Sabyasachi Mukharji, J. - (1.) The assessee is an Indian company. We are concerned with tin question whether in the relevant year the assessee was an investment company. The reference arises out of the proceedings under Section 104 of the Income-tax Act, 1961, for the assessment year 1961-62, the previous year for which ended on the 31st December, 1961. If the assessee was an investment company, the assessee had to declare not less than 90 per cent. of the distributable income as dividend. According to the assessee it was carrying on the business of insurance and as such it could not be termed as an investment company. It is undisputed that the assessee was carrying on the business of general insurance, namely, marine, fire and miscellaneous insurance, until the 29th January, 1960. On that date according to the explanatory statement sent to the shareholders in connection with the year 1966, the company ceased 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 that the premia as shown in the revenue accounts related to insurance business underwritten by the company as far back as 1956, of foreign treaty companies, etc. It was mentioned that the company had not underwritten any class of general insurance business during 1961. The company had not even a principal officer and the chairman, according to the revenue, and the directors, therefore, had to sign the documents. The assessee derived Rs. 1,22,812.30, as gross interest and dividend before deduction of tax at source. It got Rs. 32,911.41 as the profit from insurance transactions underwritten earlier. There was also undischarged liability in respect of outstanding claims estimated at Rs. 75,446.19. At the general body meeting for consideration of the accounts for the accounting year ended on the 31st December, 1961, the assessee declared Rs, 60,000 as dividend after transferring Rs. 35,000 as provision for income-tax and Rs. 20,000 as reserve for doubtful debts and other balances. In the assessment for the relevant year the income was determined at Rs. 1,53,749. After deducting the tax payable thereon the distributable income came to Rs. 94,622. If the assessee came within the provisions of Section 104 as an investment company, then it should have distributed 90 percent, of Rs. 94,622, which was the distributable surplus of the total income as assessed minus the tax payable thereon. The amount so distributable came to Rs. 85,160. The assessee, however, had declared only Rs. 60,000. Thus, there is a shortfall of Rs. 25,160. If the assessee was not an investment company, then it was enough if it had distributed 60 per cent. of the amount representing the balance out of the total income assessed after payment of taxes. In that event the assessee had complied with the requirements of distribution of the statutory percentage by declaring Rs. 60,000. The Income-tax Officer went into the question as to whether the assessee was an investment company or not. He came to the conclusion that as the assessee's licence for carrying on insurance business had been cancelled in 1960, the main source of the income of the assessee during the accounting year was only income from investments. He pointed out that more than 90% of the assessed income of the company was from investments. He, accordingly, held that the assessee not having distributed 90% of the distributable surplus was liable to pay additional supertax under Section 104 of the Act.
(2.) 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.
(3.) 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 facts and in the circumstances of the case, the assessee was an investment company within the meaning of Section 109(ii) of the Income-tax Act, 1961, as then in force so as to justify the levy of additional super-tax under Section 104 of the said Act for the assessment year 1962-63?";