T.V.R Tatachari, J.:— “By these applications, the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the Tribunal's consolidated order dated the 25th May, 1960 in I.T.A Nos. 8133 and 8134 of 1956-57. Insasmuch as, in our opinion, questions of law do arise out of the aforesaid order, we hereby draw up a statement of the case and refer them to the High Court of Judicature at Chandigarh under section 66(1) of the Indian Income-tax Act, 1922.

2. (a) The assessee is a public limited company carrying on life insurance business. Assessments for the years 1951-52 and 1952-53 were made by the Income-tax Officer on the basis of the last actuarial valuation made for the period ending 31st December, 1950. These assessments were completed on 30th December, 1954 on total incomes of Rs. 1,03,381 and Rs. 59,043 respectively. The assessments were made under Rule 2(b) of the Schedule to the Income Tax Act. In computing the taxable surplus the Income Tax Officer excluded :—

(i) a sum of Rs. 62,678 for dividends from the Industrial Finance Corporation of India; and

(ii) a sum of Rs. 3,40,065 as interest on securities issued by the Mysore Darbar (State securities), under section 60 of the Indian Income-tax Act.

(b) Copy of the orders passed by the Income-tax Officer for both the years are collectively made part of the case (Annexure ‘A’).

3. (a) The Commissioner of Income-tax, however, felt that the exclusions of the income from the dividends of the Industrial Finance Corporation and the interest on securities issued by the Mysore Darbar from the taxable surplus were contrary to the provisions of the Schedule for computing the income from the insurance business. He proceeded to initiate action under section 33B. After giving the opportunity to the assessee, he directed that the above sums should be included in the taxable surplus and profits be recomputed.

(b) The assessee urged before the Commissioner of Income-tax that the dividends of the Industrial Finance Corporation were exempt under Rule 3(c) by virtue of section 40 of the Industrial Finance Corporation Act, 1948 and that the interest on Mysore Darbar securities was exempt by notification under section 60 of the Indian Income-tax Act.

(c) The Commissioner of Income-tax held that the dividends of the Industrial Finance Corporation were exempt only if they were made out of the advances made by the Central Government and that the whole of the profits of the Corporation were not exempt. He further held that the dividends were not in the nature of interest received in respect of any security of the Central Government. In regard to the interest on the Mysore Darbar securities, the Commissioner of Income-tax declined to exclude the interest because he was of the opinion that Rule 2(b) of the Schedule to the Income-tax Act was operative and the assessee was not entitled to the benefits that were given under section 60 of the Act.

(d) Copy of the consolidated order dated the 29th December 1956 passed by the Commissioner of Income-tax for both the years under consideration, is made a part of the case (Annexure ‘B’).

4. (a) Being aggrieved, the assessee came up in appeal before the Tribunal for the aforesaid years. In regard to the dividends of the Industrial Finance Corporation, the Tribunal upheld the objection of the assessee and held that the portion of the dividends which had been paid out of the sums advanced by the Government under Rule 5 of the Industrial Finance Corporation Act, was exempt from Income-tax. In regard to the interest on Mysore Darbar securities, the Tribunal agreed with the Commissioner of Income-tax that Rule 2(b) was operative and the exemption sought by the assessee was not available to it. The Tribunal accordingly confirmed the action of the Commissioner of Income-tax in this regard.

(b) Another objection raised by the assessee before the Tribunal was that the order passed by the Commissioner of Income-tax under section 33B was barred by limitation. The assessment order was passed by the Income-tax Officer on 30th December, 1954. The order of the Commissioner of Income-tax under section 33B was passed on 29th December, 1956 and was communicated to the assessee on 31st December, 1956. According to section 33B no order can be passed by the Commissioner of Income-tax after the expiry of two years from the date of the order sought to be revised. The assessee's contention, however, was that the order should have been communicated to the assessee within two years of the date of the order passed by the Income-tax Officer. This contention was negatived by the Tribunal who held that the fact that the order was actually served on the assessee on 31st December, 1956, while the order of the Income-tax Officer was passed on 30th December, 1954, did not invalidate the order.

(c) Copy of the consolidated order passed by the Tribunal for the years in question is made a part of the case (Annexure ‘B’).

5. On the above facts, the assessee sought to refer as many as six questions of law. In our opinion, only two questions of law arise out of the order of the Tribunal with which the assessee has agreed. These questions are as follows :—

“Whether the interest of Rs. 3,40,065 received on the securities issued by the Mysore Darbar for both the years is exempt from taxation ?

2. Whether the order under section 33B passed by the Commissioner of Income-tax was barred by limitation?”

T.V.R Tatachari, J.:— This is a reference under section 66(1) of the Indian Income-tax Act, 1922, made by the Income-tax Appellate Tribunal, Delhi Bench ‘C’, referring two questions of law which are said to arise out of the Tribunal's consolidated order, dated 25-5-1960, in Income-tax Appeals Nos. 8133 and 8134 of 1956-57.

The assessee, the Lakshmi Insurance Co. Ltd. New Delhi, is a public limited company which carried on life insurance business. The Income-tax Officer made assessments on 30-12-1954 for the years 1951-52 and 1952-53 on the basis of the last actuarial valuation made for the period ending 31-12-1950. The assessments were made for the said two years on total incomes of Rs. 1,03,381 and Rs. 59,043 respectively. The assessments are said to have been made under Rule 2(b) of the Schedule to the Income-tax Act. In computing the taxable surplus, the Income-tax Officer excluded :—

(i) a sum of Rs. 62,678 being dividends from the Industrial Finance Corporation of India; and

(ii) a sum of Rs. 3,40,065 as interest on securities issued by the Mysore Darbar (State securities) by reason of a Notification under section 60 of the Indian Income-tax Act, 1922.

Acting under section 33B of the Act, the Commissioner of Income-tax, Delhi, took the view in his consolidated order dated 29-12-1956, that the exclusion of the two amounts was contrary to the provisions of Rule 2(b) of the Schedule to the Income-tax Act, and therefore, directed that the said two amounts should be included in the taxable surplus.

Against that order of the Commissioner, the assessee preferred an appeal to the Appellate Tribunal. The Tribunal, by its consolidate order dated 25-5-1960, held that the sum of Rs. 62,678 being dividends from the Industrial Finance Corporation of India, was exempt from income-tax, and should not have, therefore, been included in the taxable surplus. But, as regards the sum of Rs. 3,40,065, being interest on securities issued by the Mysore Darbar (State securities), the Tribunal agreed with the view of the Commissioner and held that the same should be included in the taxable surplus. A third contention was raised by the assessee before the Tribunal that the order passed by the Commissioner of Income-tax under section 33B was barred by limitation. The Tribunal held that it was not barred by limitation.

As regards the sum of Rs. 62,678, the Revenue did not pursue the matter further, and the question about the same did not, therefore, survive. But, as regards the question about the sum of Rs. 3,40,065 and the question of limitation, the assessee moved the Tribunal to refer the questions to this Court under section 66(1) of the Act. The Tribunal accordingly, by its order, dated 4-5-1962, referred the following two questions for the opinion of this Court :—

“(1) Whether the interest of Rs. 3,40,065 received on the securities issued by the Mysore Darbar for both the years is exempt from taxation?

(2) Whether the order under section 33B passed by the Commissioner of Income-tax was barred by limitation?”

The first question relates to the sum of Rs. 3,40,065 received by the assessee-company in each of the two years 1951-52 and 1952-53, as interest on securities issued by the Mysore Darbar (State Securities). The contention of the assessee before the Income-tax Authorities was that by virtue of a notification under section 60, interest on Mysore Darbar Securities was exempt from tax, and that the said amounts should not be included in the taxable surplus. The Income-tax Officer accepted the said contention of the assessee and excluded the amounts in computing the taxable surplus. But, the Commissioner of Income-tax took the view that the said amounts should not be so excluded. According to him, the life insurance business is a class by itself, the profits of which are to be computed in accordance with the procedure laid down in the Schedule to the Income-tax Act, and only the adjustments enumerated in the said Schedule are to be carried out and no other modification is to be made to the basis of computation of profits. His reasoning was that the income that is assessed in the case of life insurance business is neither the actual income nor the total income of the previous year, that what is charged to tax under section 10(7) and the Schedule to the Act is a notional or conventional income, that as actual income is not to be brought under tax, the question of exclusion of the interest on the securities, of the Mysore Darbar does not arise, that in cases where Rule 2(b) of the Schedule is applicable, the Schedule provides a method of finding out the amount which is to be the subject of tax in respect of profits of insurance business, and that the exemption granted by notification under section 60 of the Act is not available in the case of assessable profits of insurance companies determined under Rule 2(b) of the Schedule. In support of his view, he relied upon the decisions in Inland Revenue Commissioner v. Australian Mutual Provident Society, (1947) I.T.R (Supp) 71 at page 77,(1) Commissioner of Income-tax v. Western India Life Insurance Co. Ltd., 17 I.T.R 125(2), and Commissioner of Income-tax v. B.B & C.I Railway Cooperative Mutual Benefit Society, 17 I.T.R 512(3).

The Income-tax Appellate Tribunal, as already stated, took the same view. The reasoning of the Appellate Tribunal was, that according to the Income-tax Act, profits and gains of any business of life insurance can be computed only in accordance with Rule 2(b) of the Schedule to the Act and in no other manner, that instead of computing the income of an Insurance Company as laid down in various sections under Chapter III, it has to be computed in the manner laid down in the Schedule to the Act, that an Insurance Company, instead of making its return of income under the various heads as laid down in section 6 of the Income-tax Act, has got to submit one unit of income, a sort of notional or artificial income as provided in the Schedule to the Act, that since the income of the assessee has to be worked out in accordance with Rule 2(b) of the Schedule, there is no scope for making any adjustments other than those provided in the Schedule itself, and that the assessment in the instant case having been made on a notional income and not on the actual receipts of the preceding year, there is no scope for excluding from assessment the income earned as interest on Mysore Darbar securities. In support of their view, the Tribunal relied upon the decision in Commissioner of Income-tax, Bombay City II v. Crown Life Insurance Co. (1956) 30 I.T.R 365(4)

Shri Bhawat Dayal, the learned counsel for the assessee-company, contended that the view taken by the Appellate Tribunal and the Commissioner of Income-tax was erroneous and that the exemption granted by the notification under section 60 is available to the assessee-company, and the amounts of interest received by the assessee-company on the Mysore Darbar Securities should be excluded in computing the taxable surplus. For a proper appreciation of the said contention, it is necessary to refer to the provisions in sections 3, 4, 6, 10(7), and 60, the notification made under section 60, and Rule 2(b) of the Schedule to the Income-tax Act, 1922.

Chapter I of the Indian Income-tax, 1922, which contains sections 3, 4, 4a and 4b, provides for “charge of Income-tax”. Section 3, which is the charging section provides as under :—

“3 Charge of Income-tax.—Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act, in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually.”

Section 4 deals with the application of the Act, and the part of the section which is relevant for the purpose of this reference runs as under :—

“4. Application of Act.—(1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which

* * * * *”

Chapter III, which contains sections 6 to 17, deals with “taxable income”. Section 6 enumerates the heads of income chargeable to income-tax. The said section runs as under :—

“6. Heads of income chargeable to income-tax.—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 apportioned, namely :—

(i) Salaries;

(ii) Interest on securities;

(iii) Income from property;

(iv) Profits and gains of business profession or vocation;

(v) Income from other sources;

(vi) Capital gains.”

The various heads of income mentioned in section 6 are dealt with in sections 7 to 12. Section 10 deals with “business”. Subsection (1) of section 10 provides that—

“the tax shall be payable by an assessee under the heads “profits and gains of business, profession or vocation” in respect of the profits or gains of any business, profession or vocation carried on by him.”

Sub-section (2) to (6) deal with the computation of the profits or gains and the allowances which may be made in the computation. Sub-section (7), which is the material provision for the purposes of this reference, runs as under :—

“(7) Notwithstanding anything to the contrary contained in sections 8, 9, 10, 12 or 18 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 Schedule to this Act.”

Chapter X of the Act contains miscellaneous provisions. Section 60 which occurs in this Chapter runs as under :—

“60. Power to make exemption, etc.—(1) The Central Government may, by notification in the Official Gazette, make an exemption, reduction in rate or other modification, in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any class of persons.”

Sub-section (2) and (3) thereof are not material for the purpose of this case.

The Schedule to the Act contains the rules for the computation of the profits and gains of insurance business, as provided in Section 10(7) of the Act. Rules (1) and (2), in so far as they are material for the purpose of this reference, are as follows :—

“(1). In the case of any person who carries on, or at any time in the preceding year carried on, life insurance business, the profits and gains of such person from that business shall be computed separately from his income profits or gains from any other business.

(2) The profits and gains of life insurance business shall be taken to be either—

(a) the gross external incomings of the preceding year from that business less the management expenses of that year, or

(b) the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 (IV of 1938) in respect of the last inter-valuation period ending before the year for which the assessment is to be made, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period and any expenditure other than expenditure which may, under the provisions of section 10 of this Act, be allowed for and in computing are profits and gains of a business,

whichever is the greater.”

The proviso and clauses (c) and (d) of Rule 2 and Rules 3 and 4 of the Schedule contain other provisions as to deductions and adjustment of tax paid by deduction at source, in the matter of the computation of the profits and gains of life insurance business.

The Notifications issued under Section 60 of the Act, and which is relied upon by the assesses, in so far as it is material, is as follows :—

“(Finance Department Notification No. 878-F Income-tax, dated the 21st March, 1922, as amended or added to from time to time). The following classes of income shall be exempt from the tax payable under the said Act and they shall not be taken into account in determining the total income or salary of an assessee for the purposes of the said Act, except for the purpose of sub-section (4) of section 48 :—

(1) * * * * *

(2) to (26) * * * * *

(27) The interest on Mysore Darbar Securities.

(28) to (41) * * * * *”

Thus under section 3, where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, income-tax shall be charged at that rate or those rates for that year in accordance with and subject to the provisions of the Act in respect of the total income of the previous year. Section 4 prescribes that, subject to the provisions of the Act, the total income of any previous year includes all income profits and gains from whatever source derived, and also provides that certain classes of income, profits or gains shall not be included in the total income. Section 6 enumerates the heads of income, profits and gains, which shall be chargeable to income-tax in the manner prescribed in the subsequent sections of the Act.

One of the heads of income is “profits and gains of business, professions or vocation”, and the same is dealt with in section 10. In the case of profits and gains of any business of insurance, section 10(7) provides that notwithstanding anything to the contrary contained in sections 8, 9, 10, 12 or 18, 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 Schedule to the Act.

The profits and gains of any business of insurance might consist of income by way of “interest on securities” which is dealt with in section 8, or “income from property” which is dealt with in section 9, or “income from profits & gains of business” which is dealt with in section 10, or “income from other sources” which is dealt with in section 12, or might consist of two or more of the said heads of income. Normally the computation of the income and the tax payable thereon in respect of each of the said heads of income is to be made under the respective sections. But, in the case of the computation of the profits and gains of any business of insurance and the tax payable thereon, section 10(7) prescribes that such computation shall be made in accordance with the rules contained in the Schedule to the act. a reference to rule 2 of the Schedule shows that the computation of profits of life insurance business is to be made not on the basis of the actual income or the total income (as is the case under sections 8, 9, 10 and 12), but on the basis of a notional income mentioned in the said Rule. Rules 3 and 4 in the Schedule deal with deductions and adjustment of tax paid by deduction at source in the case of profits and gains of life insurance business.

Thus, the scheme of the provisions referred to above shows that the chargeability of the total income of an assessee to income-tax and the applicability of the Act to the total income are governed by the provisions in sections 3, 4, 4a and 4b, while the determination as to what is taxable income is governed by sections 6 to 17 in Chapter III of the Act. Each of the sections 7, 8, 9, 10 and 12 deals with the question as to whether a particular head of income is taxable or not, and also with the question as to the computation of the taxable income. Section 10 deals with the question as to what is taxable income from business, and with the question as to the computation of such taxable income from business. So far as the computation of the income from the business of insurance is concerned, section 10(7) provides that the said computation should be made not in the manner prescribed in sections 7, 8, 9, 10 and 12, but should be made in the manner prescribed in the Rules contained in the Schedule to the Act. Rules 1 to 4 in the Schedule deal with the computation of the profits and gains of life insurance business, while Rule 5 deals with the computation of profits and gains of other insurance business, and Rules 6 and 7 contain other general provisions regarding the profits and gains of insurance business. It has to be noticed in particular that the provisions in Rule 2 in the Schedule deal with the computation of profits and gains of life insurance business, but not with the chareability of income-tax under the Act or the applicability of the Act.

Now, section 60(1) of the Act, which occurs among the miscellaneous provisions in Chapter X of the Act, empowers the Central Government to make an exemption, reduction in rate or other modifications, in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any class of persons, by Notification in the Official Gazette. The language of the section as well as the fact that it occurs among the miscellaneous provisions in Chapter X of the Act shows that the said provision in section 60(1) is a general provision which governs all the other provisions in the Act. It refers to the power to make an exemption, reduction in rate, etc. in respect of income-tax itself in favour of any class of income. When, by a Notification, the Central Government exempts any class of income from income-tax, the said income is not chargeable at all with income-tax under the Act. In other words, any class of income which would otherwise normally be chargeable with income-tax under any of the provisions of the Act, would not be so chargeable with income-tax if the Central Government, by Notification under section 60, makes an exemption in respect of income-tax in favour of the said class of income. Of course, the nature and the extent of the exemption depends upon the actual provision in the Notification, and has to be gathered from the language used in the said Notification, The provisions in the Rules in the Schedule to the Act are also a part of the Act, and are, in fact, ancillary to the provisions in section 10 of the Act. So, the said Rules in the Schedule, which might normally apply to a class of income referred to in the said Rules, cannot apply to the said class of income, when the Central Government makes, by Notification in the Official Gazette, an exemption in respect of income-tax in favour of the said class of income.

In the present case, the amount in question is the interest of Rs. 3,40,065 received by the assessee on the securities issued by the Mysore Darbar in each of the accounting years, and such a class of income was exempted from the tax payable under the Income-tax Act, 1922, by the Notification No. 878-F, dated 21-3-1922, made by the Central Government under section 60(1) of the Act. The interest on Mysore Darbar Securities is item (27) in the classes of income set out in the aforesaid Notification, and the Notification expressly and clearly states that “the classes of income (set out in the Notification) shall be exempt from the tax payable under the said Act (Income-tax Act, 1922) and they shall not be taken into account in determining the total income or salary of an assessee for the purposes of the said Act.” In our opinion the language of section 60 and the Notification clearly shows that the amount of interest on Mysore Darbar Securities received by the assessee was exempted from income-tax under the Act, and cannot be included in computing the taxable surplus.

In Commissioner of Income-tax, Bombay city v. B.B & C.I Railway Cooperative Mutual Benefit Society (for Indian Staff) Limited, Bombay, (1949) 17 I.T.R 509 (5), a Notification was issued under section 60 in the following terms :—

“The following classes of income shall be exempt from the tax payable under the said Act, but shall be taken into account in determining the total income of an assessee for the purposes of the said Act :—

1. * * * * *

2. The profits of any Cooperative Society other than the Sanikatta Salt-Owners' Society in the Bombay Presidency for the time being registered under the Cooperative Societies Act, 1912 (II of 1912), the Bombay Cooperative Societies Act, 1925 (Bombay Act VII of 1925), or the Madras Cooperative Societies Act, 1932 (Madras Act VI of 1932) or the dividends or other payments received by the members of any such Society out of such profits,

Explanation:— * * * * *”

As pointed out in the head note to the Report, the Notification applied both to cooperative societies which were not doing insurance business as well as to cooperative societies which were doing insurance business. The assessee in that case was registered under the Bombay Cooperative Societies Act, 1925, and it was a mutual insurance association with in the meaning of section 2(6C) of the Indian Income-tax Act, 1922. The Income-tax Officer computed the Society's income for the relevant years under Rule 2(a) of the Schedule to the Act as required by Rule 9 of the Schedule. The assessee-society claimed exemption from the income-tax on the strength of the Notification issued by the Central Government under section 60 of the Indian Income-tax Act, 1922. The contention was accepted by the Appellate Tribunal. The question as to whether the income of the Society was exempt from income-tax under the Notification issued by the Central Government under section 60 of the Indian Income-tax Act or was otherwise exempted, was referred to the High Court. Chagla, C.J and Tandulkar, J., in dealing with the said question, explained the legal position in the following manner :—

“Under section 2(6C) of the Act, the profits of any business of insurance carried on by any mutual insurance association is income for the purpose of tax and section 10(7) provides a special method of computing the profits and gains of any business of insurance and the manner in which tax is to be paid on those profits and gains. Section 10(7) further provides that in place of the provisions contained in sections 8, 9, 10, 12 or 18, the Rules contained in the Schedule to the Act shall be substituted. Therefore, the result of this provision is that instead of computing the income of an insurance company as laid down in various sections in Chapter III, you compute them in the manner laid down in the Schedule to the Act, and the relevant provision of the Schedule to the Act is Rule 2 which provides that the profits and gains of life insurance business shall be taken to be either what is stated in sub-clause (a) or sub-clause (b) and whichever is greater, and it is not disputed before us that in the case before us, sub-clause (a) would apply………………

* * * * *.

Therefore, it will be noticed that instead of an insurance company making its return of income under the various heads as laid down in section 6, it has got to submit one unit of income, a sort of notional or artificial income, as provided in the Schedule to the Act. Then, under section 60 of the Act, certain power is given to the Central Government to exempt classes of income or the whole or any part of the income of any class of persons in respect of income-tax, and this power can be exercised by the Central Government by a Notification in the Official Gazette.”

Then, dealing with an argument on behalf of the Revenue that the Notification itself does not apply to an insurance company, which argument was based upon the language in the Notification, viz.—

“the following classes of income shall be exempt from the tax”,

the learned Judges observed as follows :—

“It is argued that this Notification can only apply to those assessees which have different classes of income, but if an assessee has only one class of income or only one income, in terms the Notification cannot apply to such an assessee. In putting forward this construction, Mr. Joshi (for the Revenue) is obviously reading into section 60 and into the Notification the words of section 6 of the Act. Mr. Joshi wants us to read “classes of income” as if it meant “heads of income” within the meaning of section 6. Mr. Joshi would have been undoubtedly right if section 60 restricted the power of the Central Government only to exempt certain heads of income in the case of certain assessees. Then, it could be said that such a Notification would only apply where an assessee had more than one head of income. But the Legislature, having section 6 before it and being fully apprised of the language used in that section, has obviously not used the expression “heads of income” but has used the expression “classes of income”. In my opinion, a class of income really means a category of income and it is much wider expression than a head of income. It is difficult to see why income derived by a cooperative society is not a class or a category of income. In that wider sense, the Notification would certainly apply to the income derived by cooperative societies including insurance companies, even though in the case of an insurance company, the income may be one and indivisible and may not fall under the different heads enumerated in section 6 of the Act*. * *. Therefore, according to me, the Notification applies both to cooperative societies which are not doing insurance business and it also applies to cooperative societies which are doing insurance business* * *. In the case of cooperative societies doing insurance business, the Central Government has given exemption to the whole of the income derived by such cooperative societies* * *.

In the present case also, the recital in the Notification was that “the following classes of income shall be exempt from the tax payable under the said Act.” In section 60 also the words used were—“in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any class of persons”. As pointed out by the learned Judges of the Bombay High Court, it is difficult to see why the income derived by the assessee-company by way of interest on Mysore Darbar Securities is not a class or a category of income. The said class of income was totally exempted by the Notification in question in the present case. Moreover, the Notification in the present case is wider than the one in the Bombay case as it was further stated in the Notification that the said class of income viz. the interest from Mysore Darbar Securities, “shall not be taken into account in determining the total income or salary of an assessee for the purposes of the said Act……………………” It is clear from the above that the reasoning of the Bombay High Court supports the view taken by us in the present case.

Shri A.N Kirpal, the learned counsel for the Revenue, contended that insurance companies are assessed somewhat differently from other business organisations, that the rules of assessment contained in sections 8, 9, 10 and 12 of the Act, which normally apply to the assessment of business organisations, do not apply to the assessment of insurance companies, that by reason of section 10(7), the profits and gains of any business of insurance and the tax payable thereon has to be computed in accordance with the Rules contained in the Schedule to the Act, that the valuation under the said Rules is a notional one and the assessment is on one unit, and that the exemption contemplated by section 60 was not intended to apply to assessments governed by the Rules in the Schedule. It is true that so far as the business of insurance companies is concerned, by virtue of section 10(7) the computation of the profits and gains of any business of insurance and the tax payable thereon has to be computed in accordance with the Rules in the Schedule to the Act. We have already referred to this aspect and pointed out how and why, in our opinion, the exemption under section 60 is an overall exemption, and governs all the other provisions in the Act including the provisions in the Rules to the Schedule to the Act. The aforesaid contention of Shri Kirpal cannot, therefore, be accepted.

Shri Kirpal next contended that there are various exemptions in section 4(3) of the Act, that in particular, the exemption in section 4(3) (xii) of the Act is on a par with the exemption by Notification under section 60, that the decisions which dealt with cases under section 4(3) (xii) would apply to the present case, and that it was held in those decisions that in the case of insurance business the exemption under section 4(3) (xii) would not apply on the ground that the computation of the profits and gains of the business of such companies is a notional one and is to be computed only in accordance with the provisions in the Rules in the Schedule to the Act. He relied on the decision in Vanguard Fire and General Insurance Co. Ltd. v. Commissioner of Income-tax, Madras, (1962) 45 I.T.R 328(6), which was confirmed by the Supreme Court in Vanguard Fire and General Insurance Co. v. Commissioner of Income-tax Madras, (1966) 60 I.T.R 496(7). In the latter decision the Supreme Court held that the provisions of section 4(3)(xii) cannot apply to an assessment made under section 10(7) of the Act read with paragraph 6 of the Schedule to the Act, that as far as general insurance business is concerned, there is no income chargeable under the head “income from property”, that 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 businesses are concerned, and that accordingly the appellant-company in that case, which carried on fire and general insurance business, was not entitled to the exemption under section 4(3)(xii) in respect of a building owned by it. The question involved in the present case, namely the effect of the exemption by Notification under section 60 of the Act, did not arise in those decisions, and we do not think that the said decisions are of any assistance in the present case.

Shri Kirpal also referred to the decisions in Commissioner of Income-tax, Bombay Moffusil v. Western India Life Insurance Company Ltd., (1949) 17 I.T.R 125 (P.C) (8); Lakshmi Insurance Company Ltd. v. Commissioner of Income-tax, Punjab (1950) 18 I.T.R 984(9), Commissioner Of Income-Tax v. Asian Assurance Co. Ltd., (1962) 46 I.T.R 560(10), United India Life Insurance Company v. Commissioner of Income-tax, Madras, (1963) 48 I.T.R 965(11), Life Insurance Corporation of India v. Commissioner of Income-tax, Delhi and Rajasthan, (1964) 51 I.T.R 773(12) and Pandvan Insurance Company Ltd. v. Commissioner of Income-tax, Madras, (1965) 55 I.T.R 716(13), In none of the said cases the question regarding the effect of an exemption by Notification under section 60 of the Act arose and the said decisions are not, therefore, of any assistance in the determination of the question involved in the present case. The said decisions do not support the contention of Shri Kirpal that the exemption under section 4(3)(xii) is on a par with section 60, and that the said decisions would apply to the present case. Therefore, these contentions of Shri Kirpal have also to be rejected as untenable.

Shri Kirpal next contended that the amount in question in the present case was included in the actuarial valuation, that in computing the profits and gains of an insurance business under clause (b) of Rule 2 of the Schedule to the Income-tax Act, 1922, the Income-tax Officer has to accept the annual average of the surplus disclosed by the actuarial valuation made in accordance with the Insurance Act in respect of the last inter-valuation period ending before the commencement, that he has no power to change the figures in the accounts of the assessee, that apart from the provisions in Rule 3 of the Schedule, there is no other provision in the Schedule which authorises the Income-tax Officer to make adjustments in the actuarial valuation, that if the Income-tax Officer is to exclude the amount by reason of the Notification under section 60, it would tantamount to an unauthorised alteration or making of adjustments in the actuarial valuation, and that, therefore, the exclusion of the amount in question by the Income-tax Officer from the taxable surplus, in the present case, was erroneous and illegal. We do not think so. As already pointed out, the exemption under section 60 is an overall exemption from the levy of the tax under the Act itself, and consequently the provisions in Rule 2(b) of the Schedule do not come into operation at all. Therefore, in excluding the amount thus exempted under section 60 from the surplus tax, the Income-tax Officer cannot be said to have in any manner altered or changed the actuarial valuation. He only excluded the amount which is exempted by the statute. This contention also advanced by Shri Kirpal on behalf of the Revenue, cannot, therefore, be accepted.

For the above reasons, we hold that the interest of Rs. 3,40,065 received on the securities issued by the Mysore Darbar for both the years is exempt from taxation, and accordingly answer the first question in the affirmative in favour of the assessee.

The second question referred to us is as to whether the order under section 33B passed by the Commissioner of Income-tax was barred by limitation. To appreciate this contention, a few dates will have to be stated. The order of assessment was passed by the Income-tax Officer on 30-12-1954. The order of the Commissioner of Income-tax under section 33B was passed on 29-12-1956, and was communicated to the assessee on 31-12-1956. According to sub-section (2)(b) of section 33B, no order can be made under sub-section (1) by the Commissioner in revision after the expiry of two years from the date of the order of the Income-tax Officer sought to be revised. From the dates set out above, it is clear that the order of the Commissioner was passed on 29-12-1956 i.e within two years from 30-12-1954, the date of the order of the Income-tax Officer, and, therefore, the order of the Commissioner was passed within the period of limitation. The contention of Shri Bhagwat Dayal the learned counsel for the assessee is that the order of the Commissioner should be deemed to have been passed only on 31-12-1956, the date on which it was communicated to the assesses, and that, therefore, the order should be deemed to have been passed more than two years from the date of the order of the Income-tax Officer. This contention is clearly untenable. The words used in section 33b(2)(b) are—

“after the expiry of two years from the date of the order sought to be revised.”

The provision clearly contemplates the computation of two years from “the date of the order sought to be revised”, and the mere fact that the order was communicated to or received by the assessee on a later date does not and cannot alter the date from which the period of limitation is to be reckoned. Shri Bhagwat Dayal relied upon the observation of the Supreme Court in Bachhittar Singh v. State of Punjab, A.I.R 1963 S.C 395 at page 398 (Col. 2) (14), which runs as under :—

“Thus it is of the essence that the order has to be communicated to the person who would be affected by that order before the State and that person affected by it, it would be open to the Council of Ministers to consider the matter over and over again and, therefore, till its communication cannot be regarded as anything more than provisional in character.”

In that case, the appellant, Bachhittar Singh, was an Assistant Consolidation Officer. On receiving certain complaints against him, an enquiry was held by the Revenue Secretary of the Pepsu Government, and as a result of that enquiry the Revenue Secretary dismissed him by an order, dated 30-8-1956. Against the order, he preferred an appeal to the Revenue Minister of Pepsu. The Revenue Minister called for the records of the case and wrote on the file that the charges against the appellant were proved. He also observed that the appellant was a refugee and had a large family to support, and that, therefore, instead of dismissing him outright, he should be reverted to his original post of Kanungo. On the next day, the State of Pepsu merged in the State of Punjab. The contention of the appellant was that the aforesaid observations of the Revenue Minister amounted to an order of the State Government even though they were never communicated officially to the appellant. Dealing with that contention, the supreme Court observed that before something amounts to an order of the State Government, two things were necessary, that the order has to be expressed in the name of the Governor as required by clause (1) of Article 166 of the Constitution, and that it has to be communicated. It was in that context that the Supreme Court further observed that the business of the State is a complicated one and has necessarily to be conducted through the agency of a larger number of officials and authorities, that the Constitution, therefore, requires that action must be taken by the authority concerned in the name of the Rajpramukh, that a Minister is no more than an adviser, and the head of the State, the Governor or Rajpramukh, is to act with the aid and advice of his Council of Ministers, that the advise of the Council of Ministers in regard to a particular matter does not become the action of the State until the advice is accepted or deemed to be accepted by the head of the State, and that to make the opinion amount to a decision of the Government, it must be communicated to the person concerned. The Supreme Court referred to an earlier decision of it in State of Punjab v. Sodhi Sukhdev Singh, A.I.R 1961 S.C 493 at page 512(15), and then made the observation extracted above. It is quite obvious that in that case the Supreme Court pointed out that what was merely an advice of the Ministers would become the order of the State on its communication to the person concerned. The content in which the said observation was made is entirely different from the situation under section 33B of the Income-tax Act. Here, there was a definite order of the Income-tax Officer passed on a particular date, and section 33b(2)(b) provides that the said order may be revised within two years from the date of the said order. There is thus no scope at all for importing the idea that the order of the Income-tax Officer would take effect for the purposes of section 33b(2)(b) only when it was communicated to or received by the assessee. The language of the provision is clear and definite, and does not permit of any such interpretation.

We, therefore, hold that the order under section 33B passed by the Commissioner of Income-tax was not barred by limitation, and answer the second question accordingly. The assessee is entitled to his costs in this reference which are fixed at Rs. 250.

S.K.P Reference answered accordingly.