Special computation for insurance business prevents separate property-income exemption where rental receipts form part of business profits.

Rental income from an insurance company's Borivli property was held not to qualify for exemption under section 4(3)(xii) because that exemption applied only to income chargeable under the head "income from property". The Court reasoned that section 10(7) required the profits and gains of insurance business to be computed exclusively under the Schedule, overriding the general heads of income in sections 8, 9, 10, 12 and 18. In that statutory framework, the rental receipts formed part of the notional computation of the insurance business and were not separately assessable as property income in the assessee's hands. The income was therefore assessable and the exemption was denied.

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Issues: Whether the rental income from the Borivli property was exempt under section 4(3)(xii) of the Indian Income-tax Act and therefore not assessable in the hands of a life insurance company, having regard to the special mode of computation under section 10(7) and the Schedule.

Analysis: The exemption under section 4(3)(xii) applied only where the income was chargeable under the head "income from property". Although the building was constructed within the relevant period and the rent arose within the prescribed time, the decisive question was whether, in the case of an insurance company, such income could be regarded as income chargeable under that head. The Court held that section 10(7) required the profits and gains of insurance business to be computed exclusively under the Schedule, notwithstanding sections 8, 9, 10, 12 or 18, and that the resulting figure was a notional income of the business as a whole. In that statutory setting, the rental receipts were not computed as income from property in the assessee's hands and therefore did not satisfy the condition of section 4(3)(xii).

Conclusion: The assessee was not entitled to exemption in respect of the rental income of the Borivli property, and the income was assessable in its hands.

Final Conclusion: The reference was answered in favour of the Revenue, with costs awarded to the department.

Ratio Decidendi: Where a statute prescribes a special and exclusive method for computing the profits of insurance business, receipts falling within that business are not separately taxable or exempted under general heads of income unless the exemption expressly applies notwithstanding that special computation scheme.

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