Law:

Section:

Section 44 of, read with rules 5(b) and 7(1)(ii) of first schedule to, the Income-tax Act, 1961-Insurance business-Computation of profits-Assessee, general insurance company, deposited in fixed deposit Rs. 2 lakhs with company C-Interest, though accrued, not paid but capitalised and renewed as fixed deposit-Assessee made provision in accounts for depreciation or loss of investment-ITO disallowed the same as an admissible deduction for assessment year 1971-72, as deposit not an "investment" within rule 7(1)(ii)-Whether tribunal right in law in holding impugned provision an admissible deduction and its fixed deposit and unrealised interest thereon was an "investment" under said rule-Held, on facts, yes Facts The assessee, a general insurance company, had deposited Rs. 2,00,000 with company C. The deposits were being renewed annually on maturity and, whenever the interest was in arrear, the renewal was with the interest also. When total deposit was Rs. 2,68,056 as on 31-12-1970, the interest accrued was offered for assessment to tax as and when it accrued. In 1968, the company C did not pay the amount demanded and the assessee filed a suit to recover it, which was still pending. While preparing its balance sheet, the Custodian, in accordance with the directions of the Central Government, examined the possibility of realising all the investments made by the assessee. As the balance sheet of company C disclosed that its asset would not be sufficient to meet even the claims of secured creditors and on the auditor's opinion that no part of the fixed deposit with company C or interest thereon was realisable, the assessee made a provision of Rs. 2,68,056 in its balance sheet for year ending 31-12-1970 to meet depreciation of or loss on the realisation of investment. The assessee's claim for deducting this amount in its assessment for the assessment year 1971-72 under rule 5(b) of the First Schedule, was rejected by the ITO on the ground that the said deposit did not fall in the category of "investment". On appeal, the AAC and the Tribunal accepted the assessee's claim. On reference: Held 1. The word "includes" occurring in the definition of "investment" in rule 7(2)(ii)…

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