TaxTMI 
TaxTMI 
1982 (6) TMI 24
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Co. Ltd., Bombay, carried on the business of general insurance. The relevant assessment year is 1967-68, for Which the previous year was the calendar year 1966. In the profit and loss account for 1966, an entry with regard to Rs. 21,26,932 was as follows : " Profit on exchange (net) see note 3-Rs. 21,26,932." Note 3 referred to in the entry reads as follows : " Incorporated in the accounts are the figures of the company's foreign branches, agencies, treaties, etc., at the pre-devaluation rate in respect of transactions effected up to 5th June, 1966. The assets and liabilities thereof (except estimated liability for outstanding claims) at the close of business on 5th June, 1966, have been converted at the new rate of exchange. Estimated liability for outstanding claims of the foreign business as on 5th June, 1966, was not ascertained. The amount of outstanding claims in respect of the foreign business as at 31 st December, 1965, was converted at the new rate of exchange.." While making a computation of the income for the assessment year in question, the assessee deducted the abovementioned sum of Rs. 21,26,932 on the ground that it did not represent income as there was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,204.15 2,38,960.52 Pakistan (Loss on exchange) P.Rs. 8,894.70 13,964.68 --------------------------------------------------------------------------- The operative order of the AAC directed that the total income of the assessee should be reduced by Rs. 23,73,819, which included the amount of Rs. 21,26,932 in question. The Department filed an appeal against the order of the AAC and the contention raised was that the scheme of taxing the profits of insurance business is distinct and separate and that the ITO could not go beyond the limits of the rules prescribed in the First Schedule read with E. 44 of the I.T. Act, 1961. This contention was accepted by the Tribunal which held that the ITO could not travel beyond the annual accounts and treat some amount as balance of profits other than the balance of profits disclosed by the annual accounts furnished by the assessee under the Insurance Act. The order of the AAC was thus set aside and the order of the ITO was restored. The correctness of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing that it shall be deemed to be profits and gains of any business of insurance. The Division Bench held that the provisions of s. 10(7) of the 1922 Act and r. 6 in the Schedule do not prevent the ITO from granting exemptions to which the assessee would be entitled and that " there is nothing to indicate in sub-section (7) of section 10 that the exemption under sections 15B and 15C and the exemption under Notification No. 39 issued under section 16 or the deduction under section 4(1) cannot be allowed ........... It was pointed out by the learned counsel for the assessee that this decision was followed by another Division Bench of this court, to which one of us was a party, in Life Insurance Corporation of India v. CIT [1978] 115 ITR 45, in which it was held that the deductions which were claimed by the assessee whose assessment is governed by s. 44 read with r. 2 of the First Schedule to the I.T. Act, 1961, were allowable. Now, at the outset, we must refer to the provisions of s. 44 of the I.T. Act, 1961, which reads as follows: " Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....interest on securities ", " income from house property ", " capital gains " and " Income from other sources " will not apply but the profits and gains of business of insurance will have to be computed only in accordance with the rules contained in the First Schedule. Similarly, the provisions of s. 199 and ss. 28 to 43A also cannot be looked into for the purposes of computation of the profits and gains of the business of insurance. The bare reading of r. 5 Will show that it mandatorily requires that the balance of profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Controller of Insurance, shall be taken to be the profits and gains of the business of insurance other than life insurance. A limited scope for adjustment of the balance of profits as disclosed in the annual accounts is permissible and could be made by the ITO as indicated in cls. (a), (b) and (c) of r. 5. None of these clauses are relevant for the purposes of the present case. Now it is difficult to accept the arguments of the learned counsel for the assessee that though the amount of Rs. 21,26,932 is shown as a part of the profits of the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e annual accounts furnished by an assessee insurer to the Controller of Insurance cannot be gone into and the accounts as accepted by the Controller must form the basis of assessment in the case of insurers who fall within the ambit of the rules of the Schedule to the Indian I.T. Act, 1922. The question in that case was whether the amounts credited by the assessee, insurance company, to its profit and loss account for the relevant year, by transfers from the dividend equalisation fund and the general reserve account could be taken into consideration in computing its profits and the Division Bench held that the question must be answered in the affirmative. After referring to the provisions of s. 10(7) of the Indian I.T. Act, 1922, which corresponded to s. 44 of the I.T. Act, the Division Bench observed as follows (p. 246) : It is on account of the wide powers conferred on the Controller of Insurance and the sanctity that is attached to the returns accepted by him that provision has been made in the Income-tax Act precluding any further investigation and the Income-tax Officer is required to accept, subject to any adjustment he may make so as to exclude from it any expenditure oth....