LIFE INSURANCE CORPORATION LTD. vs. COMMISSIONER OF INCOME-TAX, DELHI & RAJASTHAN

CIVIL APPEAL No. 678/1962Supreme Court[1964] 5 S.C.R. 88009 December 1963Bench: 3 JudgesAuthor: A.K. SARKAR, M. HIDAYATULLAH, J.C. SHAH26 pages
AI SummaryAllowed

What did the Supreme Court hold?

The Supreme Court held that the appeals should be allowed. Both Sarkar, J. and Hidayatullah, J. were of the view that the Income-tax Officer did not have the power to make the impugned adjustment. Sarkar, J. reasoned that the assessment of insurance business profits is governed by Section 10(7) and the Schedule to the Act, and the Income-tax Officer has no general power to correct errors outside these rules. Rules 2(b) and 3(b) of the Schedule did not grant such power. Hidayatullah, J. further elaborated that if the Income-tax Officer doubts the accounts, his powers are defined by the proviso to Rule 3(b), which requires consultation with the Controller of Insurance. Since the Income-tax Officer did not follow the proviso, the adjustment was improperly made. The proviso negates the existence of a separate general power, and action must be taken as laid down in the proviso or not at all. The High Court's view that the Income-tax Officer had a general power was incorrect.

What were the facts?

The assessee, Life Insurance Corporation Ltd., transferred Rs. 18,75,000 from its Consolidated Revenue Account to the Investment Reserve Fund. This transfer reduced the surplus on which tax was to be assessed. The Income-tax Officer directed the assessee to reduce this transfer by Rs. 30,420, believing the Investment Reserve Fund exceeded the deficit in securities by this amount. The assessee challenged this direction, arguing the Income-tax Officer lacked the power to make such an adjustment. The assessment years in question were 1952-53, 1953-54, and 1954-55. The appeals were from a judgment of the Punjab High Court.

What were the issues?

1. Whether the Income-tax Officer had the power to direct an adjustment to the surplus by reducing the amount transferred to the Investment Reserve Fund, when the assessment of insurance business income is governed by Section 10(7) and the Schedule to the Income Tax Act, 1922. (Question of law) Assessee's contentions: The Income-tax Officer had no power to make the impugned adjustment. The assessment of insurance business income is strictly governed by Section 10(7) and the rules in the Schedule. The Income-tax Officer's powers are limited by these rules, and the adjustment made was not warranted by any of them, including the proviso to Rule 3(b). Revenue's contentions: The Income-tax Officer had the power to make the adjustment. The judgment does not explicitly record the revenue's arguments, but it is implied they contended for the validity of the Income-tax Officer's action.

Which sections of the Income-tax Act were involved?

Section 10(7), Rule 2(b), Rule 3(b)

AI-generated summary — verify with the full judgment below

880 SUPREME COURT REPORTS [1964] 1963 issued. There can be little doubt that if a decision -- of a quasi-judicial Tribunal is challenged before the Sri Rama Vilas High Court under Art. 226 and it is shown that the Service (P) Ltd. said decision is based on irrelevant considerations v. or on considerations which are invalid in law, a writ C. will undoubtedly be issued under Art. 226. But Chandrasekaran the order passed by the Appellate Tribunal in the & Ors. present case does not suffer from any suchdnfirmity . . -- Therefore, we are satisfied that the decision in the Ga1endragadkar case of ex parte Grant on which Mr. Pathak relies, 1' does not assist his case.

The result is, the appeal fails and is dismissed with costs.

Appeal dismissed. 1963 LIFE INSURANCE CORPORATION LTD.

December 9 v. COMMISSIONER OF INCOME-TAX, DELHI & RAJASTHAN (A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH, JJ.)

Income Tax Act (XI of 1922), .s. i0(7) and Schedule rr. 2(b) and 3(b)-Direction for readjustment by income tax ojficer-·lf o/ficer has potver.

The appellant tran~ferred a certain amonnt from its Consolida- ted Revenue Account to the Investment Reserve Fund which it was e

The order continues below.

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