1982 (2) TMI 31 - HC - Income Tax

Tribunal rules in favor of assessee on tax exemption & capital gains, denies refund, no costs awarded.

The Tribunal ruled in favor of the assessee on multiple issues: the assessee was entitled to exemption under Section 25 of the Indian Income-tax Act, ... Refund Issues Involved:1. Whether the assessee-company's case was covered by the later part of clause (b) of the proviso to sub-sections (3) and (4) of section 25 of the Indian Income-tax Act, 1922, and whether it was, therefore, disqualified from the exemption under sub-sections (3) and (4) of section 25.2. Whether the compensation amount of Rs. 3,84,631 was a revenue receipt liable to assessment.3. Whether the Tribunal erred in holding that there was no justification for importing the rules contained in the Schedule I to the Life Insurance Corporation Act, into the Indian Income-tax Act, 1922, for computing capital gains under section 12B of the Act.4. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that no capital gains accrued to the assessee out of the nationalisation of its business.5. Whether, on the facts and in the circumstances of the case, the assessee was entitled to refund of tax deducted at source out of the interest on securities held by it.Detailed Analysis:Issue 1: Exemption under Section 25 of the Indian Income-tax Act, 1922The Tribunal had to determine whether the assessee-company's case was covered by the later part of clause (b) of the proviso to sub-sections (3) and (4) of section 25 of the Indian Income-tax Act, 1922, which would disqualify it from exemption. The Tribunal accepted the assessee's argument that the income of Rs. 2,39,574 for the period from January 1, 1956, to January 18, 1956, was the income of the assessee but that the assessee was entitled to exemption under sub-sections (3) and (4) of section 25 of the Indian Income-tax Act, 1922.Issue 2: Compensation Amount as Revenue ReceiptThe Tribunal held that the compensation amount of Rs. 3,84,631 received by the assessee under section 7 of the Life Insurance (Emergency Provisions) Act, 1956, was not a revenue receipt liable to assessment. This conclusion was based on the judgment of CIT v. New India Assurance Co. Ltd. [1980] 122 ITR 633; 50 Comp Cas 335, which concluded in favor of the assessee.Issue 3: Importing Rules from LIC Act for Computing Capital GainsThe Tribunal was questioned whether it erred in holding that there was no justification for importing the rules contained in Schedule I to the Life Insurance Corporation Act into the Indian Income-tax Act, 1922, for computing capital gains under section 12B of the Act. This issue was also concluded in favor of the assessee based on the judgment in CIT v. New India Assurance Co. Ltd.Issue 4: Capital Gains from NationalisationThe Tribunal had to determine whether it erred in holding that no capital gains accrued to the assessee out of the nationalisation of its business. This issue was similarly concluded in favor of the assessee by the judgment in CIT v. New India Assurance Co. Ltd.Issue 5: Refund of Tax Deducted at SourceThe Tribunal directed that pro rata tax credit be granted to the assessee for the tax deducted at source for the period from January 1, 1956, to January 18, 1956, based on tax deduction certificates produced by the LIC. The Tribunal's decision was challenged on the grounds that the right to refund belonged to the Life Insurance Corporation of India (LIC) as per section 7 of the LIC Act. The Supreme Court's decision in Neptune Assurance Co. Ltd. v. Life Insurance Corporation of India established that the right to refund vested in the LIC after the 'appointed day.' The Tribunal's reasoning was rejected, and it was held that the assessee was not entitled to the refund.Conclusion:- Question No. 2 in Income-tax Reference No. 31 of 1972: Answered in the negative.- Questions Nos. 1 and 2 in Income-tax Reference No. 155 of 1981: Answered in the negative.- Question No. 3 in Income-tax Reference No. 155 of 1981: Answered in the negative and against the assessee.- Question No. 1 in Income-tax Reference No. 31 of 1972: Declined to answer as it became academic due to the other conclusions.Costs:There will be no order as to the costs, and the parties will bear their own respective costs.