Commissioner of Income Tax vs Universal Fire and General Insurance Co. Ltd.

S.K. Desai, J.—The assessee is Universal Fire & General Insurance Co. Ltd., Bombay. Today, after nationalisation of general insurance business, it is one of the subsidiary units of United India Insurance Co. Ltd. The Assistant General Manager of the United India Insurance Co. Ltd. has addressed a letter dated 25-9-1984 to the Central Government Advocate, stating that the assessee is not interested in appearing in the reference or engaging an advocate for assisting the Court. We have heard Mr. Jetly for the Commissioner. He has frankly stated that the answer to be given to the question referred to us is governed by a Circular No. I-P (XV-5) issued by the CBDT dated 23-1-1968 to be found in [1968] 69 ITR (St.) 25.

A few facts may be stated. We are concerned with the assessment year 1969-70. The assessee was Universal Fire & General Insurance Co. Ltd. The company was incorporated under the Companies Act, 1956, and was doing general insurance business including fire and marine insurance. The previous year for the assessment order was the one which ended on 31-12-1968. During the year, the assessee had a reserve of Rs. 24,98,452 under the head ''Departmental reserves''. These reserves were actually reserves for unexpired risks consisting of three items, viz.,

Rs. 99,955.51

Pertaining to marine insurance.

Rs. 9,68,482.79

Pertaining to accident and miscellaneous insurance.

Rs. 14,30,014.61

Pertaining to fire insurance.

The ITO has refused to include the said sum of Rs. 24,98,452 while computing the capital base in accordance with the provisions of the Second Schedule to the Companies (Profits) Surtax Act, 1964. However, this was done without any discussion in his order. Aggrieved by this, the assessee carried the matter before the AAC, who also rejected the claim of the assessee. The assessee then brought the matter by way of second appeal to the Tribunal. The Tribunal, after hearing both the sides, was of the opinion that there could be no doubt that the ''reserves for unexpired risk'' could not be regarded as (a) ''reserve'' or (b) ''surplus''. According to the Tribunal, however, the same was qualified as a ''fund'' within the meaning of rule 207) of the Second Schedule. The Tribunal was of the further opinion that the said expression ''fund'' not having been defined in the Act, it was to be given its plain and ordinary dictionary meaning. Giving such a meaning the expression ''fund'' meant a sum of money available to the assessee for payment or discharge of an unexpected claim. Accordingly, the Tribunal held that the reserves for unexpired risks clearly represented sums of money available to the assessee for payment or discharge of unexpected claims that might arise in respect of the policies which had been issued and which extended beyond the accounting year under consideration. Accordingly, in the view of the Tribunal, the amount so standing to the credit of these accounts could be regarded as a ''fund'' and was liable to be included in the capital computation. Mr. Jetly referred us to clause 2 of the said circular. It would appear to us that the said circular has direct relevance to the question under consideration before us. The ITO and the other authorities under the Act including the AAC were bound to act in accordance with the said circular. This is well settled both by the Supreme Court and by several decisions of this Court. Accordingly, without any further discussion, we answer the question in the affirmative and in favour of the assessee. There will be no order as to costs of the reference.