Non-obstante clause and Schedule computation do not bar statutory deductions and exemptions; assessee entitled to claimed reliefs.

Section 10(7) with Schedule rule 6 requires accepting annual-account profits as the computation starting point for general insurance but does not, by itself, displace other statutory deductions or exemptions where their conditions are met. The court held the assessee entitled to the third proviso exclusion to section 4(1), donations exemption, dividend exemption for new industrial undertakings, and notification-based interest exemption. Contributions to a mutual benefit society were held revenue and deductible, and exchange losses from foreign devaluation were held ordinary business losses reflected in accounts and therefore allowable.

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Issues: (i) Whether section 10(7) read with rule 6 of the Schedule excludes the operation of other provisions of the Income-tax Act so as to prevent claims for deduction under section 4(1) and exemptions under section 15B, section 15C(4) and Notification No.39/05.07.1954; (ii) Whether the assessee is entitled to deduction of Rs.4,500 under the third proviso to section 4(1) for each year; (iii) Whether donations for charitable purposes are exempt under section 15B; (iv) Whether dividends from newly established industrial undertakings are exempt under section 15C(4); (v) Whether interest on Mysore Government loan is exempt under Notification No.39 dated 05.07.1954 issued under section 60(1); (vi) Whether (a) the contribution from the general department to the New India Mutual Benefit Society (approx. Rs.96,665) is an allowable business deduction under section 10(2)(xv) and (b) losses due to devaluation of Pakistan currency (Rs.79,592 and Rs.1,33,694) are deductible as business losses under the Act or the Schedule.

Issue (i): Whether section 10(7) and rule 6 exclude the operation of other Act provisions affecting deductions and exemptions.

Analysis: Section 10(7) contains a non-obstante clause expressly referring to sections 8, 9, 10, 12 and 18 and states that profits and tax shall be computed in accordance with the Schedule. Rule 6 governs computation for general insurance and prescribes taking the balance shown in annual accounts and permits only limited adjustments (exclusion of certain expenditure and dealing with investment realizations and appreciation/depreciation as per rule 3). Rule 4 (life insurance) is the only rule that addresses computation of tax payable. The Court analysed the text and purpose of section 10(7) and the Schedule, distinguished rule 4's special treatment of tax payable for life insurance, and held that neither section 10(7) nor rule 6 manifest an intention to abolish other statutory exemptions or deductions (such as section 4(1) proviso, section 15B, section 15C(4), or notifications under section 60) where their conditions are otherwise fulfilled.

Conclusion: The operation of section 10(7) read with rule 6 does not, as a general rule, exclude the application of other provisions of the Income-tax Act granting deductions or exemptions; those provisions remain available if their specific conditions are met.

Issue (ii): Deduction of Rs.4,500 under the third proviso to section 4(1) for each assessment year.

Analysis: The proviso requires (a) income accruing or arising without taxable territories, (b) amounts brought into taxable territories, and (c) that foreign income exceed amounts brought in, to allow exclusion up to Rs.4,500. Facts showed all ingredients satisfied for the general insurance department. The Court distinguished the Privy Council decision concerning life insurance (rule 2(b) computations) as limited to life-insurance assessments computed by inter-valuation averages and not applicable to general insurance assessed annually under rule 6.

Conclusion: The assessee is entitled to the Rs.4,500 exclusion under the third proviso to section 4(1) for each of the three assessment years (in favour of the assessee).

Issue (iii): Exemption for donations under section 15B.

Analysis: Section 15B exempts sums paid as donations to specified institutions/funds. The claimed donations met statutory terms and were paid in the relevant years. Rule 6 or section 10(7) did not negate an exemption that operates on sums paid rather than on profits.

Conclusion: The assessee is entitled to exemption under section 15B for the specified donations (in favour of the assessee).

Issue (iv): Exemption under section 15C(4) for dividends from new industrial undertakings.

Analysis: Section 15C(4) exempts shareholders in respect of dividends attributable to profits on which tax is not payable under section 15C(1). Dividend income of the assessee during the relevant years was treated as business income under section 10; the Court found no reason rule 6 prevents application of section 15C(4) where its conditions are met and distinguished authorities concerning life-insurance averaging.

Conclusion: The assessee is entitled to exemption under section 15C(4) for the dividends shown (in favour of the assessee).

Issue (v): Exemption of interest on Mysore Government loan under Notification No.39 dated 05.07.1954 issued under section 60(1).

Analysis: Section 60(1) permits exemption by notification in respect of a class of income. The notification expressly exempted interest receivable on specified Mysore securities. The Court held "class of income" is a broad category encompassing such specified interest; rule 6/section 10(7) do not negate notifications under section 60.

Conclusion: Interest on the Mysore Government loan is exempt under Notification No.39 dated 05.07.1954 (in favour of the assessee).

Issue (vi): (a) Deductibility of the contribution (~Rs.96,665) to the Mutual Benefit Society; (b) Deductibility of exchange losses Rs.79,592 and Rs.1,33,694 due to devaluation of Pakistan currency.

Analysis: (a) The transfer to the mutual benefit society was examined against tests for capital versus revenue expenditure. Unlike precedents where a lump sum formed a permanent "nucleus" of a pension fund or extinguished an existing liability (Atherton; Rowntree), here the society was a separate legal entity distributing funds for welfare; contributions were recurrent in nature, the company retained no dominion, and no pre-existing legal liability was extinguished. Thus the payment was a revenue/business expense allowable under section 10(2)(xv). Sections 10(4)(c) and 58K(1) did not apply on the facts. (b) The exchange differences resulting from Pakistan's devaluation were fortuitous, ab extra losses reflected in the company's exchange adjustment accounts. The Court distinguished such losses from elective expenditure: they are ordinary business losses (not an "expenditure" disallowable under section 10(4)). Under rule 6 the balance of profits as shown in annual accounts (including such losses) must be accepted; the Income-tax Officer cannot exclude items that are genuine business losses when they appear in the annual accounts filed with the Controller of Insurance.

Conclusion: (a) The contribution to the Mutual Benefit Society (approx. Rs.96,665) is an allowable deduction under section 10(2)(xv) (in favour of the assessee). (b) The exchange losses of Rs.79,592 and Rs.1,33,694 are deductible as ordinary business losses and are allowable (in favour of the assessee).

Final Conclusion: All referred questions were answered in favour of the assessee; the statutory exemptions and deductions claimed (third proviso to section 4(1), section 15B, section 15C(4), Notification No.39 under section 60, the mutual benefit society contribution, and the exchange losses) are permissible on the facts and legal analysis provided, and the assessee is entitled to costs.

Ratio Decidendi: Rule 6 of the Schedule requires the tax authority to accept the annual account balance as the starting point for general insurance assessments and does not, by itself, negate other statutory deductions or exemptions; genuine business losses entered in those accounts and statutory exemptions whose conditions are satisfied must be given effect.

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