- (1.) The respondent, a public limited company, carried on in the relevant years of account business of insurance - life and general. In each of the calendar years 1944 to 1948 relating to the assessment years 1945-46 to 1950-51, the Company suffered doss in the life insurance section and made profit in the general insurance section. Till the assessment year 1950-51 the loss suffered in the life insurance section was allowed by the Revenue authorities to be carried forward and set off under S 24 (2) of the Indian Income-tax Act, 1922, against profits from the general insurance section in the subsequent year. In proceedings for assessment for the assessment year 1951-52 the Income tax Officer held that the life insurance business and the general insurance business carried on by the Company were "distinct and separate" and the loss carried forward from the previous year in respect of life insurance business could not be set off under S. 24 (2) against the profit of the general insurance business. The Appellate Assistant Commissioner and the Tribunal confirmed the view of the Income-tax Officer. The Tribunal referred the following question to the High Court of Madras under S. 66 (1) of the Income-tax Act : "Whether the unabsorbed losses incurred by the assessee in the earlier years in its life insurance business are available to be set off against its profits from general insurance business for the assessment years 1951-52 to 1954-55 - The High Court answered the question in the affirmative. With certificate granted by the High Court, these appeals have been preferred by the Commissioner of Income-tax.
(2.) The order of the Income-tax Appellate Tribunal summarises the reasons which persuaded the Departmental authorities to reject the claim of the Company. The Tribunal states : "The business of life insurance possesses peculiar characteristics which do not exist in respect of other insurance business. Firstly the life insurance policies are not contracts of indemnity. Secondly , the contract in the general insurance is generally annual, while in the case of life business the risk continues until death. Unlike general insurance contracts, the life contract, is made once and for all. The General insurance "contracts , are in law, fresh contracts entered into at the time of each renewal. Thirdly, life business is controlled by principles essentially variant from those which control the general insurance business. Fourthly, the life premia do not represent the life profits in one year be set off as a deduction. Fifthly, the law under which life business in carried on is quite different from the laws governing general business; and lastly , assessable profits of life business shall be computed separately from those of the general business, the consequence of which would be that the carry forward of loss of life business cannot be had against the profit of general business."
(3.) Tax payable by an assessee under the head "Profits and gains of business, profession or vocation" is normally computed under S.10(1) of the Income -tax Act, 1922, after making allowance mentioned in sub-s. (2) of S.10. But sub-s.(7) of S.10 provides that notwithstanding anything to the contrary contained in Ss.8,9,10,12 or 18 of the Act, 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. The Schedule is headed "Rules for the computation of the Profits and Gains of Insurance Business". By R. 1 it is provided that in the case of any person who carries on, or at any time in the preceding year carried on life insurance business the profits and gains of such person from that business shall be computed separately from his income, profits or gains from any other business. By R. 2 it is provided : 'The profits and gains of life insurance shall he taken to be either - (a) the gross external incomings of the preceding year from that business less the management expenses of that year, or (b) the annual average of the surplus arrived at by adjusting the surplus or deficit, disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 (IV of 1938) in respect of the last inter-valuation period "ending before the year for which the assessment is to be made, so as to exclude from it any surplus or deficit included therein which was made in any earlier intervaluation period and any expenditure other than expenditure which may under the provisions of S. 10 of this Act be allowed for in computing the profits and gains of a business, whichever is the greater : Provided * * * " Rules 3 and 4 lay down the method of computing the surplus for the purpose of R. 2. Rule 5 is a definition clause. Rule 6 deals with the computation of profits and gains of any business of insurance other than life insurance and provides that the profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938 to be furnished to the Controller of Insurance after adjusting such balance so as to exclude from it any expenditure other than expenditure which may under the provisions of S. 10 of the Act be allowed for in computing the profits and gains of a business. Rule 7 deals with the computation of profits and gains of companies carrying on dividing societies or assessment business. Rule 8 deals with the computation of profits of non-resident insurance companies having branches in the taxable territory. Rule 9 provides that the profits of any business carried on by a mutual insurance association or by a cooperative society shall be computed in accordance with the rules.;