Insurance business income computed under the Schedule is treated as business income, excluding general exemptions for separate heads of income.

Income of an insurance business is computed exclusively under the Schedule to the Income-tax Act, with Rule 6 treating the balance of profits in the annual accounts as business profits subject only to the statutory exclusions and adjustments. On that special scheme, the business income is assessed as a single unit and does not retain a separate character as house property, securities, or other head-specific income. The general exemptions under section 4 therefore do not apply to such notional computation, and rental income derived by the insurance business was held not exempt under section 4(3)(xii) in view of section 10(7).

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Issues: Whether rental income derived by a business of insurance from house property is exempt under section 4(3)(xii) of the Income-tax Act, 1922 notwithstanding the special computation rule in section 10(7).

Analysis: The income of an insurance business is required to be computed only in accordance with the Schedule to the Act. Rule 6 of the Schedule treats the balance of profits disclosed by the annual accounts as the profits and gains of the insurance business, subject only to the exclusions and adjustments permitted by section 10. On that scheme, the income of the insurance business is taken as a single unit of business income and does not retain separate character as income from house property, securities or other heads. The special mode of computation therefore excludes the application of the general exemptions in section 4 to such income. Authorities dealing with insurance-business computation were relied upon to show that the Schedule provides an artificial and notional method of assessment and that income so computed is assessable only as business income.

Conclusion: The rental income was not exempt under section 4(3)(xii) in view of section 10(7); the question was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: Where the Act directs that the profits and gains of an insurance business be computed exclusively under the Schedule, the resulting income is treated as business income and does not attract the exemptions applicable to separate heads of income under the general provisions.

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