MOTOR UNION INSURANCE CO LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference made' under Section 66(1) of the Indian Income-tax Act by the Income-tax Appellate Tribunal.

(2.) THE applicant is a non-resident company incorporated in the United Kingdom. In and before 1939 the company carried on insurance business in British India in lines other than life insurance. In respect of their profits of the accounting year 1939, questions now submitted for the opinion of the Court arose in the assessment year 1940-41.

(3.) WHEN the matter came before the Income-tax Officer, on these documents it was contended on behalf of the assessee-company that as no investment was made in British India, there was no income from investments in British India, and, therefore, the company was not liable to be taxed on the income which had accrued in England. That contention was negatived on the ground that Indian money was invested, and the company was liable to be taxed under Section 42(2) of the Indian Income-tax Act. In arriving at the amount of interest which had been earned by the company out of Indian premia, it was urged on behalf of the assessee-company that large amounts had remained in local banks. The Income-tax Officer accepted that contention, and, taking into account the entries in the books of the assessee-company, allowed credit for the amounts which remained in British India. Having arrived at the balance of premia remitted to England, (and which was held to be so invested in England) the Income-tax Officer fixed the rate of interest on the total investment and apportioned it in proportion to the premia held to have been remitted, during the accounting year, to the head office. Working out the figure in that way the Income-tax Officer had held that the first two sums shown on the credit side in the revenue account, less a sum of Rs. 1,33,341, was invested on account of the Indian business in the hands of the head office, and earned the average rate of 461 per cent. on the investment. He made the order of assessment on those lines.