GENTLE, J. - (1.) THE General Family Pension Fund was incorporated under the Indian Companies Act, 1882, on 17th Aug., 1906 ; it is a company limited by guarantee ; it has no share capital and its members are confined to persons who are subscribers for grants of pension and annuities and who hold entrance certificates ; the liability of each member is limited to a nominal sum of Rs. 5 ; since it complied with the provisions of s. 26 of the above Act, a licence was granted by the Bengal Government permitting the company to be registered without the word "limited" being included in its name.
(2.) THE objects of the company, as contained in its Memorandum of Association, inter alia are:-- 3.(a) To acquire and take over as a going concern and to carry on and conduct and continue the objects of an existing unincorporated association or institution called the General Family Pension Fund founded and formed for the purpose of carrying on any business that has for its objects the acquisition of gain within the meaning of s. 4 of the said Act (Indian Companies Act, 1882). (b) To grant terminable pensions or annuities dependent on human life or any other event or contingency in favour of any subscriber and/or any nominee or nominees (within the categories therin mentioned) of a subscriber to the funds of the company. (d) To grant invest and deal with the moneys of the company not immediately required. (g) To pay out of any of the company 's funds all expenses of management of the company's business and objects. 4. THE income and property of the company whensoever derived shall be applied solely towards the promotion of the business and objects of the company as set forth in the Memorandum of Association and no portion thereof shall be paid or transferred directly by way of dividend or bonus or otherwise by way of profit to the members of the company. Provided that nothing therein contained shall prevent (i) payment of specified salaries and wages and (ii) ............ granting to any member a pension or annuity. It is conceded by the CIT that the company carried on the business of a life assurance company. THE Indian Life Assurance Companies Act, 1912, applies to all persons or bodies of persons, whether corporate or incorporate, (therein referred to as life assurance companies), who carry on such business within British India except, inter alia, to any fund which the Governor-General in Council may, by notification, exempt from the operation of the Act. By Notification No. 7345-97 dt. 13th Sept., 1913, the General Family Pension Fund was exempted from the operation of that Act. It is also conceded by the CIT that the transactions between the company and its members are mutual dealings and that income-tax is not assessable upon the surplus of the members' subscriptions ; this concession was made in pursuance of the decision in New York Life insurance Co. vs. Styles (1889) 14 App Cas 381 the principles of which, it is admitted, apply in India. It is convenient hereafter to refer to the General Family Pension Fund as 'the Fund'. This reference is concerned with the assessments for the years 1937-38 and 1938-39. Since they are in respect of years prior to the passing of the Indian Income-tax (Amendment) Act, 1939, the provisions of the Indian IT Act, 1922 (hereinafter called 'the Act'), as enacted before the Amendment Act of 1939, will apply to this reference. The questions referred for the opinion of this Court are :-- 1. Whether the decisions of the Asstt. CIT, Calcutta, for the years 1928-29 to 1935-36 are binding upon the ITO upon the principles of res judicata or otherwise ? 2. Whether the income, profits and gains of the General Family Pension Fund for the year ending the 31st Dec., 1936, should be assessed under r. 25 of the Indian IT Rules in the form then in force ? 3. If the answer to (2) is in the affirmative, whether in applying the said r. 25, from the surplus so ascertained, the Fund is at liberty to appropriate its non-mutual receipts, that is income from its investments, in the first instance, against its expenditure and to charge any balance of expenditure against its mutual receipts, that is income from members' subscriptions, thus leaving a final balance of mutual receipts which are non-taxable under the authority of Styles case ?
(3.) THE Fund has considerable sums invested in Indian Government and similar securities and also sone other investments, e.g., banking, Indian Treasuries and sterling securities brought into British India. THE assessment for the year 1937-38 was made with regard to the Fund's financial year ending on 31st Dec., 1936, and the other assessment relates to the next financial year. Reference, in any detail, to the earlier year is alone necessary as the later year, except for some variations in amounts, is substantially the same. During 1936 the total investments amounted in value to Rs. 77 lakhs, approximately, of which the main portion was Indian Government and like securities ; the investment income amounted to about Rs. 4,75,000 in respect of which, in most instances, income-tax was deducted at source ; the other receipts, to use a neutral term, were from the members and amounted to a sum slightly in excess of Rs. 1 lakh, being their annual subscriptions for pensions and annuties ; the Fund paid about Rs. 4,12,000 in pensions and annuities and about Rs. 66,000 for management expenses. For many years, the profits of the Fund have been ascertained by means of quinquennial actuarial valuations. In the valuation for the quinquenrium ending on 31st Dec., 1934, the estimated surplus was Rs. 4,23,681 which sum was the basis for ascertainment of the profits during the five years. During a considerable number of years, up to and including the first assessment for the year 1937-38, assessments for income-tax were based upon the average annual net profits disclosed by the last preceding quinquennial actuarial valuation with, possibly, some additions to which reference is unnecessary. In respect of the year 1937-38, the ITO first made an assessment based upon the actuarial valuation ; subsequently he served a notice upon the Fund under s. 34 of the Act, re-opened the assessment and re-assessed the Fund upon its income during the financial year ending 31st Dec., 1936, from Government securities (under s. 8) and from the other investments (under s. 12), allowing deductions only of banker's charges or commission (under s. 8) and a proportionate amount of management expenses commensurate with the amount of the other investment income to the total amount of the gross receipts, comprising subscriptions from members, interest upon Government securities and upon other investments. In the first assessment for the year 1937-38 the profits were assessed as 'nil' and a sum of about Rs. 70,000, representing income-tax deducted at source in respect of interest upon investments, was repayable. By the second assessment, Rs. 97,000 income-tax was due, which amount included the sum of about Rs. 70,000, above-mentioned, which had been refunded. The receipts from members were not included in this assessment and the only amount allowed for management expenses was Rs. 2,526 out of Rs. 66,000. Subsantially, the difference between the two assessments is that the Fund was required, by the second assessment, to pay Rs. 27,000, in addition to tax upon the interest from investments, instead of being entitled, according to the first assessment, to a refund of Rs. 70,000. The assessment for the year 1938-39 was made by the same method as the second assessment for the previous year and by which the sum of Rs. 24,609 tax became payable, in addition to tax deducted at source in respect of the investment income. Prior to the second assessment for the year 1937-38 it would seem that the whole of the Fund's receipts were considered to appertain to its business of a mutual insurance company and that r. 25 of the IT Rules, which was then in force, was applicable to the Fund. This rule provides that : "In the case of Life Assurance Companies incorporated in British India whose profits are periodically ascertained by actuarial valuation, the income, profits and gains of the Life Assurance Business shall be the average annual net profits disclosed by the last preceding valuation, provided that any deductions made from the gross income in arriving at the actuarial valuation which are not admissible for the purpose of income-tax assessment, and any Indian income-tax deducted from or paid on income derived from investments before such income is received, shall be added to the net profits disclosed by the valuation". ;