, should be determined at Rs. 10,81,688 and that on that basis the capital in liable to tax amounted to Rs. 5,49,923. The Appellate Assistant Commissioner of Income-tax concurred with the Income-tax Officer and dismissed the assessees appeal. But, the Tribunal, on a further appeal by the assessee, directed certain modifications. In its opinion, the period for which the business income of the assessee should be computed was from January 1, 1956, to August 31, 1956, and the proportionate income on the head of "business" would, therefore, come to Rs. 5,63,429 and the proportionate tax deducted to Rs. 2,34,543. The sum of Rs. 63,034, according to the Tribunal, would fall within section 10(7) of the Act and not under section 12. The Tribunal also held that the fair market value as computed by the assessee at Rs. 16,54,969 was correct and it followed that there was no capital gain made by the assessee. We may mention that the accounting period relevant to the assessment year is January 1, 1956, to December 31, 1956.
(2.) IN Tax Case No. 141 of 1963, the questions raised are : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profits relating to the period January 19, 1956, to August 31, 1956, computed under section 10(7) of the Act should be assessed in the hands of the assessee-company and the credit for tax paid during that period given to it ? and 2. Whether, on the facts and in the circumstances of the case, the inter compensation of Rs. 63,034 is assessable in the hands of the company under section 12 of the INcome-tax Act ?" The first question depends on whether the assessee carried on the controlled business during the period January 19, 1956, to August 31, 1956. The departmental view, as we already indicated, was that it did not so carry on. The Tribunal, however, opinion that, having regard to the provisions of the Ordinance Act 9 of 1956, the assessee continued to carry on business in life insurance until its assets were transferred to the Life Insurance Corporation with effect from September 1, 1956. In our opinion, the view of the Tribunal is correct. The Ordinance was intended to provide for the taking over, in the public interest, of the management of life insurance business pending nationalisation of such business. The Ordinance was necessitated because, pending such nationalisation, adequate steps were required to be taken to protect the interests of policyholders. This Ordinance by sub-section (2) of section 2 defines "controlled business" which, broadly speaking, means the life insurance business. Among the other expressions defined by the section are "custodian" and "insurer". "Insurer" is said to mean an insurer, as defined in the Insurance Act, who carries on life insurance business in India. By section 3, on and from the appointed day, which was January 19, 1956, the management of the controlled business of all insurers vests in the Central Government. Pending the appointment of a custodian for the controlled business of any insurer, the section directed that the persons in charge of the management of such business immediately before the appointed day should, on and from the appointed day, be in charge of the management of the business for and on behalf of the Central Government; and the controlled business of the insurer should be carried on by them subject to other provisions in the section. Sub-section (3) states that no insurer should, without the previous approval of the person specified by the Central Government in this behalf of that insurer, do certain acts which specified. It is of significance in the context of this case to note that clause (g) of sub-section (3) presupposes that an insurer may enter, even after the appointed date, into contracts relating to the issue of new policies of life insurance. Section 4(1) confers power on the Central Government to appoint a custodian, and by sub-section (2) it is provided that on such appointment, all persons in charge of the management of the controlled business of the insurer shall cease to be in charge of such management. Sub-section (3) of section 4 reserves to the central Government in effect the power to give instructions to the custodian as to the manager in which he shall conduct the management of the controlled business of the insurer or in relation to any matter arising in the course of such management. Power is given to the custodian under section 5 in relation to the controlled business of an insurer to exercise all or any of the powers which the Controller of Insurance or an administrator appointed under section 52A of the Insurance Act may exercise. Then follows section 6 which provides for compensation to be paid for the management of the controlled business vested in the Central Government and the mode of its computation. This Ordinance, as we mentioned, was replaced by Act 9 of 1956, the provisions of which, but for slight changes, are substantially the same as those of the Ordinance. With reference to these provisions, the contention of Mr. Balasubrahmanyan, for the revenue, is that on and from the appointed day, the management of the controlled business having vested in the Central Government, the controlled business of the insurer was no longer carried on by the insurer. Learned counsel recognizes that the effect of the Ordinance and the Act, which replaced it, was not to vest the assets of the insurer in the Central Government, but he says that the taking over of the management of the insurer is analogous to requisition of property in which no transfer of property is involved, but in which possession and the actual control of the property are taken. He adds that for purposes of section 10 all that is necessary is that the person sought to be charged should be one that carried on the business and that it is not necessary that the should also be the owner of the business. On that question, there is no difficulty. A comparison between section 9 and section 10 of the Income-tax Act brings out the distinction that whereas, for purposes of the former section, the person charged or sought to be charged must be the owner of the property, under section it 10(1) will office if the assessee carried on the business in the previous year. In Executors of the Estate of Dubash v. Commissioner of Income-tax, which was concerned mainly with sections 25(4) and 26(2) of the Income-tax Act, the Supreme Court in the course of its judgment observed : "There seems to be no warrant, therefore, to insist on a transfer of ownership as the decisive test of succession within the meaning of section 26(2) or section 25(4) any more than for insisting on the ownership of business by the person carrying on a business, for the purposes of section 10. I do not, of course, wish to be understood to say that a clerk or an agent in management of a business would be an assessee liable to be taxed in respect of its profits and gains. Some kind of title there must be, though not of a beneficial character." Saifuddin Alimohamed v. Commissioner of Income-tax is more directly in point. There, the Bombay High Court held : "Under section 10 of the Indian Income-tax Act, 1922, it is the person who carries on the business who is liable to pay tax. What is emphasized is not the ownership of the business but the fact of the business being carried on by the assessee." The same High Court reiterated that view in Commissioner of Income-tax v. Balwantrai Jethalal Vaidya though in a slightly different context. It said : "It is true that in that case (Saifuddin Alimohamed v. Commissioner of Income-tax we did say that a person liable to pay tax on business income was a person who carried on business; and we pointed out the difference in language used in section 10 and section 9. Whereas section 9 imposed the tax upon the owner of a property, section 10 imposed the tax upon a person who carried on business."
(3.) THERE can, therefor, be no doubt that in order to attract section 10, ownership of the assets or business is not a requisite and it will suffice if the assessee as of right factually carried on the business in the previous year the income from which is in question.But, the point is whether, having regard to the provisions of the Ordinance and Act 9 of 1956, it can be said that the insurer continued to carry on the contracted business from January 19, 1956, to August 31, 1956. On that question, as we read the Ordinance and the Act we are of the view that there is no warrant in them to suppose that, by reason of their provisions, the insurer ceased to carry on the controlled business subsequent to January 19, 1956. The effect of the Ordinance and the Act, in our view, was only to freeze the management of the insurer and take it over as distinct from the controlled business itself. In other words, in effect what Ordinance and the Act did was to substitute the broad of management of the insurer in relation to the controlled business by the Central Government. Mere replacing or substitution of the management of the insurer does not ipso facto operate as a deprivation of the carrying on of the controlled business from the insurer. The whole purpose of the Ordinance and the Act, as it seems to us, was to protect the interests of the policyholders in view of the impending nationalization. Lest the assets of the insurer in relation to the controlled business were frittered away or dealt with in a manner prejudicial to the interests of the policy-holders, the legislature thought fit to freeze the management so that effective control over the manner in which the controlled business is carried on and the assets of such insurer might be secured. In fact, there are indications in the Ordinance and the Act that the insurer, even after its management is taken over, was to continue to transact and enter into contracts in the issue of new life insurance policies. Sub-section (3) of section 3, which places certain restraints on the insurer with effect from January 19, 1956, does not anywhere state that on and from the appointed day, the insurer should cease to carry on its controlled business. Section 6 of the Ordinance, in fact, throws light upon the effect of section 3, for it only provided for compensation in respect of taking over of the management of the controlled business. Even after the appointed day, the business of the insurer was to be transacted as before in the name of the insurer and on its behalf. The only change that was brought over by the Ordinance and the Act was that, instead of the old management, the Central Government or the custodian, when one is appointed, would step into its shoes, but the business of the insurer was left unaffected. It could carry on the controlled business as before until, of course, the assets of the insurer including the controlled business stood transferred with effect from September 1, 1956. But it is contended for the revenue that when section 3(1) stated that, pending the appointment of a custodian for the controlled business of an insurer, the person in charge of the management of such business should on and from the appointed day, be in charge of the management for and on behalf of the Central Government, and the "controlled business of the insurer shall be carried on by them subject to the provisions contained in sub-section (3) and (5)", the intention is manifest that the controlled business on and from the appointed day would be carried on by those in charge of the management for and on behalf of the Central Government, and it follows, therefore, that on and from the appointed day, the controlled business was carried on by the Central Government and not the insurer. We are unable to accept this view of section 3(1). The first part of sub-section (1) indicates that the management of the controlled business of an insurer on and from the appointed day vested in the Central Government. That is why the latter part of the sub-section says that those in charge of the management immediately before the appointed day should continue to carry on the management for and on behalf of the Central Government. That is not to say that the controlled business of the insurer is to be carried on for and on behalf of the Central Government. What is carried on for and on behalf of the Central Government from that date is the management and not the controlled business of the insurer. That construction receives support from the other provisions of the Ordinance and the Act. Take for instance the board of directors of an insurer in controlled business. Can it be said that because the broad of directors in share of the management effectively controls, directs and secures the affairs of the life insurance business of the insurer, such board of directors carries on the business of insurer. Obviously, the person who carries on the business is the insurer and the board of directors only manages the business carried on by the insurer. That precisely is the position even after the appointed day with this difference that, instead of the erstwhile management, the Central Government and the custodian on his appointment comes into management. We are of the view, therefore, that the Tribunal was correct in its findings that the assessee carried on its business in life insurance until August 31, 1956. The first question in this reference is answered against the revenue. On the second question, the point is whether the sum of Rs. 63,034 was rightly held by the Tribunal to fall within the purview of section 10(7) of the Act. That provision says that notwithstanding anything to the contrary contained in sections 10 and 12, among other sections, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Schedule to the Act. Rule 1 in the Schedule read with section 10(7) charges a person who carried on life insurance business in the previous year and provides for computation separately of the income from such business. Since we have held that the assessee carried on the controlled business even subsequent to January 19, 1956, and up to August 31, 1956, it follows that section 12 will stand eliminated and that provision that would be properly applicable would be section 10(7) and the Schedule mentioned in the sub-section. No question has been raised before us as to the character of the income, the only question argued was whether section 10(7) or section 12 that would be applicable. We uphold the view of the Tribunal on this question and answer the same against the revenue. ;