Tax exemption notification prevails over insurance computation rules; limitation for revision runs from the assessment order date

A tax exemption notification under section 60(1) of the Indian Income-tax Act, 1922 overriding the special insurance computation rules meant interest on Mysore Darbar securities had to be excluded from the taxable surplus of the life insurance business. The special schedule governed computation, but it did not displace a general exemption granted under the Act, so the assessee was entitled to the exclusion. On limitation, revision under section 33B had to be made within two years from the date of the assessment order sought to be revised, not from the date of communication of the revisional order, and the Commissioner's order was therefore within time.

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Issues: (i) Whether interest on Mysore Darbar securities was exempt from taxation and excluded from the taxable surplus of a life insurance business under the exemption notification issued under section 60(1) of the Indian Income-tax Act, 1922; (ii) Whether the Commissioner's revisional order under section 33B was barred by limitation.

Issue (i): Whether interest on Mysore Darbar securities was exempt from taxation and excluded from the taxable surplus of a life insurance business under the exemption notification issued under section 60(1) of the Indian Income-tax Act, 1922.

Analysis: Section 60(1) empowers the Central Government to grant exemption, reduction in rate, or other modification in respect of income-tax in favour of any class of income. The notification expressly exempted the class of income consisting of interest on Mysore Darbar securities and further stated that such income was not to be taken into account in determining total income. That exemption operated as a general exemption from tax under the Act and, therefore, prevailed notwithstanding the special computation machinery for insurance business under section 10(7) and rule 2(b) of the Schedule. The special schedule governed computation, but it did not displace an exemption granted by notification under the Act.

Conclusion: The interest was exempt from taxation and had to be excluded from the taxable surplus, in favour of the assessee.

Issue (ii): Whether the Commissioner's revisional order under section 33B was barred by limitation.

Analysis: Section 33B(2)(b) requires that revision be made within two years from the date of the order sought to be revised. The relevant date was the date on which the Income-tax Officer passed the assessment order, not the later date on which the revisional order was communicated to the assessee. Since the Commissioner's order was passed within two years of the assessment order, the limitation objection failed.

Conclusion: The revisional order was not barred by limitation, in favour of the Revenue on this issue.

Final Conclusion: The reference was answered by holding that the assessee was entitled to exemption on the securities interest, while the revisional order remained within time.

Ratio Decidendi: A tax exemption granted by notification under section 60(1) of the Indian Income-tax Act, 1922 operates notwithstanding the special computation rules for insurance business, and limitation under section 33B runs from the date of the order sought to be revised, not from its communication.

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