TaxTMI 
TaxTMI 
2007 (5) TMI 193
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....4-75 allowed various deductions and the order of the Assessing Officer disallowing certain expenditure was set aside by orders dated February 9, 1979, and September 9, 1980. Both the orders were questioned by the Revenue before the Income-tax Appellate Tribunal (for short, "the Tribunal"). By reason of an order dated November 30, 1981, the Tribunal held that the Assessing Officer was not correct in refusing to accede to the deductions under the aforementioned heads claimed by the assessee. The following questions of law were referred to the High Court under section 256 of the Income-tax Act, 1961 (for short, "the 1961 Act"). "1. Whether on the facts and in the circumstances of the case, and on a true interpretation of section 44 of the Income-tax Act, 1961 read with rule 5 of the First Schedule to the said Act, the Tribunal was right in confirming the addition of the following amounts to the balance of profits disclosed by the annual accounts of the assessee insurance company? Rs. (i) Tax deducted at source 76,74,713 (ii) Provision for taxation &nbs....
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....n securities', 'Income from house property, 'Capital gains' or 'Income from other sources', or in section 199 or in sections 28 to 43A, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule. Rule 5.-The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938 (4 of 1938), to be furnished to the Controller of Insurance, subject to the following adjustments: (a) subject to the other provisions of this rule, any expenditure or allowance which is not admissible under the provisions of sections 30 to 43A in computing the profits and gains of a business shall be added back." Section 44 contains a non obstante clause. It provides for a special mode in which the assessee carrying on business, inter alia, in general insurance should be assessed. The reason for it is not far to seek as the matter relating to "carrying on business" in general insurance is covere....
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....ccounts. The question came up for consideration before this court in relation to business of life insurance in Life Insurance Corporation of India v. CIT [1964] 5 SCR 880. Therein, this court had the occasion to consider the relevant provisions of the 1938 Act as also the 1961 Act. In respect of business of insurance other than life insurance, the matter fell for consideration in Pandyan Insurance Co. Ltd. v. CIT [1965] 1 SCR 367, wherein it was categorically held that the rules do not empower the Income-tax Officer to adjust the accounts on the basis of revaluation made by him or to correct the discrepancy between what is entered into the accounts and what is fact. In CIT v. Calcutta Hospital and Nursing Home Benefits Association Ltd. [1965] 3 SCR 632 application of rule 6 to the Schedule appended to the Income-tax Act came up for consideration of this court, wherein the law was laid down in the following terms: "11. The section adopted the device of a deeming provision. The profits arising from the transactions of a company or society with its members were deemed to be profits arising from transactions with non-members. Parliament assumed that the latter were taxable. As this ....
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....aripoornan J. speaking for a Division Bench noticed: "12. A fair reading of the above decisions would go to show that if the transfer of an amount is made ad hoc, when there is no known or anticipated liability, such fund will only be treated as 'reserve'. In this case, substantial amounts were set apart as reserves. No amount of bad debts was actually written off or adjusted against the amount claimed as reserves. No claim for any deduction by way of bad debts were made during the relevant assessment years. The assessee never appropriated any amount against any bad and doubtful debts. The amounts throughout remained in the account of the assessee by way of capital and the assessee treated the said amounts as 'reserves' and not as 'provisions' designed to meet liability, contingency, commitment or diminution in the value of assets known to exist at the relevant dates of balance-sheets. These facts have been found by the Tribunal. On the facts, the amount set apart as reserves cannot be said to be so earmarked, when any liability has actually arisen or was anticipated by the assessee. It cannot be said either, that the amounts set apart out of the profits were designed to meet any ....
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.... which is a part of the profit itself, one can understand how you get into the confusion which has induced the learned counsel at such very considerable length to point out that this is not a charge upon the profits at all. The answer is that it is. The income tax is a charge upon the profits; the thing which is taxed is the profit that is made, and you must ascertain what is the profit that is made before you deduct the tax-you have no right to deduct the income tax before you ascertain what the profit is. I cannot understand how you can make the income tax part of the expenditure. . ." Yet again in Allen (H. M. Inspector of Taxes) v. Farquharson Brothers and Company [1932] 17 Tax Cases 59 (KB), it was held: "Now it is not necessary for me to discuss, and I do not need to discuss, in detail or, indeed, at all, although my attention was properly called to it by counsel, the exact nature of the income-tax and its distinction from excess profits duty. The distinction, of course, is perfectly familiar and, in a general way, is recollected by anybody who has ever had anything to do with these things. Income-tax is not a deduction before you arrive at the profits; it is a part of the ....