TaxTMI 
TaxTMI 
TaxTMI 
1998 (9) TMI 70
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....owed within the meaning of r. 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964?" 2. So far as question No. 2 is concerned, the assessee had not applied for making reference of the said question. Only during the hearing of the application made at the instance of the Revenue, the assessee made a request for reference of question No. 2. As the Tribunal felt that the question No. 2 also required to be referred to this Court for its opinion, it has referred this question also to this Court. Our attention has been drawn by the learned counsel for the Revenue to the Supreme Court decision in the case of CIT vs. V. Damodaran (1979) 13 CTR (SC) 191 : [1980] 121 ITR 572 (SC) : TC 55R.624, wherein it has been held that the non-applicant has no right to ask for a reference of question of law on the application made by the applicant. In view of the above decision, the second question is returned unanswered as wrongly referred to this Court. 3. We now turn to question No. 1. The material facts necessary for deciding the same are briefly stated as follows. The assessee is a public limited company registered under the Companies Act, 1956. The assessment years under consider....
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....it left after such provision the same shall be refunded to the retrocessionarie. On the other hand, if the deposit is insufficient to meet the amount required for outstanding liabilities, the corporation shall be entitled to make up the deficit from any balance due to the retrocessionarie or shall, alternatively, be entitled to ask the retrocessionarie to make up the deficit, which the retrocessionarie shall do forthwith on demand. The amount thereafter retained as a reserve for outstanding liabilities shall be adjusted annually until all such liabilities are liquidated. If and so far as it may be necessary to secure the corporation in the event of the liquidation either voluntary or compulsory of the retrocessionarie, the corporation shall have a prior charge and lien on the said deposit and also upon any further monies with which the retrocessionarie may be entitled to be credited under the Agreement and the Corporation shall be secured creditors to that extent." 5. The assessee thus retained a part of the premia payable to the foreign re-insurer as a deposit with itself and was to pay interest thereon to the foreign reinsurer from year to year. In other words, the foreign rein....
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....reinsurer is a fund as contemplated under r. 2(ii) of the Second Schedule of the Surtax Act. The relevant rule reads as under: "2. Where a company owns any assets the income from which in accordance with cl. (iii) or cl. (iv) or cl. (viii) of r. 1 of the First Schedule is required to be excluded from its total income in computing its chargeable profits, the amount of its capital as computed under r. 1 of this Schedule shall be diminished by the cost to it of the said assets as on the first day of the previous year relevant to the assessment year insofar as such cost exceeds the aggregate of- (i) any moneys borrowed and remaining outstanding as on the first day of the said previous year; and (ii) the amount of any fund, any surplus and any such reserve as is not to be taken into account in computing the capital under r. 1. Explanation 1:-A paid up share capital or reserve brought into existence by creating or increasing (by revaluation or otherwise) any book asset is not capital for computing the capital of a company for the purposes of this Act. Explanation 2:-Any premium received in cash by the company on the issue of its shares standing to the credit of the share premiu....
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....Mr. Desai submitted that in view of the decision of the Supreme Court in the case of K.M.S. Lakshmanier & Sons vs. CIT/CEPT [1953] 23 ITR 202 (SC) : TC 15R.972 and in the case of CIT vs. V. Damodaran, there was no relationship of a lender and debtor between the assessee and the foreign reinsurer. There is a well known distinction between a deposit and a loan and in the present case in the absence of relationship of a lender and debtor between the parties, the assessee's claim that the premium deposit account should be treated as a fund within the meaning of r. 2(ii) of the Surtax Act cannot be accepted. 12. Rule 2(ii) of the Second Schedule of the Surtax Act provides that where a company owns any assets the income from which in accordance with cls. (iii), (vi) or (viii) of r. 1 of the First Schedule is required to be excluded from its total income in computing its chargeable profit, the amount of its capital as computed under r. 1 of the Second Schedule shall be diminished by the cost to it of the said assets as on the first day of the previous year relevant to the assessment year insofar as such costs exceeds the aggregate of the amount of any fund or any surplus or any such res....
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.... agreement between the parties. There is no overt act of lending or borrowing. A loan contemplates act of lending and/or borrowing. In the present case, there is no lending by the foreign reinsurer nor there is borrowing by the assessee. Similarly, the amount kept in the premium reserve account is not a deposit of the foreign reinsurer with the assessee. The assessee has retained some part of the premium payable to the foreign reinsurer for performance of its liability/responsibility under the treaty. Under the treaty, the assessee had agreed to pay premium amount retained by it with interest to the foreign re-insurer. In short, under the treaty parties agreed to defer the premium payable by the assessee to the foreign reinsurer to ensure the performance of the obligation of the foreign re-insurer. 12.1. Before the Tribunal the assessee has placed reliance upon the decision of this Court in the case of CIT vs. Bharat Bijlee Ltd. 1977 CTR (Bom) 104 : [1977] 107 ITR 30 (Bom) and the decision of the Calcutta High Court in the case of Duncon Bros. & Co. Ltd. vs. CIT [1978] 111 ITR 885 (Cal). The decision of this Court is not applicable to the facts of the present case. In the case be....