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Judgment
Chandurkar, J.—The assessee, Oriental Government Security Life Insurance Co. Ltd., was admittedly carrying on business of life insurance which was finally taken over by the Life Insurance Corporation under the provisions of the Life Insurance Corporation Act, 1956, with effect from 1st September, 1956. The assessee year in question is 1957-58 for which the relevant valuation date is 31st December, 1956.
Prior to the enactment and coming into force of the Life Insurance Corporation Act, the Govt. of India had issued the Life Insurance (Emergency Provisions) Ordinance, 1956. (hereinafter referred to as "the Ordinance") on 19th January, 1956. The Ordinance was promulgated in order to provide for taking over of the management of the life insurance business was referred to in the Ordinance as "controlled business". The crucial provision in the Ordinance was in cl. 3 of the Ordinance under which on and form the appointed day, which was 19th January, 1956, the management of the controlled business of all insurers vested in the Central Govt. and pending the appointment of a Custodian for to controlled business of any insurer, the persons in charge of the management of such business immediately before the appointed day were to be in charge of the management of the business for and on behalf of the Central Govt. Clause 3 also provided that the person in charge of the management of the business would carry on the controlled business subject to the provisions of sub-cls. (3) and (5) and to such further directions, if any, as the Central Govt. may give to them by notice addressed and sent to the principal office of the insurer. The Ordinance defined "insurer" as meaning an insurer as defined in the Insurance Act, who carried on life insurance business in India and includes the Govt. and a provident society as defined in s. 65 of the Insurance Act. There is no dispute that this Ordinance became applicable in the case of the assessee-company and with effect from 19th January, 1956, the management of the controlled business of the assessee-company vested in the Central Govt. In course of time, the Ordinance came to replaced by the Life Insurance (Emergency Provisions) Act, 1956, being Act IX of 1956, which substantially re-enacted the provisions of the Ordinance and thus effectively replaced the Ordinance. Later, Parliament enacted the Life Insurance Corporation Act, 1956, which provided for the nationalization of life insurance business in India by transferring all such business to a Corporation established for the purpose, known as the Life Insurance Corporation. Under s. 30 of the Life Insurance Corporation Act, the Life Insurance Corporation privilege of carrying on life insurance business. Section 30 reads as follows :
"30. Except to the extent otherwise expressly provided in this Act, on and from the appointed day the Corporation shall have the exclusive privilege of carrying on life insurance business in India; and on and form the said day any certificate of registration under the Insurance Act held by any insurer immediately before the said day shall cease to have effect in so far as it authorises him to carry on life insurance business in India."
The effect of s. 30 of the Life Insurance Corporation Act was that on and from the appointed day, which was 1st of September, 1956, the certificate of registration of the assessee-company, which enabled and authorised it to carry on life insurance business in India, ceased to be effective.
Under s. 7(1) of the Life Insurance Corporation Act it was provided that on the appointed day there shall be transferred to and vested in the Corporation all the assets and liabilities appertaining to the controlled business of all insurers. The effect of this provision was that all assets and liabilities appertaining to the business of life insurance stood statutorily transferred to and vested in the Life Insurance Corporation.
In the proceeding for assessment to wealth-tax for the assessment year 1957-58, the assessee-company claimed that it was not liable to be assessed to wealth-tax in view of the provisions of s. 45(b) of the W.T. Act. The relevant provision at the material time, before its amendment by the Finance Act of 1972 by which the opening words of s. 45 of the W.T. Act were altered, read as follows :
"45. The provisions of this Act shall not apply to - (a) a banking company as defined in section 5 of the Banking Companies Act, 1949;
(b) an insurer within the meaning of the Insurance Act, 1938."
This contention was negatived by the WTO as well as by the AAC who confirmed the assessment made by the WTO. Before the Tribunal the contention of the assessee-company was that for the purpose of s, 45(b) of the W.T. Act, is was enough if the assessee was an insurer at any time during the previous year and, according to the assessee, on the 1st of January, 1956, which was the first day of the previous year, the assessment-company was an insurer inasmuch as before the management of the company vested in the Govt. with effect from 19th January, 1956, under the Life Insurance (Emergency Provisions) Act, 1956, the assessee-company was carrying on the insurance business and even for the period prior to the vesting of the insurance business in the Life Insurance Corporation, the assessee was also carrying on insurance business.
The Tribunal took the view that so far as the provisions of s. 45(b) were concerned, the valuation date had no significance and that it was also not necessary that the assessee should have been the insurer throughout the preceding year. It was enough, according to the Tribunal if the assessee possessed "the eligibility for exemption from the date on which he becomes liable to assessment". Taking the view that the it was only by a statutory ban that it became impossible for the assessee to carry on business after 18th January 1956, the Tribunal found that the assessee has not in the least any inclination to discontinue the life insurance business. Taking the view that the assessee-company had done nothing in the direction of carrying on any other business even after 18th January, 1956, the Tribunal held that the company had not lost its status as an insurer after 18th January 1956. The Tribunal accepted the portion that the assessee-company continued to be an insurer "not even on the valuation date but till 1st April 1957" and, therefore held that the assessee-company was completely immune from wealth-tax liability under s. 45(b).
Arising out of this order of the Tribunal, the following question has been referred to this court under s. 27(1) of the W.T. Act, at the instance of the revenue.
"Whether the assessee-company was completely immune from wealth-tax liability for the assessment year 1957-58 u/s 45(b) of the Wealth-tax Act, 1957 ?"
Shri Kotwal, appearing on behalf of the revenue, has contended that the overall effect of the Ordinance, the Life Insurance (Emergency Provisions) Act and the Life Insurance Corporation Act was that in any case with effect from 1st September, 1956, there was a complete prohibition against the assessee form carrying on life insurance business. Therefore, according to the learned counsel, on 31st December, 1956, which is the relevant valuation date, the assessee was not an insurer within the meaning of the Insurance Act and was not, therefore, entitled to the benefit of s. 45(b) of the W.T. Act.
Shri Dastur, appearing on behalf of the assessee, has laid great stress on the difference in the wording of the provisions of s. 45, cls. (a) and (b), of the S.T. Act. It was pointed out that the provisions of the W.T. Act were not intended to be made applicable both in the case of a banking company and in insurer, but, according to the learned counsel, while the banking company is referred in cl. (a) of s. 45 with reference to the definition in s. 5 of the Banking Companies Act, 1949, the reference to the insurer is made in a different manner by using the words "within the meaning of the Insurance Act, 1938". The learned counsel, therefore, contended that it was not enough for the purpose of finding out whether an insurer could invoke the provisions of s. 45(b) to merely look at the definition of insurer in the Insurance Act. According to the learned counsel, the word "insurer" has been used in several provisions of the Act, and in certain provisions even an insurer who has ceased to do or carry on the insurance business has been referred to an insurer. The learned counsel, therefore, contended that notwithstanding the fact that the life insurance business of the assessee-company had ceased because of the statutory provision in the Life Insurance Corporation Act, the company could still claim to be an insurer having regard to the fact that the act contemplated that even an insurer who has ceased to carry on the business of the insurance can be called an insurer. In particular, reference has been made to be called an insurer. In particular cls. (b) and (c) thereof. Sub-s (4) of s. 3, inter alia, provides as follows :
"The Controller shall cancel the registration of an insurer either wholly or in so far as it relates to a particular class of insurance business, as the case may be, - ..
(b) if the insurer is in liquidation or is adjudged an involved, or
(c) if the business or a class of the business of the insurer has been transferred to any person or has been transferred to or amalgamated with the business of any other insurer, or ..."
The learned counsel has contended that even if an insurer is in liquidation or is adjudged an insolvent, the person carrying on insurance business is still described in cl. (b) as an insurer. Similarly, even where the insurance business has been transferred to another person or has been amalgamated with the business of any other insurer, the transferor or the person whose business is amalgamated with the business of another is still referred to as an insurer. Out attention has also been invited to the provisions of s. 3(5B) which reads as follows :
"When a registration is cancelled the insurer shall not, after the cancellation has taken effect, enter into any new contracts of insurance but all rights and liabilities in respect of contract of insurance entered into him before such cancellation takes effect shall, subject to the provisions of sub-section (5D), continue as if the cancellation had not taken place."
It is argued that even in a case where the registration has been cancelled, the person originally carrying on the business has been referred to as an insurer. We has also been referred to a decision of the Supreme Court in The Vanguard Fire and General Insurance Co. Ltd., Madras Vs. Fraser and Ross and Another, in which while dealing with the provisions of s. 2D and s. 33 of the Insurance Act, the Supreme Court has held that the word "insurer" in these who sections includes a person who has closed his business. The contention, therefore, is that when cl. (b) of s. 45 of the W.T. Act refers to an "insurer within the meaning of the Insurance Act as a person to whom the provisions of the W.T. Act shall not apply, even a company like the assessee who has ceased to carry on the business of life insurance will be included".
Now, there is no doubt that if the phraseology used in cls. (a) and (b) of s. 45 of the W.T. Act is read, the Legislature has made a difference while describing the persons in respect of whom the provisions of the W.T. Act will not become applicable. In cl. (a), while referring to the banking company, the reference is made only to the definition in s. 5 of the Banking Companies Act, 1949, because the words used are, "a banking company as defined in section 5 of the Banking Companies Act, 1949". When you go to cl. (b) of s. 45 the words used are, "an insurer within the meaning of the Insurance Act, 1938". When we go to the Insurance Act, the word "insurer" is defined in s. 2(9) of the Act. The definition is in three parts and reads as follows :
"insurer'' means -
(a) any individual or incorporated body of individuals or body corporate incorporated under the law of any country order than India, carrying on insurance business not being a person specific in sub-clause (c) of this clause which -
(i) carried on that business in India, or
(ii) has his or its principal place of business or is domiciled in India, or
(iii) with the object of obtaining insurance business, employs a representative, or maintains a place of business in India;
(b) any body corporated (no being a person specified in sub-clause (c) of this clause) carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in India; of stands to any such body corporate in the relation of a subsidiary company within the meaning of the Indian Companies Act, 1913, as defined by sub-section (2) of section 2 of that Act, and
(c) any person who in India has a standing contract with underwriters who are members of the Society of Lloyds whereby such person is authorised within the terms of such contract to issue protection notes, cover notes, or other documents granting insurance cover to others on behalf of the underwriters, but does not include a principal agent, chief agent, special agent, or an insurance agent or a provident society as defined in Part III".
clauses (a) deals with an individual or unincorporated body of individuals or body corporated incorporated under the law of any country other than India. Clause (b) deals with a body corporate, not being a person specified in sub-cl. (c) of this clause carrying on the business of insurance which is a body corporated incorporated under any law for the time being in force in India. Clause (c) refers to any person who in India has a standing contract with underwriters who are members of the society of Lloyds and who by such contract is authorised within the terms of the contract to issued protection notes, cover notes, or other documents, granting insurance cover to others on behalf of the underwriters. Now, it is importance to point out that in cls. (a) and (b) there is a specific reference to the carrying on of an insurance business. The argument is that Legislature really wanted to restrict the non-applicability of the provisions of the W.T. Act in the case of an insurer carrying on the business of insurance cl. (b) of s. 45 of the W.T. Act would also have been worded in the same manner as cl. (a) of s. 45 has been worded.
There is no doubt that while providing for the non-applicability of the provisions of the W.T. Act, the "insurer" has not been referred to in s. 45(b) with reference merely to the definition of that word in the Insurance Act and the Legislature has used the words "within the meaning of the Insurance Act". When those words have been deliberately used, it is obvious that the Legislature intended that the "insurer" in respect so whom the non-applicability of the provisions of the W.T. Act Was sought to be provided for, was to be ascertained in the light of the other provisions of the Act because the definition of "insurer" in the Insurance Act itself requires a reference to the other provisions of the Insurance Act in order to determine whether an individual or a company can be called an insurer as defined in the definition. On going through the provisions of the Insurance Act also, it is clear that such a reference becomes necessary for the simple reason that the definition of insurer in the Insurance Act does not appeal to be self-sufficient at all the and the mere definition of the word "insurer" would not have been enough to sufficiently identify the persons or companies in respect of whom the non-applicability of the provisions of the W.T. Act was intended to be laid down.
The first thing that strikes one is that the definition of insurer refers to "carrying on insurance business" in cl. (a) and "carrying on the business of insurance" in cl. (b). Both these phrase, however mean the same thing, namely, that the persons or the body corporate, as the case may, be mist carry on the business of insurance. Insurance business is of different kinds. Now, which kind of the business of insurance is regulated, required to go to the other provisions of s. 2 in order to identify this business of insurance referred to in the definition of insurer. The Act seems to deal with five kinds of insurance business as will be clear from the definition in cls. (6A), (6B), (11), (13A) and (13B). These clauses are as follows :
"(6A) ''Fire insurance business'' means the business of effecting, other wise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies;
(6B) general insurance business'' means, fire, marine or miscellaneous insurance business, whether carried on singly or in combination with one or more of them;
(11) ''life insurance business'' means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (expect dealt by accident only) or the happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include -
(a) the granting of disability and double or triple indemnity accident benefits, if so provided in the contract of insurance;
(b) the granting of annuities upon human life; and
(c) the granting of superannuation allowances and annuities paybale out of any fund applicable solely to the relief and maintenance of person engaged or who have been engaged in any particular profession, trade or employment or of the dependents of such persons; .....
(13A) ''marine insurance business'' means the business the affecting contracts of insurance upon vessels of any description, including cargoes, freights and other interest which may be legally insured, in or in relation to such vessels, cargoes and freights, goods, wares, merchandise and property or whatever description insured for any transit by land or water, or both, and whether or not including warehouse risks or similar risks in addition or as incidental to such transit, and includes any other risk customarily included among the risks insured against in marine insurance policies;
(13B) ''miscellaneous insurance business'' means the business of effecting contract of insurance which is not principally or wholly of any kind or kind included in clauses (6A), (11) and (13A)."
These definition will, therefore, show two things. One is that the concept of an insurer for the purpose, of the Act is not complete unless a reference is made to ascertain which different kinds of insurance business an insurer is entitle to carry on. The other thing which is made clear by these definition is that when the definition of insurer refers to carrying on business of insurance or insurance business, the nature of that business has to be ascertained from the different definitions referred to above. The nature of that business must be that it must bring about a contract of insurance. There is one more provisions to which a reference becomes necessary and that is to be found in s. 3 of the Insurance Act. The material part of s. 3 of the Insurance Act provides as follows :
"(1) No person shall, after the commencement of this Act, begin to carry on any class of insurance business in India and no insurer carrying on any class of insurance business in India shall, after the expiry of three months from the commencement of this Act, continue to carry on any such business, unless he has obtained from the Controller a certificate of registration for the particular class of insurance business ......."
Section 3 thus provides that unless the insurer has obtained from the Controller a certificate of registration for a particular class of insurance business, a person is not entitled to carry on that class of insurance business. Therefore, an insurer, if he wants to carry on insurance business which is regulated by the provisions of the Insurance Act, can carry on the particular class of insurance business as provided in the Act and that can be carried on only after obtaining the necessary certificate of registration.
If you now consider the provisions of cl. (b) of s. 45 of the W.T. Act in the light of the different provisions of the Insurance Act, it becomes immediately clear why the Legislature has used a different terminology in cl. (b) and did not merely make a reference to the definition of insurer in cl. (b). In other words, the cumulative effect of all these provisions is that before the provisions of s. 45(b) can be invoked by an insurer, the insurer must carry on a class of insurance business. It is with reference to these ingredients that the identity of the assessee claiming the exemption under s. 45(b) will have to be ascertained. It is obvious, therefore, that when the Legislature described the insurer for the purposes of s. 45(b) by using the words "within the meaning of the Insurance Act", that became necessary having regard to the different classes of business of insurance and the necessity of a valid registration certificate before a person can carry on a class of insurance business. An insurer who does not hold a valid certificate of registration or whose registration is canceled will not be an insurer for the purposes of s. 45(b). The insurer who carries on a class of insurance business other than the one described above will also not be an insurer within the meaning of the Insurance Act. It is also clear from the definition of the different classes of insurance that the business must consist of entering into the contracts of insurance. It is only when an insurer can validly enter into a contract of insurance that for the purposes of the Insurance Act he can be classified as an insurer. It is obvious, therefore that unless a person who claims the benefit of s. 45(b) of the W.T. Act is able to show that he carries on the insurance business that is, he holds a valid registration, that he enters into contracts of insurance and that he deals in the insurance business of the kind contemplated by the definition referred to earlier, he will not be entitled to claim the benefit of s. 45.
It is no doubt true, as contended by the learned counsel for the company, that in certain provisions, a person who has ceased to carry on the business of insurance is also referred to as an insurer and an illustration thereof is to be found in the decision of the Supreme Court in The Vanguard Fire and General Insurance Co. Ltd., Madras Vs. Fraser and Ross and Another, (hereinafter referred to as the "Vanguard Co.''s case"). The Vanguard Co. was carrying on various classes of insurance business other than life insurance till at an extraordinary general meeting of the shareholders held on 15th October, 1956, the shareholders passed a resolution by which all its insurance business was to cease forthwith and no further policies of any kind were to be issued thereafter. It was also resolved that no application for renewal of the certificate granted under s. 3 of the Insurance Act should be made and that the company would thenceforward carry on only the business of money-lending as a loan company and also to do investment business. The company informed the Controller of Insurance in December, 1956, that it was not going to apply for renewal of its registration for carrying on the business of insurance. The Controller wrote to the company in May, 1957, that the certificates of registration would be deemed to be cancelled from 1st July, 1957. Later, on 17th July, 1957, the Govt. of India passed a order under s. 33 of the Insurance Act directing the Controller of Insurance to investigate the affairs of the company and to submit a report. Admittedly this order was passed after the certificate of registration was cancelled. The Controller also appointed auditors to assist him in the investigation. This order of the Government was challenged in a writ petition before the Madras High Court. The contention was that the company having closed all its insurance business, no order could be passed against it under s. 33 as that section applied only to companies actually carrying on the business of insurance and that no such order could also be passed even with the help of s. 2D of the Act. The other contention with which we are really not concerned was that even if such an order could be passed under s. 33 read with s. 2D of the Act, it could not be done in the present case as the company''s liabilities in respect of its insurance business did not remain unsatisfied or not otherwise provided for. Section 2D of the Insurance Act provided :
"2D. Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied or not otherwise provided for."
The petition was dismissed by a single judge of the Madras High Court whose decision was upheld by the Division Bench. The matter was then taken in appeal to the Supreme Court. The contention before the Supreme Court was that s. 33 and s. 2D of the Insurance Act both referred to "insurer" which is defined under s. 2(9) as a person carrying on the business of insurance and, therefore, as soon as the insurer who was carrying on the business of insurance closes it down completely, he no longer remains an insurer and the provisions of the Act do no apply to him. Thus, the contention was that an order under s. 33 cannot be made against a person who was an insurer who had closed his business. This contention was negatived by the Supreme Court. The Supreme Court took the view that generally the word "insurer" has been defined for the purposes of the Act to mean a person or body corporate, etc., which is actually carrying on the business of insurance, that is, the business of effecting contracts of insurance of whatever kind they might be, but s. 2 began with the words, "In this Act, unless there is anything repugnant in the subject or context". The Supreme Court observed that even where a definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it was possible for the words to have a somewhat different meaning in different sections of the Act and depending upon the subject or the context. The Supreme Court, therefore, pointed out that in finding out the meaning of the word "insurer" in various sections of the Act, the meaning to be ordinarily given to it is that which is given in the definition clause, but that was not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, "unless there is anything repugnant in the subject or context". With these observations the Supreme Court considered the provisions of the different sections of the Insurance Act such as s. 3(2)(b), 3(2)(e), s. 9 and s. 55. Considering the policy of the Act and the fact that the policyholders and the general public were to be protected, the necessity for making an investigation into the affairs of an insurer who had closed his business is greater, for, he may have done so dishonestly, the Supreme Court observed as follows (p. 19) :
"We are, therefore, of opinion that the word ''insurer'' as used in s. 33 not only refers to a person who is actually carrying on business but in the context of that section and taking into account the policy of the Act and the purposes for which the control envisaged by the Act was imposed on insurers also refers to insurers who were carrying on the business of insurance but have closed it."
Referring to the provisions of s. 2D, the Supreme Court observed as follows (p. 19) :
"Obviously this section applies to those insurers who have closed their business. It was not necessary to enact this section if the word ''insurer'' here also meant a person actually carrying on the business of insurance, for, the provisions of the Act apply to such a person proprio vigore. Therefore, when the word ''insurer'' is used in section 2D it must mean a person who was carrying on the business of insurance but has closed it. If that is so, section 33, which provides for investigation, would apply to such an insurer who has closed his business, by virtue of section 2D."
This decision of the Supreme Court, no doubt, holds that for the purposes of certain provisions, the word "insurer" will also include a person who has closed down the business of insurance. But then it has to be remembered that this construction became necessary because of the context in which the word was used in a given provision. But, as pointed out by the Supreme Court, the general provision will hold good unless the context demands a different construction. It may be pointed out that s. 45(b) does not merely use the word "insurer", but the words used are "insurer within the meaning of the Insurance Act, 1938" and, therefore, consideration of the contention of the context in which that word is used for the purpose of finding out whether a different meaning than what is given in the definition should be given does not really arise in this case. There is nothing in the provisions of s. 45(b) of the W.T. Act which requires the words "insurer within the meaning of the Insurance Act, 1938" to be so construed as to include a company which has ceased to carry on insurance business.
The learned counsel has also referred us to the decision in Biswambhar Singh and Others Vs. The State of Orissa and Another, , which turned on the construction of the word "intermediary" used in the Orissa Estates Abolition Act, 1951, which was defined with reference to the merged territories as meaning "maufidar including the Ruler of an Indian State merged with the State of Orissa, a zamindar, ilaquedar, khorposhdar or jagirdar within the meaning of the Wajib-ul-arz, or any sanad, deed or other instrument ......" It is no doubt true that, on the facts of the particular case, the meaning of the word "intermediary" was ascertained with reference to the entries in the Wajib-ul-arz, but we have not found anything in that decision which could be of any assistance for the purposes of the controversy before us. It is, therefore, not possible for us to accept the contention of the learned counsel that so far as the provisions of s. 45(b) of the W.T. Act are concerned, even a person who has closed down his business of insurance should be held to be included within the word "insurer" as used in s. 45(b).
An alternative contention has been raised before us by Shri Dastur. The contention is that the assessee-company was an insurer for a substantial part of the year and the assessee-company would, therefore, be still within s. 45(b) of the Act, though it was not an insurer on the valuation date. Another limb of the same argument is that the assessee-company was still in the process of recovering the compensation payable to it and it must still be held to be carrying on the business of life insurance. The learned counsel contended that for the purpose of s. 45(b) the valuation date was not relevant because, according to the learned counsel, wherever the Legislature wanted that the affairs as on the valuation date were to be gone into, an express reference to the valuation date has been made. It is urged that the valuation date is relevant essentially in three respect, namely, (1) that the person must be alive on the valuation date, (2) that the assets must be owned by that person on the valuation date, and (3) that the value of the assets as on the valuation date was liable to tax. Apart from these three aspects, according to the learned counsel, the valuation date is not at all relevant. It is no doubt true that s. 45(b) does not in terms refer to the valuation date at all. But it is difficult to see how merely on that account it is possible to argue that for ascertaining whether an Act becomes applicable in the case of a particular person, the valuation date can be wholly ignored. As already pointed out, the opening words of s. 45 at the material time were "The provisions of this Act shall not apply to" and then the classes of persons or entities in respect of whom the Act was not to be applicable were mentioned. When the words used are "The provisions of this Act shall not apply", we will have to find out as to how the applicability of the Act is to be ascertained in a case where it becomes applicable. In other words, in the case of any other assessee who does not claim exemption, what is the material date with reference to which the applicability of the Act can be ascertained. To this question the only answer is : The valuation date. Section 3, which is the charging section, creates a charge in respect of the net wealth on the corresponding valuation date. This charge is for every assessment year from 1st of April, 1957. The valuation date is defined in s. 2(q) as follows :
"Valuation date'', in relation to any year for which an assessment is to be made under this Act, means the last day of the previous year as defined in section 3 of the Income Tax Act, if an assessment were to be made under that Act for that year ......"
The assessment year in the present case is 1957-58. Consequently, as already pointed out, the last day of the previous year will be 31st December, 1956, a position which is not disputed. Apart from the other provisions of the Act, the contention of the assessee-company is that its wealth cannot be charged to wealth-tax. In other words, according to the assessee, the charge created by s. 3 of the W.T. Act is not attracted in respect of its wealth. The concept of net wealth is defined in s. 2(m) as meaning the amount by which the aggregate value computed in accordance with the provisions of the Act of all the sets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in its net wealth as on that date under this Act is an excess of the aggregate value of all debts owed by the assessee on the valuation date. Therefore, when it is claimed that the charge under s. 3 will not be attracted to the wealth of the assessee, the only relevant date for deciding whether such charge is attracted or not, in our view, would be the valuation date. The applicability of the provisions of s. 3 cannot be ascertained except with reference to the net wealth of the assessee on the valuation date and, therefore, when an exemption is claimed from the operation of s. 3, that exemption will also have to be ascertained with reference to the valuation date. It will, therefore be wholly irrelevant whether the assessee had carried on life insurance business at any time before the valuation date for claiming an exemption under s. 45(b). If the assessee was not an insurer on the valuation date, then the assessee would not be entitled to claim the exemption under s. 45(b) of the W.T. Act.
It is also difficult to accept the contention that the assessee must be still taken to be carrying on the business of life insurance even after there is a statutory prohibition against its doing so. It has not been disputed before us that so far as contracts of insurance are concerned, the assessee had not entered into any such contract after 1st of September, 1956. What is urged before us on the authority of a decision of the House of Lords in South Behar Railway Co. v. IRC [1925] AC 476; 12 TC 657, is that the proceedings for determination of compensation under the provisions of the Life Insurance Corporation Act in respect of the assets of the company were still pending and the assessee had, therefore, to recover compensation and the assessee must therefore be held to be carrying on the business. We have already pointed out above that insurance business had a special connotation in so far as the provisions of the Insurance Act were concerned. The insurance business consisted of entering into contracts of insurance. It is only when the insurer enters into a contract of insurance and is entitled to do so by virtue of holding a valid certificate of registration, that for the purposes of the Insurance Act or within the meaning of the Insurance Act he can be said to be carrying on the business of insurance. Therefore, on the provisions of the Insurance Act itself, the contention that the assessee was still carrying on the business of insurance will have to be rejected.
The learned counsel, in support of his proposition that the words "carrying on business" have a wide meaning, has relied on Lord Summer''s observations in South Behar Railway''s case [1925] Ac 476; 12 TC 657 . The facts of that case were simple. The South Behar Railway Co. had entered into a contract with the Secretary of State in India relating to the construction of a railway in India. The company was to use its own capital for the construction of the railway which was to be undertaken by the Secretary of State through such agency as he should appoint, but the work was to be at the risk and cost of the company. Under the contract the Secretary of State was, as from the opening of the railway and until the determination of the contract, to work and maintain the railway and was to retain certain percentage of the gross receipts of the railway and the balance was to be the net earning of the company. The Secretary of State had liberty to determine the contract at certain fixed periods on giving 12 months'' notice and to become the owner of the railway on recouping to the company the capital expended thereon with his authority. After the railway was opened, there was a subsequent contract between the company and the Secretary of State by which until the determination of the principal contract, the company was to relinquish the railway to the Secretary of State in consideration of a fixed annuity to be paid half yearly to the company in lieu of the percentage of earnings payable under the principal contract. Thus, under the supplemental contract the only the question was whether the company carried on a business or similar undertaking within the meaning of s. 52 of the Finance Act, 1920. While holding that the company was liable to corporation profits tax, Lord Sumner observed as follows (pp. 711, 712 of 12 TC) :
"The important thing is that the old business still continues of getting some return for capital embarked in the line. There has not been such a termination of the business formerly carried on or such a complete transfer of it to a new trading company as has been held to be the criterion of ceasing to carry on business under the Bank Charter Act, 1844, s. 12 .... If, as was held in In re Dagnall [1896] 2 QB 407 , a married woman continues to carry on business for the purpose of 45 and 46 Vict. c. 75, s. 1(5), as long as her trade debts remain undischarged, there would seem to be a presumption that a company continuous to carry on business as long as it is engaged in collecting debts periodically falling due to it in the course of its former business. Business is not confined to being busy : in many businesses long intervals of inactivity occur."
The learned counsel has specifically relied in the observations that there is a presumption that the company continues to carry on "business as long as it is engaged in collecting debts periodically falling due to it in the course of its former business". The argument was that the assets of the company have been taken over by the Life Insurance Corporation. It has still to receive compensation from the Corporation, and since the assessee is still in the process of collecting its compensation, it must be treated as continuing to carry on the business, as pointed out by Lord Sumner.
We need not independently consider the scope of these observations because these very observations fell for considerations before the Supreme Court in The Commissioner of Income Tax, Punjab Vs. The Lahore Electric Supply Co., in which the question was whether the company could be still said to carry on its business when its only income was form investment of compensation moneys received by the company from the Government. It was contended before the Supreme Court that the company had to pay the Government half share of the profits and that it had still to return to the consumers the deposits made by them and the company was, therefore, carrying on its business. Ejecting this contention, the Supreme Court observed as follows (p. 5) :
"It would be laying down strange law to hold that when a business has in fact ceased to be run, it must be deemed as continuing because the outstanding liabilities of that business had not been liquidated. The question whether the company was carrying on business arises only because, if it was, it would be entitled u/s 10 to deductions from its business income in regard to certain expenses incurred by it for the purpose of that business. Business, as contemplated by that section, is an activity capable of producing a profit which can be taxed. Payment of outstanding liabilities is not an activity which can ever produce such a result. It cannot be said, therefore, that because liabilities of a closed business were outstanding, it has to be held that either the business was continuing or that an intention to resume business must be interfered : See IRC v. Anglo Brewing Co. Ltd. [1925] 12 TC 803.
Some reliance was placed in this connection on an observation of Lord Sumner in IRC v. South Behar Railway Co. [1925] 12 TC 657. We are unable to hold that Lord Sumner intended to lay down that a business which is closed downed is deemed to be carried on so long as its outstanding are being collected. South Behar Railway''s case [1925] 12 TC 657 was concerned with a financing company whose only activity after the finances had been furnished was to receive from the Government by way of profits of the financing activity, earlier a certain proportion of the net earnings of the undertaking financed which was being managed by the Government and later a fixed sum and to receive from the Government the finance supplied when the Government acquired the undertaking as it intended to do. All that Lord Sumner intended to say was that the receipt of the moneys was the business of the company and its only business after the financing had been completed. He was not conceded with the case of a close business whose outstanding are being collected."
The decisions in the Lahore The Commissioner of Income Tax, Punjab Vs. The Lahore Electric Supply Co., is, in our view, a complete answer to the contention of the learned counsel for the assessee that since the compensation still remained to be recovered, the assessee should be deemed to be carrying on the business of life insurance.
In the view which we have taken, the question referred to us must be answered in the negative and in favour of the revenue. The assessee to pay the costs of this reference.