LIFE INSURANCE CORPORATION OF INDIA versus COMMISSIONER OF INCOME TAX

Citation: [1996] 2 S.C.R. 795 · Decided: 19-02-1996 · Supreme Court of India · Bench: J.S. VERMA · Disposal: Appeal(s) allowed

Judgment (excerpt)

LIFE INSURANCE CORPORATION OF INDIA 
A 
v. 
COMMISSIONER OF INCOME TAX 
[J.S. VERMA A.Nb K. VENKATASWAMY JJ.) 
FEBRUARY 19, 1996 
B 
Income Tax Act, 1961/Life Insurance Corporation Act, 1956-Section 
44 read with Rule 2(1)(b) of the First Schedule/S.7-Life Insurance Busi-
ness-Computation of Income-Refund of amount of excess tax paid by 
predecessor insurer prior to appointed day in 1956--Held, an allowable deduc-
C 
tion-Cannot be disallowed on mere ground of not having been included in 
the surplus in any earlier inter-valuation perio~Hamwnious construction of 
Rule 2(1)(b) of Income Tax Act and Section 7 of Life Insurance Corporation 
Act wa1Tants such constmction. 
Interpretation of Statutes-Hmmonious co11stmtion : 
Legal Maxim : "Lex 11011 cogit ad impossibilia" applicability of 
D 
The assessee, Life Insurance Corporation of India, a statutory Cor-
poration established under the Life Insurance Corporation Act which was E 
established with effect from 1 September, 1956, received during the 
relevant assessment year 1963-64 refunds of income-tax aggregating to Rs. 
3,02,90,898 in life insurance business. The Income Tax Officer treated the 
entire amount on revenue account and negatived the contention of the 
assessee that the same to be treated as profits and gains of the assessee F 
for the relevant period. On appeal, the Appellate Assistant Commissioner 
held that out of the amount of Rs. 3,02,90,898 included in the revenue 
account, the sum of Rs. 2,73,50,939 only was to be excluded and the balance 
amount had to be included. In the cross appeals filed by both the Revenue 
and the Assessee before the Income Tax Appellate Tribunal, it was inter-
alia contended by the Revenue that in computing the profits of the Assessee G 
under section 44 read with Rule 2(1)(b) of the First Schedule to the Income 
Tax Act, 1961, only such adjustments to the surplus or deficit as disclosed 
by actuarial valuation was permissible under the rule; and that rule 
permitted adjustment by way of exclusion of any surplus or deficit included 
therein which was made in any earlier inter-valuation period relating to H 
795 
796 
SUPREME COURT REPORTS 
[~996] 2 S.C.R. 
A the assessee itself and not that of its predecessor in business. It was also 
inter-alia stated that the words 'included therein' occurring in Rule 2(1) (b) 
indicated that the surplus or deficit in any earlier inter-valuation period 
must relate to that of the Corporation and not of its predecessor. 
For the assessee, it was contended that the payment of taxes giving 
B rise to the refund had made prior to the formation of the Corporation by 
the predecessor and that on the strength of section 7 of the Life Insurance 
Corporation Act, the Corporation stepped into the shoes of its predecessor 
for all practical purposes including the legal consequences flowing from 
the refund received by the Corporation as the successor in business. The 
C Tribunal accepted the contention of the Revenue and affirmed the order 
of the Appellate Assistant Commissioner to the effect that only a sum of 
Rs. 2, 73, 50, 939 which had entered into the surplus of the earlier 
inter-valuation period was allowable under section 2 (l)(b). 
The High Court, on reference, upheld the view taken by the Tribunal 
D observing that Rule 2 (l)(b) of the First Schedule to the Income Tax Act 
1961 cannot be reconciled with Section 7 of the Life Insurance Corporation 
Act. 
E 
F 
Allowing the appeal of the Assessee, this Court 
HELD : 1.1 In view of the legal fiction enacted in Section 7 (2) of the 
Life Insurance Act, the amount of refund made to the Corporation because 
of excess tax paid by the predecessor prior to the appointed day on which 
the Corporation was formed, must form part of the assets of the predeces-
sor which came to be transferred and vested in the Corporation on the 
appointed day in 1956, on the formation of the Corporation. For the same 
reason, the amount of refund, even though made later, must also be 
deemed to be included in the inherited opening balance shown by the 
Corporation in the earlier inter-valuation period which undisputedly had 
to be deducted under Rule 2 (l)(b). The amount so refunded to the 
Corporation must be deemed to be included in the earlier inter-valuation 
G period of the Corporation. Thus the requirement of Rule 2(1)(b) is satis-
fied since the amount is deemed to be included in the earlier inter• 
valuation period of the Corporation itself. (804-E-G] 
1.2 A r

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