Life insurance business means issuing new policies, not mere servicing of existing ones for tax computation.

The phrase "life insurance business" in the First Schedule to the Income-tax Act, 1961 was construed by reference to section 2(11) of the Insurance Act, 1938, meaning the business of effecting contracts of insurance upon human life. The Court applied the plain meaning of "effecting" and held that it refers to issuing new policies, not merely servicing existing ones. On that construction, servicing old life insurance policies without issuing new policies does not amount to carrying on life insurance business, and the special computation provisions under the First Schedule do not apply to that activity.

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Issues: Whether servicing previously issued life insurance policies, without issuing any new policies, amounts to carrying on the business of effecting contracts of insurance upon human life; and whether the income from such servicing activity is computable under the First Schedule to the Income-tax Act, 1961.

Analysis: The expression "life insurance business" in the First Schedule was held to take its meaning from section 2(11) of the Insurance Act, 1938, which defines it as the business of effecting contracts of insurance upon human life. The Court applied the plain and literal meaning of "effecting", holding it to mean taking out or issuing new policies. It rejected a wider construction that would extend the expression to mere servicing of existing policies, particularly because such an extension would operate unfairly and would artificially inflate the taxable income by limiting permissible management expenses.

Conclusion: Servicing old life insurance policies without issuing new policies does not amount to carrying on life insurance business within the meaning of the relevant provisions, and the income from that activity is not computable under the First Schedule. The answer was in favour of the assessee.

Ratio Decidendi: Where a statutory definition uses the phrase "business of effecting contracts of insurance upon human life", it refers to the issuance of new policies and not merely to servicing existing policies; consequently, the special computation provisions for life insurance business do not apply to servicing alone.

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