2002 (9) TMI 44 - HC - Income Tax

Insurance business taxable profits computation u/s44 First Schedule upheld; 'real income' doctrine couldn't override; appeals dismissed.

The dominant issue was whether the Revenue could invoke the 'real income' doctrine to alter computation of taxable income from an insurance business ... Computation of profits and gains of business of insurance - scope of section 44 - concept of real income and accrual of income - HELD THAT:- It is asserted that the notion of real income cannot be brought into play when the income has already accrued to the assessee. It is, thus, submitted that a substantial question of law arises from the orders of the Tribunal. Section 44 of the Act is a special provision dealing with the computation of profits and gains of business of insurance. It being a non obstante provision, has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rules contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. The scope of section 44 of the Act came up for consideration before the Supreme Court in General Insurance Corporation of India [1999 (9) TMI 3 - SUPREME COURT]. In view of the said authoritative pronouncement, and in the absence of any finding by the Assessing Officer that the taxable income has not been computed in accordance with section 44 of the Act, no fault can be found with the view taken by the Tribunal. No question of law, much less a substantial question of law, survives for our consideration. Consequently, both the appeals are dismissed. Issues: (i) Whether, for an assessee carrying on insurance business, interest accrued but kept in suspense on the assessee's books could be included in taxable income by the Assessing Officer notwithstanding computation of profits under the First Schedule as mandated by section 44 of the Income-tax Act, 1961.Analysis: Section 44 is a special, non obstante provision requiring that taxable income from insurance business be computed in accordance with the rules in the First Schedule. Rule 5(a) of the First Schedule applies to amounts which are expenditures or allowances and not admissible under sections 30 to 43A. The Supreme Court's decision in General Insurance Corporation of India v. CIT establishes that where profits of an insurance business are computed under the First Schedule in compliance with section 44, the Assessing Officer cannot make adjustments inconsistent with those rules. The Assessing Officer made no finding that the assessee failed to compute its profits in accordance with section 44. The question whether the notion of 'real income' or accrual under accounting principles (as discussed in State Bank of Travancore) overrides the statutory scheme of section 44 is resolved by the dominance of the First Schedule under the non obstante clause.Conclusion: The inclusion of the accrued interest by the Assessing Officer is not permissible where taxable income for the insurance business has been computed in accordance with section 44 and the First Schedule; the Tribunal's allowance of the appeals is upheld and no substantial question of law arises in favour of the Revenue.