I. Mahmud J.--This is a reference under section 66(() of the Income --tax Act, IM by the Income-tax Appellate Tribunal (Karachi Beach), Karachi, on the application of the Commissioner of Income-tax (Central), Karachi, in R. A. Rio. 362 of 1966-67.
2 The respondent is a non-resident insurance company incorporated in Sydney (Australia) and carried on business of general insurance in Pakistan until the - assessment year 1955-56. It appears that, thereafter, it did not obtain renewal of its ate of registration (licence) as required under section 3-A of the Insurance Act, 1938, but it bas been functioning in Pakistan only for the purpose of settling and realising outstanding claims. In the account year ending 31-12-1961, relating to the charge year 1962-63, the respondent-assessee returned an income comprising of, later altar, income from interest on securities amounting to Re. 11,747 and salvage money of its- 3,485.
Against theme two items of income, the respondent claimed management expenses of Rs. 2.014, which the Income-tax Officer disallowed on the ground that the respondent, not having renewed its registration, had ceased to carry on insurance business and, as such, the management expenses wet inadmissible. The respondent preferred an appeal to the Appellate Assistant Commissioner of Income-tax who took the view that although respondent did not underwrite new insurance business, yet old claims were being settled and realised and, in that connection, an office was maintained and management expenses incurred. Therefore, although respondent may not be assessable under the First Schedule to the Act, yet business was being carried on.
Accordingly, the management expenses were allowable. Accord--ingly, he allowed the assessee's appeal.
3. The Deportment thereafter preferred an appeal to the Income-tat Appellate Tribunal. The Tribunal agreed with the view of the Appellate Assistant Commissioner arid dismissed the appeal In the view of the Tribunal the respondent had not ceased to carry on insurance business. It had only discontinued taking up fresh business in Pakistan,,' But it was still carrying on its old business by settling and realising claims in respect of the past business. Moreover, by taxing the receipts from this business, the Department bad, by implication, accepted the existence of the Insurance badness. In this view of the matter. The Tribunal did not find it necessary to go into the alternative plea of the assessee that in case it is held that assessee was not carrying on insurance business because it had not renewed its registration, nevertheless--- it was entitled to claim some expenses, as it "Van carrying on mw business. The Tribunal, however, observed that if the answer to the question referred to the High Court is in the negative, and it is bold that the seems cannot be deemed to be carrying on insurance business because it had not obtained renewal of its registration under the Insurance Act, 1938, then the claim of expenses will haw to be considered as in t he case of any other business and the question of computation of the assesses"s income under the First Schedule of the Act, would not therefore arise. Therefore, the Tribunal observed that the only pertinent question was that relating to the effect of the failure by the assessee to renew its registra--petition. Accordingly, the following question bas been referred to us : "Whether on the facts and the circumstances of the case the aaessee could be deemed to be carrying on the insurance business in the calendar year 1961, when it did not obtain the licence which is a pm requisite to function as such."
4. Section 10(7) of the Act provides that the profits and gains of any business of Insurance and the tat payable thereon shall be computed in accordance with the rules contained in the First Schedule to the Act notwithstanding anything to the contrary contained in sections 8, 9, 10, 12 and
18. The rules in the First Schedule prescribe the social method or manner of computing the profits and gains of insurance business in Pakistan profits and gains of any etch insurance business are to be computed in manner different from that laid down, in section 10 of the Act, which relate to inter alia, an ordinary business. The law relating tee the business of insurance is governed by the Insurance Act, 1938, section 3(1) 'of the Insurance Act provides that no person shall carry on any clan of insurance business in Pakistan unless be has obtained a certificate of registration from the Controller of Insurance fax the particular elm of insurance business. Under subsection (4) of section 3, the Controller of Insurance has the power to cancel the registration of an insurer if there is any contravention of any of the conditions mentioned thereunder. Subsection (5-B) provides that when a registration is cancelled, the insurer shall not, after the cancellation has taken effect, enter into any new contracts of insurance, although rights and liabilities in respect of contracts of insurance entered into before such cancellation takes effect shall continue a if the cancellation had not taken place. Section 3-A of the Insurance Act provides that the insurer who has been granted a certificate of registration under section 3, shall have the registration renewed annually for each ear. Section 103 of that Act provides a penalty for transacting insurance business in contravention of section 3 by carrying on any class of insurance business without obtaining a certificate of registration for that class of business and such offence is made punishable with fine which may extend to Rupees two thousand. From a consideration of these provisions of the Insurance Act together, it is clear that registration and renewal of registration is a pre-requisite for carrying on any class insurance business and the carrying on of insurance business without obtaining renewal of registration. Is unlawful. The respondent-assessee admittedly did not obtain renewal of its registration under the Insurance Act after the assessment year 1955-56 cod therefore could not be said to be carrying o insurance business In the relevant year. Therefore, the profits and grain of its business cannot be computed in accordance with the rules mentioned in the First Schedule to the Act and the computation of its income realised would have to be made under section 10 of the Act as in the carte of Income from any other business.
5. We would therefore, answer the question in negative. In our opinion, the respondent-assesses cannot be deemed to be carrying on Insurance business in the calendar year 1961 when it did not obtain renewal of Its registration (licence) which is a pre-requisite to function as such. There will be no order as to cost.