SUHAS CHANDRA SEN,J - (1.) THE Tribunal has referred to this Court the following question of law under s. 256(2) of the IT Act, 1961 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of computing the fair market value of the capital asset of the assessee under s. 55(2) of the IT Act, 1961, the surplus to be taken into consideration was 3-1/2 per cent which was the minimum permissible under Expln. 2 to Paragraph 1 of Part A of the Schedule to the Life Insurance Corporation Act, 1956 and not the surplus allocated by the assessee to the shareholders during the relevant period ?
(2.) WHETHER , on the facts and in the circumstances of the case and on a proper interpretation of s. 55(1)(b) of the IT Act, 1961, the Tribunal was right in holding that there was improvement in the capital assets of the assessee after the 1st Jan., 1954 ? Whether there was any evidence to support the finding of the Tribunal that the improvement in the capital asset of the assessee could not be estimated at less than Rs. 3,98,000 and whether such findings were unreasonable or perverse ?" 2. The assessment year involved is 1957-58 for which the relevant year of accounting was the calendar year ending 1956. 3. The assessee-company was carrying on the life insurance business which was taken over by the Life Insurance Corporation of India on 19th Jan., 1956. The compensation was paid by the Government of India for taking over of the assets of the assessee-company and the valuation date for calculation of compensation was fixed on 1st Jan., 1954. The contention of the Revenue is that the assessee made capital gain liable to tax on account of the compensation paid for nationalisation of life insurance business.
(3.) IN v to justify this contention, the Revenue will have to show that the amount of compensation paid was higher than the market value of the assets as on 1st Jan., 1954. Mr. S.K. Mitra, advocate on behalf of the Revenue, tried to draw our attention to the valuation rule which is contained in the First Schedule to the Life Insurance Corporation Act, 1956. Sec. 16 of the Life Insurance Corporation Act provides as follows : "16. Compensation for acquisition of controlled business.--(1) Where the controlled business of an insurer has been transferred to and vested in the Corporation under this Act, compensation shall be given by the Corporation to the insurer in accordance with the principles contained in the First Schedule. (2)......." Part A of the First Schedule to the Life Insurance Corporation Act, 1956 deals with the principles for determining compensation and provides as follows : "The compensation to be given by the Corporation to an insurer having a share capital on which dividend or bonus is payable, who has allocated as bonus to policy holders, the whole or any part of the surplus as disclosed in the abstracts prepared in accordance with Part II of the Fourth Schedule to the Insurance Act in respect of the last actuarial investigation relating to his controlled business or at a date earlier than the 1st day of January, 1955, shall be computed in accordance with the provisions contained in paragraph 1 or paragraph 2, whichever is more advantageous to the insurer." Paragraph 1 of the said Schedule provides as follows : "Twenty times the annual average of the share of the surplus allocated to shareholder as disclosed in the abstract aforesaid in respect of the relevant actuarial investigations multiplied by a figure which represents to the proportion that the average business in force during the calender years 1950 to 1955 bears to the average business in force during the calender years comprised in the period between the date as at which the actuarial investigation immediately preceding the earliest of the relevant actuarial investigations was made and the date as at which the last of such investigations was made." ;