COMMISSIONER OF INCOME TAX Vs. MADRAS MOTOR AND GENERAL INSURANCE COMPANY LIMITED

JUDGEMENT

(1.) THESE two references relate to the same assessee but in respect of two different assessment years. The first reference relates to the assessment year 1963-64, and the second relates to the assessment year 1964-65. The assessee is a public limited company carrying on business in motor and general insurance. The previous years relevant to the assessment years in question are calendar years 1962 and 1963, respectively. In respect of these assessment years the assessee filed the returns of income showing income from different sources separately. The total of such income for the assessment year 1963-64 came to Rs. 22,15,583. This income included a sum of Rs. 4,85,802 being the income from dividends from other companies. The assessee claimed that it is entitled to a rebate of Corporation tax at 45% on this dividend income as per the Finance Act, 1963. The Income-tax Officer was of the view that, since in the case of an insurance company the entire income is assessed as from business regardless of the separate sources from which such income were derived, the sum of Rs. 4,85,802 could not be regarded as dividend income as such in the hands of the assessee. All the same the Income-tax Officer took into consideration the Board's instructions contained in Board's Circular No. 15-D (XXXIII-10) of 1964 dated June 17, 1964, and considered the question of granting relief. It may be mentioned at this stage that this Board's circular interpreted the relevant provisions of the Finance Act, 1963, to the effect that companies like that of the assessee would be entitled to the rebate of Corporation tax in respect of dividends received by them though the total income is considered under one single head of business regardless of the separate sources from which they were received. But it contained also a direction that while giving such rebate the proportionate management expenses incurred by the company should be reduced for the purpose of arriving at the 45% rebate. Purporting to give effect to this Board's circular the Income-tax Officer held that the assessee would be entitled to a rebate only on a sum of Rs. 4,34,941 and accordingly granted the rebate of Rs. 1,95,723. The assessee appealed to the Appellate Assistant Commissioner contending that it was entitled legally to a rebate of 45% on the entire dividend income and the Income-tax Officer was not right in reducing the proportionate expenses incurred by the company relying on the Board's instructions. The Appellate Assistant Commissioner took the view that the assessee was not entitled to any rebate on the dividend income at all under the provisions of the Finance Act, but since the Income-tax Officer had given a rebate on the dividend income as duly reduced by proportionate expenses incurred by the company he could not find any reason for enhancing the assessment and accordingly confirmed the same.

(2.) ON a further appeal the Tribunal, having regard to the language used in the Finance Act, came to the conclusion that the assessee was entitled to a rebate of Corporation tax on the entire dividend income and that the provision did not warrant any deduction of management or other expenses. In this view the Tribunal directed that the rebate should be granted on the gross dividends included in the total income without any reduction towards the proportionate management expenses. At the instance of the revenue the following question has been referred :

(3.) WE do not find anything in the language of the relevant provision in the Finance Act to warrant an interpretation that the said provision will apply only to a company which is entitled to submit a return of its income and to be assessed in respect of such income under separate headings or sources. If we have to accept the argument of the learned counsel for the revenue we would have to read the relevant provision as "in the case of every company other than the general insurance company and the Life Insurance Corporation of India" which would be re-writing the section and not giving effect to the same. Paragraph D of Part II to the Finance Act is intended to give relief by way of rebate in the super-tax for every company other than the Life Insurance Corporation of India at the rates referred to in the proviso. General insurance companies like that of the assessee are not specifically excluded by this provision. Nor do we find any particular reason as to why general insurance company should have been excluded from the benefit of this provision. The provision refers to the factum of receipt of dividends from any other Indian company and not its assessability under that heading. The reference to the dividend portion of the income in the provision was not, in our opinion, to the head of income. WE cannot import the idea of the special mode of computation of income of an insurance company under the First Schedule to the Income-tax Act in the calculation of tax under the Finance Act. Each is independent of the other. Merely because the income of a general insurance company was to be computed in a particular manner it could not be said that the total income did not include dividend from other Indian companies when in fact the company had received such dividends. In our opinion, the provision in Paragraph D of Part II of the Finance Act refers to the factual existence of income from dividend and not its assessability under any heads of income. WE may also state that at the time when the Finance Act was passed, the provisions relating to the assessment of general insurance companies as contained in the First Schedule to the Income-tax Act were in existence. If really Parliament intended that the beneficial provision would not be applicable when the income of a company is to be treated as one composite income from business, necessary language would have been employed to effectuate that intention. On the plain language of the provision every company other than the Life Insurance Corporation of India would be entitled to the benefits provided they satisfy the other conditions referred to therein. Any other interpretation would deprive all non-life insurance companies from the benefit of rebate provided in the Finance Act. WE are of the view that the words "so much of the total income as consists of dividends" refer to the factual existence of the dividend income and not to any head of income, and, therefore, the assessee would be entitled to a rebate on the dividend income under the provisions of the Finance Act.