1946 (4) TMI 24 - HC - Income Tax

Court rules Assistant Commissioner decisions not binding on Income-tax Officer. General Family Pension Fund income assessed under Rule 25.

General Family Pension Fund Versus Commissioner of Income tax

The Court held that the decisions of the Assistant Commissioner of Income-tax were not binding on the Income-tax Officer based on the principles of res ... - Issues Involved:1. Whether the decisions of the Assistant Commissioner of Income-tax, Calcutta, for the years 1928-29 to 1935-36 are binding upon the Income-tax Officer upon the principles of res judicata or otherwise.2. Whether the income, profits, and gains of the General Family Pension Fund for the year ending 31st December 1936, should be assessed under Rule 25 of the Indian Income-tax Rules in the form then in force.3. If the answer to (2) is in the affirmative, whether in applying the said Rule 25, from the surplus so ascertained, the Fund is at liberty to appropriate its non-mutual receipts, that is, income from its investments, in the first instance, against its expenditure and to charge any balance of expenditure against its mutual receipts, that is, income from members' subscriptions, thus leaving a final balance of mutual receipts which are non-taxable under the authority of Styles case.Detailed Analysis:Issue 1: Binding Nature of Assistant Commissioner's DecisionsThe first issue concerns whether the decisions of the Assistant Commissioner of Income-tax for the years 1928-29 to 1935-36 are binding on the Income-tax Officer based on the principles of res judicata or otherwise. The Advocate-General abandoned the contention that an alteration in the method of assessment in subsequent years cannot be made by reason of the principle of res judicata. It was argued that since there was one assessment for the year 1937-38, a second assessment could not be made and the first one discharged in the absence of any fresh facts. However, this issue was not directly addressed in detail as it was not raised by the first question, and the Court did not consider it necessary to express an opinion upon it.Issue 2: Applicability of Rule 25The second issue is whether the income, profits, and gains of the General Family Pension Fund for the year ending 31st December 1936, should be assessed under Rule 25 of the Indian Income-tax Rules. Rule 25 provides that the income, profits, and gains of life assurance companies shall be the average annual net profits disclosed by the last preceding actuarial valuation. The Court held that Rule 25 applies to the Fund since it is a life assurance company that ascertains its profits by actuarial valuation. The investments of the Fund form part of its life assurance business, and the profits from those investments are part of the business profits. Therefore, the assessment should be made under Rule 25, without reference to Sections 8, 10, or 12 of the Act.Issue 3: Appropriation of Non-Mutual ReceiptsThe third issue is whether the Fund can appropriate its non-mutual receipts, such as income from investments, in the first instance, against its expenditure and charge any balance of expenditure against its mutual receipts, thus leaving a final balance of mutual receipts which are non-taxable. The Court held that since the profits of the Fund's life assurance business are ascertained by means of a periodical actuarial valuation, Rule 25 applies, and all assets and liabilities, including management expenses, are taken into account when computing the valuation. Therefore, the question of an allocation of a special fund or a particular source of income out of which the management expenses should be paid does not arise. The principle of favorable attribution, as laid down in the Edinburgh case, is not applicable to the present case. The computation of profits under Rule 25 does not involve actual payments or receipts, and hence, no question of attributing payment to any particular class of receipts arises.Conclusion:1. The first issue does not arise for a decision.2. The income, profits, and gains of the General Family Pension Fund for the year ending 31st December 1936, should be assessed under Rule 25.3. The Fund is not at liberty to appropriate its non-mutual receipts against its expenditure in the manner contended.The assessees are entitled to their costs to be taxed.