VANGUARD FIRE AND GENERAL INSURANCE COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is the Vanguard Fire and General Insurance Co. It owns a building of which a part is occupied by the company for its own business, the rest being let out for rent. In respect of the assessment for the year 1950-51, the Income-tax Officer computed the income from the house property separately and since the building was a new construction, he considered that the assessee was eligible for the two years exemption provided under section 4(3) (xii) of the Act in respect of the rental income. THE Commissioner of Income-tax, taking the view that the Income-tax Officer had acted erroneously (not only in respect of the rental income from the building but in respect of other allowances such as depreciation), issued a notice under section 33B of the Act. After hearing the assessee, the Commissioner set aside the order of the Income-tax Officer granting exemptions and allowances and directed that the computation of the income of the assessee company should be made on the basis of the rules contained in the schedule. This resulted in bringing to tax those amounts wrongly allowed by the Income-tax Officer. A similar result followed in respect of the assessment for the year 1951-52. THEreafter the assessee appealed to the Appellate Income-tax reiterating its contention that notwithstanding the exclusion of sections 7 to 12 in the computation of income of a business of insurance, the exemptions contemplated in section 4 of the Act are still available to a business of insurance. This contention was not accepted by the Appellate Tribunal which agreed with the commissioner of Income-tax.

(2.) ON the application of the assessee under section 66(1) of the Act the following question stands referred to us :

(3.) WHAT has been argued on behalf of the assessee by Mr. Swaminathan is that despite the computation of the income in the manner provided in the Schedule, the character of the income remains unaffected and is still attributable to the various heads of income set out in section 6. If the profits and gains of the business of insurance are, notwithstanding the mode of computation, derived from the various sources so that the character of the income is still capable of being ascertained, learned counsel argues the exemptions provided for in section 4 would still be available to it. This argument does not appear to be sound. If it was the intention of the legislature to treat the income of the assessee - the business of insurance -as made up of incomes from various sources, the rules would necessarily have provided for the allowances which each source of income would be entitled to by way of deduction or exemption in making up the total income of the income. But there is a very important part of rule 6 of the Schedule which treats the profits and gains of the business of insurance as wholly liable to be treated as business income. It is significant that in this rule no greater measure of allowance in respect of expenditure than what any business would be entitled to get under section 10 is be allowed. That is to say, if in the annual income accounts of the assessee credit is taken for expenditures of various kinds, such items of expenditure, or quantum there of which would be beyond the scope of the provisions of section 10 have to be excluded, and the balance of the profits disclosed by the annual accounts has to be adjusted accordingly. The special reference to the expenditure allowed under to section 10 has clearly the effect of treating the entirely of the profits and gains of the business of insurance as only business income, notwithstanding that in the annual accounts the income from various sources might have been taken. The argument that the income computed under rule 6 still retains the character of its source, such as income from house property or from securities or other sources, is not supported by the rule.