TaxTMI 
TaxTMI 
2017 (3) TMI 1054
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....ns to the assessment year 2005-06. The assessee is engaged in the business of insurance other than life insurance. In respect of the said assessment year, the assessee wanted Rs. 245,09,18,028/-, being profit earned by them on sale of investments, to be exempted from tax. The assessee, being a general insurance company, is required to be taxed in terms of Section 44 of the Income Tax Act, 1961 read with the provisions of Rule 5 of Part B to Schedule 1 to the Act. The aforesaid Rule, for the assessment year involved, provided:- "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 [including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed] which is not admissible under the provisions of sections 30 to [43B] in computing the profi....
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....nce other than life insurance are taken to be balance of profits disclosed in the annual accounts furnished to the Controller of Insurance subject to certain adjustments. One of the adjustments provided therein is in respect of any amount either written off or 'reserved in the accounts to meet depreciation or loss on the realisation of investment which is to be allowed as deduction. Similarly, any sum credited to the account, due to appreciation of or gain on the realization of investment is taken as part of the profits and gains of the business. To enable the General Insurance Corporation and its subsidiaries to play a more active role in capital markets for the benefit of policy-holders, the Finance Act has amended sub-rule (b) of rule 5 of the First Schedule to provide for exemption of the profits earned by them on the sale of investment. As a corollary, it has also been provided that the losses incurred by the General Insurance Corporation on the realisation of the investment shall not be allowed as a deduction in computing the profits chargeable to tax. 45.2 this amendment will take effect from the 1st April, 1989, and will, accordingly apply in relation to the assessment y....
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....essing Officer to profit on sale of investments to total income as computed for the purpose of income tax assessment had been initially sustained by the CIT (Appeals). For these three assessment years the assessee appealed to the Tribunal and the Tribunal had restored the matters back to CIT (Appeals). In each of these restored cases, CIT (Appeals) had held that profit on sale of investments could not be included in the assessee's total income. It has been submitted on behalf of the assessee that the decisions of the CIT in the restored cases were not further challenged by the Revenue in any appellate forum. It has also been submitted by Mr. Poddar, learned Senior Counsel appearing for the assessee that between the assessment years 1991-92 and 2010-11, the period during which clause 5(b) had remained out of the statute book, same course was adopted by the Revenue, barring the assessment years 2005-06 and 2006-07. Argument of Mr. Poddar is that this consistent view taken by the Revenue ought not to be upset. He has also argued that the circulars, notifications explaining or dealing with statutory provisions constitute contemporaneous instruments guiding interpretation of statutes....
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....we have already indicated, the Revenue's stand is that there is no specific provision in the statute which allows a general insurance company's profits from sale of investments to be exempted from total income for the purpose of taxation under the 1961 Act. Mr. Poddar, sought to repel the Revenue argument on three grounds. His first submission is that upon omission of clause (b) from Rule 5 of the First Schedule, the Assessing Officer was denuded of the power to make any adjustment by way of adding back the said sum to total income of the assessee for the purpose of Income Tax assessment, which power the Assessing Officer sought to exercise in the case of the assessee. His second submission is that the Circular of 1988 clearly stipulated that profit on sale of investments was not taxable in the case of a general insurance company. Thirdly, he has argued that the consistent stand of the income tax authorities between the assessment years 1991-92 and 2004-05 as also 2007-08 till 2010-11 reflects that the mandate of the circular was accepted by the tax authorities and followed. There was consistent practice of not making adjustment by way of adding back in similar fashion and this pra....
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....ssued by the Board. Similar is the view taken by this court in the case of Collector of Central Excise v. Kores (India) Ltd. [1997] 10 SCC 338; [1997] 89 ELT 441 (SC)." We do not find any reason to accept the argument of the Revenue which goes contrary to the consistent stand taken by them on similar point in earlier assessment years on the same point of law. The Circular of 16th December, 1988 clearly stipulated the object behind deletion of aforesaid sub-clause (b). The manner in which profits from investments of a general insurance company is to be treated for income tax purpose also can be construed from the Notes on Clauses extracted from the Finance Bill, 1988. We have reproduced the relevant portion thereof earlier in this judgment. Having regard to the provisions of Section 44 of the Act read with First Schedule thereto, in our opinion the Assessing Officer for the applicable assessment year did not have power to add back the profit of Rs. 245.09 crores arising out of sale of investments to the total income of the assessee. Mr. Nizamuddin also could not explain to us why deviation was made on treatment of profits on sale of investments for the two assessment years. On bi....