1. ' SAIDUZZAMAN SIDDIQUI, J.--We propose to dispose of the above-noted 12 petitions by a common order as the points of law raised in the petitions are identical. These petitions are filed by different Insurance Companies who are carrying on business of general insurance. In all the above cases after the assessm ents were finalized by the Income Tax Officer concerned in accordance with Section 26 read with Rule 5 of the 4th Schedule of the Income Tax Ordinance 1979, hereinafter to be referred as 'the Ordinance' only for the sake of convenience. Notices were issued to the petitioners under Section 65 of the Ordinance proposing to reopen their income tax assessments for the assessm ent years mentioned in the notices, on the ground that the income derived by them from khas Deposit/Defence Saving Certificates had escaped assessment in the relevant years. Before considering the contentions raised by the learned counsel for the parties we may state here in brief some of the relevant facts in each petition.Petition No,488 of 1988 is filed by Dame Insurance Company challenging the notice dated 3-5-1988 issued to them under section 65 of the Ordinance proposing to reopen cases relating to assessment years 1984-85 to 1986-87.
2. ' Petition No,494 of 1988 is filed by Habib Insurance Company in respect of assessment years 1986- 87 to 1987-88 challenging the notice dated 3-5-1988 issued under Section 65 of the Ordinance.
3. ' Petitions Nos.548 and 549 of 1988 are filed by Hampshire Insurance Company against the notice dated 3-5-1988 issued to them under section 65 of the Ordinance proposing to reopen the assessm ent for the years 1986-87 and the assessment order dated nil for the assessment year 1987-88 disallowing claim of exemption on Income amounting to Rs,37,11,106 on Khas Deposit Certificates.
4. ' Petitions Nos.536, 537 and 538 of 1988 are filed by New Jubilee Insurance Company challenging the notices issued to them under section 65 of the Ordinance, proposing to reopen the assessm ents for the years 1984-85, 198586 and 1986-87.
5. ' Petition No,539 of 1988 is filed by Commercial Union Insurance Company against the notice dated 28-4-1988 proposing to reopen the assessment of the petitioner for the assessment years 1987-88.
6. ' Petitions Nos.641 and 642 of 1988 are filed by M/s. Central Insurance Company against the two notices dated 3-5-1988 issued by the Income Tax Officer proposing to reopen the income tax assessm ent of the petitioner for the assessment years 1986-87 to 1987-88 under section 65 of the Ordinance.
7. ' Petition Nos.736 of 1988 is filed by Newzealand Insurance Company against the notice dated 15-6- 1988 issued to them under section 65 of the Ordinance proposing to reopen income tax assessm ent for the year 1987-88.
8. ' Petition No,748 of 1988 is filed by Royal Insurance Company against the notice dated 16-6-1988 issued to them under section 65 of the Ordinance proposing to reopen their income-tax assessm ent for the 1986-87.
9. ' The notices issued in all the above cases are identical. We have therefore, for the sake of convenience reproduced here one such notice which reads as follows:-- "OFFICE OF THE INCOME TAX OFFICER COMPANIES CIRCLE A-5, KARACHI, ' No, Cos. Cir. A-5/1987-88 Karachi dated the 3-5-1988.
10. ' To ' The Principal Officer, ' KARACHI.
11. SUB: RE-OPENING OF ASSESSMENT YEAR ' Enclosed herewith please find notice under section 65 of the Income Tax Ordinance, 1979 for the Assessm ent year for compliance after the statutory period of 30 days. In this connection it is stated that your assessm ent for the assessment year has been re-opened because of the fact that income from Khas Deposit/Defence Saving Cartificates had escaped assessment. The income from Khas Deposity Defence Saving Certificates should have been taxed in your hand vide clarification issued by Central Board of Revenue through its Circular No,4 of 1988 dated 194-1988. It is further stated that prior approval of the Inspecting Assistant Commissioner Income Tax, Companies Range-II, Central Zone 'A', Karachi has been obtained before issue of notice u/s. 65, of the Income Tax Ordinance, 1979. Please make the compliance within the statutory period. SD/(A.A.
12. JAFFRI) INCOME TAX OFFICER COMPANIES CIRCLE A-5 KARACHI."
13. ' From reading of the above notice it is quite clear that the action proposed by the Income-Tax Officer to reopen the income tax assessments of the petitioners is based on the ground that during the relevant assessm ent years the income arising to the petitioners from Khas Deposit/Defence Saving Certificates had escaped assessment. It is also evident from these notices that the action for reopening of assessm ents of the petitioners has been taken by the Income Tax Officer on the basis of a clarification issued by the Central Board of Revenue vide its Circular No,4 of 1988 dated 19-4-1988 which reads as follows:- "GOVERNMENT OF PAKISTAN . CENTRAL BOARD OF REVENUE.
14. No, ITJI-13 (50)/73-Pt. Islamabad, the CIRCULAR NO. 4 OF 1988 (INCOME TAX)
15. ' SUB:APPLICABILITY OF SECOND SCHEDULE TO INCOME-TAX ORDINANCE, 1979, IN THE CASES OF ASSESSEES CARRYING ON INSURANCE BUSINESS CLARIFICATION REGARDING: ' Several queries have been received in the Board seeking clarification as to whether income exempted from tax under the Second Schedule to Income Tax Ordinance, 1979 will be exempt from tax in the hands of assessees carrying on insurance business.
2. Section 26 (a) of the Income Tax Ordinance, 1979 envisages that profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Fourth Schedule to the said Ordinance.
16. 3.Rule 1 of the said Fourth Schedule provides that profits of life insurance shall be chargeable under the head "income from business or profession" and shall be computed separately while rule 5 relates to general insurance which lays down, inter alia, that the profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts required under the Insurance Act, 1938 to be furnished to the Controller of Insurance subject to the adjustments under rule 5 (a) and (b) ibid. Rule 8 of the Fourth Schedule specifically mentions that the provisions of this Schedule shall apply notwithstanding anything contained in this Ordinance or any other law for the time being in force.
4. It is thus evident that special provision has been made in the Ordinance for the computation of the profits and gains of insurance business. This means that whatever may be constituents of the receipts of an insurance company, the balance disclosed in the annual accounts constitutes insurance income. Thus in the case of insurance company all the receipts whether from property, business, interest on securities, capital gains on sale of stocks and shares, dividends, yield of National Saving or Defence Certificates, etc. Will constitute insurance income and will be liable to tax. In such cases provisions of the Second Schedule to Income Tax Ordinance, 1979 will not be applicable to the individual receipts credited to the accounts. Sd/- (MOHAMMAD ARIF ASIM)
17. Secretary (Income Tax-I)"
18. ' Learned counsel for the petitioners jointly contended before us that income arising to petitioners from Khas Deposit Certificates is specifically exempted from payment of income tax thereon under the Second Schedule to the Ordinance and as such the notices issued by the Income Tax Officer proposing to reopen the assessm ent on the ground that such income had escaped assessment in the relevant assessm ent years is wholly without jurisdiction and mala fide. The second contention of the learned counsel jointly is, that the income tax assessments of the petitioners having been finalised in accordance with law and exemptions claimed by them on income arising to them from Khas Deposit Certificates having been granted by the concerned L-T.O. After conscious application of mind, in the relevant assessm ent years, the subsequent change of opinion of the successor Income Tax Officer, could not be a valid ground for reopening of these assessments. It is jointly urged that action under Section 65 of the Ordinance must be based on definite information which may come in possession of Income Tax Officer after finalization of assessment and on an independent application of mind. It is accordingly submitted jointly, that reopening of finalized assessm ents on the basis of instruction received from C.B.R. Is wholly without jurisdiction.
19. ' Learned counsel for the Department on the other hand very vehemently contended that the provisions contained in the Second Schedule were not applicable to the cases of petitioners, as the assessm ent of income tax on Insurance Companies carrying on business of General Insurance other than life, is governed entirely under section 26 of the Ordinance read with Rule 5 of the IV Schedule ibid. It is urged by the learned counsel that in terms of section 26 read with Rule 5 of the IV Schedule of the Ordinance, the balance of the profits declared in the returns filed by the petitioners under the provisions of the Insurance Act before the Controller of Insurance was to be treated as the balance of the profit of petitioners irrespective of its source and the same was to be taxed accordingly in accordance with the provisions contained in the First Schedule of the Ordinance. The learned counsel for the respondents went on to argue that a special provision having been made in the Ordinance for the assessment of the tax on the income of the insurance companies, the general provisions contained in the Ordinance in the Second Schedule were not applicable to them. With regard to objection of the learned counsel for the petitioners that issuance of notices under section 65 of the Ordinance is bad in law as it was on the basis of mere change of opinion of the Income Tax Officer, learned counsel for the Department contended that there was an obvious error/mistake in the framing of assessments of the income of the petitioners for the relevant years, as the petitioners were allowed exemption from tax in respect of income arising to them from Khas Deposit Certificates which was inadmissible under the law and as such the I.T.O. Rightly issued notices for correcting the above error in the assessment of the income of petitioners. Replying to the objections of petitioners that the issuance of notices to petitioners under section 65 of the Ordinance was not based on any definite information or independent application of mind but on the instructions of C.B.R., the learned counsel contended that the instructions issued by the C.B.R. Could be considered by I.-T.O. As a definite information and on that basis notices under Section 65 of the Ordinance could be issued validly. In addition to above submissions, learned counsel for the Department also raised a preliminary objection to the maintainability of above petitions on the ground that petitioners are not entitled to file the above petitions under Article 199 of the Constitution against issuance of notice by the Income Tax Officer as they have efficacious and alternate remedy available to them under the Ordinance, which they should have exhausted before invoking the constitutional jurisdiction of this Court.
20. We will first of all deal with the preliminary objection raised by the learned counsel for the Department with regard to the maintainability of above petitions. It is true that normally a petition under Article 199 of the Constitution will not be entertained by this Court against mere issuance of a notice by the authority which is competent under the law to issue the same, if the aggrieved person has a remedy available to him under the relevant statute which is equally efficacious and speedy. However, where it is alleged that the authority which issued the notice lacked jurisdiction or where remedy against the order of the authority which issued the notice, is provided under the statute in the hierarchy of department before the authority at whose instruction or behest the proceedings were initiated or where the appellate or revision authority under the statute has already expressed its views on the controversy which is subject-matter of proceedings, in such cases existence of a remedy by way of appeal or revision under the relevant statute will not be considered as a bar for filing of a petition under Article 199 of the Constitution. In the cases before us the main controversy relates to the interpretation of the provisions relating to the assessment of income of Insurance Companies, doing business of General Insurance (other than life insurance). It is quite clear from reading of the notices issued to the petitioners by the I.-T.O. Under section 65 of the Ordinance, that the same were issued on the basis of Circular No, 4 of 1988 of the Central Board of Revenue which is the highest authority in the hierarchy of Income-tax Department. From a bare reading of the above-referred circular of Central Board of Revenue, it is clear that it has already expressed its opinion finally on the controversy which is the subject-matter of the notices issued to the petitioners in the above cases. Therefore, the result of the proceedings initiated by the I.-T.O.
21. Against the petitioners under section 65 of the Ordinance, is almost a foregone conclusion and no different result in this regard could be expected from the appellate and revisional proceedings prescribed under the Ordinance. In these circumstances, in our view, the existence of an alternate remedy under the Ordinance, cannot be treated as a bar to the filing of the petitions under Article 199 of the Constitution by the petitioners. We therefore, overrule the preliminary objection raised by the learned counsel for the Department relating to the maintainability of these petitions and hold that in the above circumstances, the petitioners are entitled to maintain the above petitions uncle:.
22. Article 199 of the Constitution, without exhausting the remedies provided under the Ordinance.
23. ' The main controversy which requires determination in the above petitions is, whether the provisions contained in the Second Schedule to the Ordinance, which provides for exemption from payment of income tax on the income derived by an assessee from investments made in the Government Securities (Khas Deposit Certificates), is applicable to an assessee engaged in the business of General Insurance (other than life). The contention of the learned counsel for the petitioners jointly is that the income derived by an assessee from investments made in Government Security is generally exempted from Income-tax and as such there is no reason why this exemption should also be not available to the petitioners.
24. ' The learned counsel for the Department on the other hand submitted that special provisions having been made in the Ordinance for assessing the profits and gains and the tax payable thereon of an assessee engaged in the business of Insurance, the general provision contained in the Ordinance for assessm ent of income of general body of assessee is in-applicable to them.
25. Number of decided cases have been cited at the Bar in support of respective contentions of the parties but before considering these cases we would like to examine first, the relevant provisions of the Ordinance. The first relevant provision is section 26 (a) of the Ordinance which reads as follows:- "26. Special provisions regarding business of insurance and production of oil and natural gas and extraction of other mineral deposits.
26. ' Notwithstanding anything contained in this Ordinance.--
(a) the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Fourth Schedule.
(b) ...............................................
(c) ...............................................
27. A careful analysis of the above provisions will show that the profits and gains of any business of insurance and the tax payable thereon is to be computed in accordance with the rules contained in the Fourth Schedule to the Ordinance. Rules 1 to 4 of the Fourth Schedule which apply to companies doing business of life insurance are not relevant here as the petitioners are engaged in the business of general insurance (other than life) to which Rule 5 of the Fourth Schedule of the Ordinance applies which is as follows:-- "5. General Insurance.-- The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts required under the Insurance Act (IV of 1938) to be furnished to the Controller of insurance subject to the following adjustments, namely:-
(a) any expenditure or allowance or reserve or provisions for any expenditure, or the amount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the "income from business or profession" shall be excluded:
(b) any amount either written off or taken to reserve to meet depreciation or loss on the realization, of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation, or gains on the realization, of investments shall be treated as part of the profits and gains: ' Provided that the Income-tax Officer is satisfied about the reasonableness of the amount written off or taken to reserve in the accounts to meet depreciation, or loss on the realization, of investments, as the case may be."
28. The above rule clearly states that the profits and gains of any business of insurance (other than life insurance), shall be taken to be balance of profits disclosed by the assessee in the annual accounts submitted by it before the Controller of Insurance under the provisions of Insurance Act of 1938, which means that no further enquiry or probe with regard to the above declared profits and gains of the assessee is permitted by the I.-T.O., except to the extent as provided in sub-rules
(a) and (b) of Rule 5 ibid. Mr. Mansoor Ahmed Khan, the learned counsel for some of the petitioners in the above cases, however, contended before us that under section 9 of the Ordinance tax is levied/charged on the total income of the assessee and as such mere fact that section 26 and rule 5 of the Ordinance provided that the balance of the profit declared by the petitioners in their returns filed before the Controller of Insurance under the Insurance Act of 1938, will be deemed to be the profits and gains of business of insurance, could not change the basis of the tax. The learned counsel urged that the scope of total income is defined in section 11 of the Ordinance which includes all income from whatever source derived by an assessee. The learned counsel contended that "all income" contemplated under section 11 ibid has been divided into six different heads for the purposes of charge of tax under section 15 of the Ordinance. The learned counsel referred in detail various provisions contained in Chapter IV of the Ordinance which separately dealt with the income arising to an assessee under each head of income specified in section 15 ibid. The learned counsel accordingly submitted that income arising from 'interest on securities' is dealt with under section 17 of the Ordinance which clearly provides that where any security of the Federal Government is issued with the condition that interest thereon shall not be liable to tax, the interest receivable on such security shall be exempt from tax in accordance with such condition.
29. On the above premises, the learned counsel argued that the income derived by the petitioners from "Khas Deposit Certificates" could not be subjected to charge of tax under the Ordinance as the same is exempted under the Second Schedule ibid. To support his above contention the learned counsel relied on the cases of Commissioner of Income Tax v. R.G. Chapman (PLD 1985 SC 329), Life Insurance Corporation of India v. Commissioner of Income Tax Delhi (1964) 51 I.T.R. 773), Assessee v. Department (Appellate Tribunal of Income Tax Case) (1964) 10 Tax 95), ' Pandyan Insurance Co. v. Commissioner of Income Tax Mad. 1965 PTD 475; Lakshmi Insurance v. C.I.T. Delhi (1972) PTD 233; Commissioner of Income Tax Bombay v. New India Assurance Co. Ltd. (1972) PTD
458. Learned counsel for the Department on the other hand contended that under section 26 read with rule 5 of the IV Schedule of the Ordinance the balance of the profits declared by an insurance company in its annual account filed before the Controller of Insurance under the Insurance Act, is treated its total income for the relevant year and liability of tax is determined thereon in accordance with the provisions of the First Schedule. It is argued by the learned counsel that an insurance company may derive profits and gains from various sources but when it declares the same in its annual accounts it is treated as one income e.g. Arising from the business of insurance and as such it becomes taxable strictly in accordance with the provisions of section 26 (a) and rule 5 of the Fourth Schedule of the Ordinance. In support of the above argument the learned counsel relied on the cases of Habib Insurance Co, Ltd v. Commissioner of Income-Tax (PLD 1985 SC 109), Commissioner of Income Tax v. Habib Insurance Co. Ltd. PLD 1975 Kar. 848 Vanguard Fire and General Insurance Co. Ltd. v. Commissioner of Income Tax, Madras (1966) 60 I.T.R. 496 and; Commissioner of Income Tax v. Asian Assurance Co. Ltd. 1962 (46) I.T.R.
560. We have heard the learned counsel for the parties at length and our conclusions are as follows:- ' It is not disputed before us that for assessment of profits and gains and tax payable thereon in respect of Insurance Companies, special provisions have been made in the Ordinance and same is given overriding effect over other provisions of the Ordinance. No doubt, under the Ordinance, the charge of the tax is on total income of an assessee, which is divided into six different heads under section 15 ibid. It is also correct that 'interest derived by an assessee on securities, which is one of the heads of income under section 15 ibid, is dealt with under section 17 ibid. The combined effect of section 17 read with item 72 of the Second Schedule of the Ordinance is that the interest on Khas Deposit Certificates' derived by an assessee is totally exempted from charge of tax under the Ordinance. The point for consideration before us, however, is whether the interest income of Khas Deposit Certificates received by the petitioners and included in the balance of profit declared by them in the annual accounts submitted to the Controller of Accounts under the provisions of Insurance Act is to be treated as "interest income on securities" or same is to be deemed to be the "profits and gains of business of Insurance", to be dealt with accordingly under the Ordinance. If, it is held to be the former, it will be exempted from tax under the Ordinance, but in case it is treated as the latter it will not be so exempted from the tax. In the case of Habib Insurance Co. Ltd v.
30. Commissioner of I T C (PLD 1985 SC 109), the Humble Supreme Court while pointing out difference between the assets, income and gains of a Company doing insurance business and an ordinary trader `(individual or company) observed as follows at page 113 of the report:-- "Once it is conceded that the appellant-Company was doing no other business except that of Insurance, it follows that all its assets, income gains become relatable to the business of insurance.
31. The only question is whether the disputed income arises directly from the business of Insurance or for the purposes of tax can be treated outside it. In this matter the distinction between an ordinary trader (individual or company) and a banking or Insurance Company, which the learned counsel for the appellant, ably tried to obliterate must be kept clearly in view. It is well brought out in British Tax Encyclopeadia at page 1244 in following word s:- "A trader who has money in hand and temporarily invests it in shares is nor regarded as performing a trading operation, if he later wants the money and realizes his investment at a profit, such profit is not taxable. But if he carries on a trade in which investing money is a normal part of that trade, then any profits or losses he makes on investments will be brought into his tax computation. Thus an insurance company and a bank have been held taxable on profits made on realizing investments as the buying of investments is part of insurance or banking business; conversely any loss may be deducted. Interest received by a trading company from its bankers on its daily bank balance has been held to be part of its trading profits."
32. ' In the same case the Court further observed at page 115 of the report as follows: "It, therefore, follows that the assets, incomes, gains of the appellant-Company which is doing no other business except 'that of Insurance are all relatable to Business of Insurance and consequently on the strength of subsection (7) of section 10 of the Income-tax Act, the computation of tax has to take place in accordance with First Schedule. Provisions of First Schedule are self-contained and complete. It is true as contended by the learned counsel for the appellant that in Revenue cases one must look at the substance of the thing and not at the manner in which the account is stated. This broad proposition is controlled in certain respects by First Schedule. Rule 6 is in three parts. The first part provides as follows:- "The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required to be furnished to the Controller of Insurance."
33. ' The second part provides and actually defines the limits of the powers of the Taxing authorities to:- "Adjusting such balance so as to exclude from it any expenditure other than expenditure which may under the provisions of section 10 of this Act be allowed for in computing the profits and gains of business."
34. ' The third part which has a direct relevance to the case of the appellant provides:- "Profits and losses on the realization of investments, and depreciation and appreciation of the value of investments shall be dealt with as provided in rule 3 for the business of life insurance."
35. ' The relevant portion of rule 3 so made applicable provides:- "Any sums taken credit for in the accounts or actuarial valuation balance sheet on account of appreciation of or gains on the realization of the securities or other assets shall be included in the surplus."
36. ' Similarly in the case of Commissioner of Income-tax v. Habib Insurance P LD 1975 Kar. 848 a Division Bench of this Court while deciding an Income-tax Reference adverted to the manner of computation of income of an Insurance Company under the Income-Tax Act of 1922, and observed as follows ate page 238 of the report: "6. Now Section 3 of the Act makes the total income of the previous year of an assessee chargeable, and Section 6 lays down the several heads of income, profits or gains which shall be so chargeable to income-tax. The method of computation of the income under different heads set out section 6, is embodied in sections 7, 8, 9, 10 and 12 of the Act. But in view of section 10 (7) of the Act these have no application to the case of insurance companies, the computation of the profits and gains of which is to be done according to the mode prescribed in the First Schedule to the Act.
37. The insurance company has, therefore, not to submit its returns under different heads, but as one unit of income on the basis of notional income prescribed under the Schedule.
38. ' Section 4 which defines the range of the total income is subject to the provisions of the Act and, therefore, in the case of insurance companies it is this notional income which shall be chargeable as provided in section 3 of the Act. Even if the various sources of this total income be ascertainable then too the same shall have to be treated as a single unit and could be subject only to provision of section 3 which is the charging section. This would be the plain meaning of the language used in the various sections. As observed by the High Court of Madras in Vanguard Fire & General Insurance Co. Ltd. v. C.I.T., Madras: "If it is the intention of the Legislature to treat the income of the assessee--the business of insurance--as made up of income from various sources, the rules would necessarily have provided for the allowances which each source of income would be entitled to by way of deduction or exemption in making up the total income of the assessee."
39. ' In the case of Commissioner of Income-tax v. Asian Assurance Co. Ltd. (1962) 46 I.T.R. 560, the Bombay High Court of India also while considering the claim of exemption made by an insurance company in respect of income from property under section 4 (3) (xii) of Indian Income-tax Act held as follows: " It has to be seen whether the lyast test, namely, that it is income chargeable under the head "income from property" is satisfied. Now, the heads of income are enumerated in section 6 of the Act. It provides that "Save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income tax in the manner hereinafter appearing....", and then it enumerates those heads, head (iii) being "income from property". Reading these material provisions of section 6 together with clause (xii) of subsection (3) of section 4, it is apparent that unless and until the assessee establishes that income relating to which it has claimed exemption is income from property within the meaning of section 6 and chargeable to income-tax in the ' manner provided in the Income-tax he cannot claim that the provisions of clause (xii) of subsection (3) of section 4 are attracted thereto. Section 9 is the relevant section of the Act, which deals with computation of income from property, which is chargeable to tax. The answer then is, if the provisions of section 9 of the Act govern the income derived by the assessee from the Borivli property, the assessee establishes that the income from the Borivli property in its hands is an income chargeable under the head "income from property". There is, however, a difficulty in the way of the assessee and that is the provisions of subsection (7) of section 10 of the Act. Section 10 relates to computation of income from business, contained in sections 8, 9, 10, 12 or 18, the profits fits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Schedule to this Act. On the terms of subsection (7) of section 10, in our opinion, it is clear that the income from property received by an insurance company during the course of its business is not to be computed in accordance with the provisions of section 9 of the Act, but, on the other hand that income has to be computed in accordance with the rules contained in the Schedule to the Act. That being the position, on the language of subsection (7) of section 10, it cannot be said that the income from property received in the course of its business by an insurance company is in its hands an income chargeable under the head "income from property". The assessee, therefore, is not entitled to claim exemption of the said income from its total income. The provisions of the rules contained in the Schedule framed under subsection (7) of section 10 of the Act will show that the profits and gains of an insurance business are computed in a manner different than the profits and gains of an ordinary business are computed." ' he above Bombay case was approved by the Supreme Court of India in the case f Vanguard Fire & General Insurance Co. Ltd. v. Commissioner of Income-Tax 1966) 60 I T R 496. The relevant observations of Supreme Court of India appear t pages 499-500 as follows:- "It seems to us that insurance companies are assessed on a special basis, though the special basis is different for life insurance companies and companies carrying on general insurance business. In the case of life insurance business, while defining "gross external incomings" in paragraph 5 of the Schedule, it is provided that "incomings, including the annual value of the property occupied by the assessee, which but for the provisions of subsection (7) of section 10 would have been assessable under section 9, shall be computed upon the basis laid down in the last named section, and that there shall be allowed from such gross incomings such deductions as are permissible under that section", but there is no mention of income from property in paragraph 6 of the Schedule. The form of revenue account applicable to fire insurance business, Marine Insurance and miscellaneous insurance business contains the items on the right side "Interest, Dividends and Rents, less income tax thereon". Presumably, the rents here would be actual rents received, and not annual value as determined under section 9.
40. ' The Privy Council had to deal with a similar problem in Commissioner of Income Tax v. Western India Life Insurance Co. Ltd. The Privy Council held that the third proviso to section 4 (1) of the Indian Income Tax Act, 1922, which provided that "if in any year the amount of income accruing or arising without British India exceeds the amount brought into British India in that year, there shall not be included in the assessm ent of the income of that year so much of such excess as does not exceed four thousand five hundred rupees", did not apply to an assessment of the profits and gains of a life insurance business under rule 2 (b) of the schedule to the Indian Income-tax Act, 1922. The Privy Council observed: "The case of Inland Revenue Commissioner v. Australian Mutual Provident Society was decided upon provisions of the British Income Tax Act of 1918, which are not the same as the proviso to section 4 of the Act now in question but the case does draw attention to the distinction between an assessm ent upon actual income and an assessment upon a notional income and in so far as an average derived from a triennial period is the basis of computation of the income of one year in this Act the case has an important bearing. But apart from authority, their Lordships are of opinion that the appellant's contention is correct and they find it impossible to apply the words of the third proviso to section 4 (1) to an assessm ent under rule 2 (b) of the Schedule "
41. ' In our opinion, it is equally impossible to apply the provisions of section 4 (3) (xii) to an assessm ent made under section 10 (7), read with paragraph 6 of the Schedule. There is no income chargeable under the head "Income from property" as far as a general insurance business is concerned. The effect of section 10 (7) is to delete the heads "Interest on securities", "income from property" and "Income from other sources" from section 6 of the Act, as far as general insurance business is concerned.
42. The Bombay High Court came to the same conclusion as we have done, in Commissioner of Income tax v. Asian Assurance Co.". From the above discussion it clearly emerges that in determining the profits and gains of an Insurance business and the tax payable thereon under the Ordinance only section 26 and Rules contained in the Fourth Schedule ibid are applicable and other provisions of the Ordinance do not apply. It therefore, follows that the balance of profit declared by an Insurance company in its annual account which is submitted to Controller of Insurance under the Insurance Act, 1938, is to be accepted by the Income Tax Officer as the profits and gains of insurance business for the relevant year without any further probe or enquiry, except to the extent permitted by sub-clauses (a) and (b) of Rule 5 ibid. Accordingly, the 'interest income on securities derived by an insurance company which is included in the balance of profit declared by it in its annual account submitted to Controller of Insurance under the Insurance Act, 1938, losses its character as 'interest income on securities' and becomes part of profits and gains of insurance business, and as such is liable to charge of the tax under the Ordinance accordingly. In our view as soon as the profits and gains of insurance business are computed in accordance with the provision of section 26 read with rule 5 of the IV Sched ibid, it becomes one unit of income which is not capable of being bifurcated for the purposes of charging to tax into different heads of income categorised in section 15 of the Ordinance. We, accordingly, hold that the interest received by the petitioners in the above cases on investments made by them in Khas Deposit Certificates which was included in was included in the annual accounts submitted by them to Controller of Insurance under the Insurance Act of 1938, and was shown in the balance of profit was not exempted from tax under the Ordinance.
43. ' The learned counsel for the petitioners has, however, relied on the cases of Commissioner of Income Tax v. R.G. Chapman Life Insurance Corporation of India v. Commissioner of Income Tax Delhi Assessee v. Dapartment; Pandyan Insurance Co. v. Commissioner of Income Tax, Madras; Lakshmi Insurance v. Commissioner of Income Tax Delhi; and Commissioner of Income Tax Bombay v. New India Assurance Co. In support of their contention that the income derived by the petitioners by way of interest and securities is exempted from tax, under the provisions of the Ordinance.
44. ' In the first mentioned case of R.G. Chapman, the question before the Court was whether the relief under section 15-A of Act XI of 1922 was admissible to a non-resident as well. It was held that in spite of provision contained in section 2 (1) of the Act, the non-resident was entitled to earned income relief under section 15-A of the Act. The case has no relevance to the point in issue before us.
45. ' In Life Insurance Corporation of India's case the Supreme Court of India laid down that in assessing the profits of life insurance business the Income-tax Authorities are governed completely by the rules in the Schedule and have no general right to correct errors in the account of an insurance business. The case is hardly of any assistance to petitioners.
46. ' In Assessee v. Department, which was decided by Income Tax Tribunal, the assessee, an Insurance Company, had claimed exemption from tax in respect of property income arising from a newly- constructed building under section 4 (3) (xii) of Act XI of 1922. By majority, the members of the Tribunal held that as section 10 (7) of Act did not mention Sections 4 and 6 of the Act their applicability to the case of an insurance company was not excluded. The case is quite distinguishable, as in the cases before us by virtue of section 26 and Rule 8 of the IV Schedule all other provisions of the Ordinance are excluded from their application to the case of an Insurance Company.
47. ' In Pandyan Insurance Company case the assessee had written off Rs,1,21,245 as depreciation on the building, lifts and air-conditioning plants etc. 1/5 of this building was occupied by assessee while 4/5 was occupied by tenants. The above amount of depreciation was disallowed by the Income Tax Officer but the Court finally allowed four-fifth of the above sum as deduction in computing the assessee's income from general insurance business and held that Rule 3 (b) of the First Schedule of Indian Income Tax Act did not empower the I.-T.O. To adjust the account on the basis of revaluation made by him or to correct the discrepancy between what is entered in the accounts and what is fact. The ratio in the case does not help the petitioners.
48. ' In Lakshmi Insurance Co. Ltd.'s case the question related to exemption granted by the Government under a notification issued under section 60 of the Indian Income Tax Act. The Court found that the exemption granted by the Government under the notification was an overall exemption from levy of as under the Act and as such the provision of rule 2 (b) contained in the Schedule did not exclude extension of such exemption in the case of insurance company. The case is quite distinguishable as the exemption is claimed by the petitioners in the above cases not on the basis of any notification but on the strength of section 17 and Schedule II of Ordinance.
49. ' The last cited case of Commissioner of Income Tax Bombay also relates to exemption claimed by insurance company under a notification issued by the Government under section 60 of the Indian Income Tax Act and sections 15-B, 15-C ibid. The Court clearly held in the above case, that in computing profits and gain of any insurance business and the tax payable thereon the rules contained in the Schedule to the Indian Income Tax Act will govern and prevail over the sections mentioned in the nonabstante clause in Section 10 (7) but held that exemption under notification under section 60 and Sections 15-B and 15-C of the Act is admissible as the non abstante clause did not exclude their operation. This case is therefore, also quite distinguishable.
50. ' From the preceding discussion it is quite clear that the income received by the petitioners in the relevant years from investments made in Khas Deposit Certificates had escapad assessment as it was wrongly treated as 'interest on securities and exempted from tax under item No,'72 of the Second Schedule. The learned counsel nevertheless, argued that issuance of notice under section 65 of the Ordinance was not justified as it was based on mere change of opinion by the Income Tax Officer. Section 65 of the Ordinance which deals with the additional assessment reads as follows:- "65, Additional assessm ent.-- (1) If, in any year, for any reason.--
(i) any income chargeable to tax under this Ordinance has escaped assessment or
(ii) the total income of an assessee has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief of refund under this Ordinance; or
(iii) the total income of an assessee or the tax payable by him has been assessed or determined under subsection (1) of Section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance.
51. The Income Tax Officer may, at any time, subject to the provisions of subsections (2) (3) and (4) issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may by, apply accordingly: Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessm ent is made.
(2) No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the Income Tax Officer or he has obtained the previous approval of the Inspecting Assistant Commissioner of Income Tax in writing, to do so.
(3) Notice under subsection (1) in respect of any income year may be issued within ten years from the end of the assessm ent year in which the total income of the said income year was first assessable.
52. "(3A) Where a notice under subsection (1) is issued on or after the firtst day of July, 1982, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served."
(4) Nothing contained in subsection (2) shall apply to any such case or class of cases to which clause (c) of sub-section (1) applies as may be specified by the Central Board of Revenue."
53. Sub-clause (1) of section 65 reproduced above in clear terms provides that if in any year for any reason the income chargeable to tax under the Ordinance has escaped assessment, the I.T.O. May at any time issue a notice to the assessee containing all or any of the requirements of the notice under section 65 and may proceed to assess or determine, by order in writing the total income of the assessee or the tax payable by him, as the case may be, and all the provisions of the Ordinance shall apply to such proceedings. The above power of the Income Tax Officer is however, to be exercised subject to the limitations (i) that the tax shall be charged at the rate or rates applicable to the assessm ent year for which assessment is made, (ii) the Income Tax Officer must be in possession, of definite information before he issued notice under section 65 (i) ibid or he has obtained the previous approval of the Inspecting Assistant Commissioner of Income Tax in writing to do so, (iii) and that the notice under section 65 (1) must be issued in respect of any income year within 10 years from the end of the assessment year in which the income had escaped assessm ent. It is not disputed before us that the Income Tax Officer had obtained necessary permission in writing from Inspecting Assistant Commissioner of Income Tax concerned before issuing the notice to the petitioners under section 65 (1) of the Ordinance. It is however, contended that issuance of notice on the basis of Circular of C.B.R. Was illegal as it amounted to a direction to I.T.O. We have already reproduced in extenso in earlier part of this judgment the Circular of C.B.R.
54. Issued on the subject. We are unable to agree with the learned counsel for the petitioners that the above-referred Circular of C.B.R. Amounted to any direction to I.T.O. To reopen and decide case. It merely interpreted the provisions for assessment of the gains and profit and business of insurance and the tax payable thereon for the guidance of subordinate officers in the hierarchy of Department. In the case of Raj Kumar Shrawan Kumar v. Central Board of Direct Taxes and another (1977) 107 I.T.R. 570, the Allahabad High Court in somewhat similar circumstance while considering the objection to the validity of a notice issued by the Income Tax Officer under section 148/147 (b) of the Indian Income Tax Act 1961, raised by the petitioners in that case repelled the contention as follows:- "It is well-settled that the Income-tax Officer cannot reopen an assessment only on a change of opinion. The assessm ent can be reopened under section 147 (b) of the Income-tax Act, 1961, only in case the Income-tax Officer has, in consequence of the information in his possession, reason to believe that the income chargeable to tax has escaped assessment. The question that arises is as to whether the circular sent by the Board of Direct Taxes is information as contemplated by the statute.
55. ' Now, the circular sent by the Central Board of Direct Taxes was as respects the point of law. It hardly admits of doubt after the decisions of the Supreme Court in Kamal Singh (Maharaj Kumar) v. Commissioner of Income-tax (1959) 35 I.T.R. 1 (SC) Commissioner of Wealth Tax v. Imperial Tobacco Co. Of India Ltd. (1966) 61 I.T.R 461 (SC) and Jaganmohan Rao v. Commissioner of Income- tax (1970) 75 I.T.R. 373 (SC) and the recent decision in the case of Kalyanj Mavji & Co. v.
56. Commissioner of Income Tax (1976) 102 I.T.R. 287 (SC) that the word "information" as used in the Section embraces both information as to fact and information as to law. We are tempted to quote here a passage from the decision of the Supreme Court in Kalyanji's case (1975) 102 I.T.R 287, 294
(SC) which is apposite to the present case.
57. "Another pertinent fact which may be mentioned here is that although section 34 was the subject of several amendments, yet the word `information' which was introduced in 1939 has not been defined at all. Since the word 'information' has not been defined, it is difficult to lay down any rule of universal application. At the same time it cannot be disputed that the object of the Act was to see that the tax collecting machinery is made as perfect and effective as possible so that the tax payer is not allowed to get away with escaped income-tax. The fact that the adjective 'definite' qualified the word 'information' and the word 'discovers' which were introduced in the Income-tax (Amendment) Act 1939, were deleted by the Amendment Act of 1948, would lead to the irresistible inference that the word 'Information' is of the widest amplitude and comprehends a variety of factors. Nevertheless the power under Section 34 (1) (b), however wide it may be, is not plenary, because the discretion of the Income-tax Officer is controlled by the words 'reason to believe'. It was so held by this Court in Bhimraj Pannalal v. Commissioner of Income Tax (1961) 41 I T R 221 (SC) while affirming the decision of the Patna High Court in Bhimraj Pannalal v; Commissioner of Income Tax (1957) 32 I.T.R 299 (Pat). This legal proposition, however, is not disputed. It, therefore, follows that information may come from external sources or even from materials already on the record or may be derived from the discovery of new and important matter or fresh facts. The word 'information' will also include true and correct state of the law derived from relevant judicial decisions either of the Income-tax authorities or other Courts of law which decide income-tax matters. Where the ground on which the original assessment is based is held to be erroneous by a superior Court in some other case, that will also amount to a fresh information which comes into existence subsequent to the original assessm ent. A subsequent Privy Council decision is also included in the word 'information. Thus, it is very difficult to lay down any hard and fast rule. This being the correct position of law, we fail to see how a circular sent by the Central Board of Direct Taxes on a point of law would not constitute information as contemplated by the section."
58. ' We are in respectful agreement with the above reasoning and accordingly hold that the notices issued to the petitioners in the above cases were valid.
59. ' We accordingly dismiss the petitions with costs.