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Issues: (i) whether revision under section 263 was validly invoked on the ground that the assessment order was erroneous and prejudicial to the interests of the Revenue for alleged lack of enquiry; (ii) whether surplus and income reflected in the shareholders' account of a life insurance company could be taxed separately at the normal corporate rate instead of being treated as part of life insurance business taxed under the special computation regime.
Issue (i): Whether revision under section 263 was validly invoked on the ground that the assessment order was erroneous and prejudicial to the interests of the Revenue for alleged lack of enquiry.
Analysis: The assessment record showed that the Assessing Officer had issued notices and called for details, and the assessee had furnished submissions and supporting material on the method of computation and the character of its income. A revision under section 263 cannot rest on a mere change of opinion or on an incorrect assumption that no enquiry was made when the record discloses enquiry on the relevant issue. Explanation 2 to section 263 could not be used to sustain revision where the factual foundation of lack of enquiry was absent.
Conclusion: The invocation of section 263 on the ground of absence of enquiry was invalid and the assessee succeeded on this issue.
Issue (ii): Whether surplus and income reflected in the shareholders' account of a life insurance company could be taxed separately at the normal corporate rate instead of being treated as part of life insurance business taxed under the special computation regime.
Analysis: The dispute was governed by the special scheme for insurance business under section 44 and the First Schedule, under which the profits of insurance business are computed in the prescribed manner. The jurisdictional High Court had already held that income in the shareholders' account of a life insurance company forms part of its life insurance business and is not to be assessed separately as income from other sources or at the normal corporate rate. The Tribunal treated that ruling as binding and applied it to the present facts.
Conclusion: The shareholders' account income was held to be part of life insurance business and not separately taxable at the normal corporate rate; this issue was decided in favour of the assessee.
Final Conclusion: The revision order was unsustainable both on the jurisdictional objection and on merits, and the assessment could not be revised under section 263.
Ratio Decidendi: Where the assessment record shows enquiry on the relevant issue, section 263 cannot be invoked merely on an allegation of lack of enquiry, and the income of a life insurance company, including shareholders' account income, must be computed under the special regime governing insurance business.
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