Law:

Section:

section 44, read with rule 5 of the first schedule, of the income-tax act, 1961-insurance business-computation of profits and gains of-whether, when certain amount has been shown by assessee-company, carrying on insurance business other than life insurance, as profits in annual accounts submitted by it to controller of insurance under the insurance act, 1938, it is open to ito to go behind those figures to determine whether such sum is really profit or not-held, on facts, no Facts The assessee-company carried on business of general insurance in the country as well as outside the country. In the profit and loss account of the assessee for the year ending 31-12-1966 relevant to the assessment year 1967-68, a sum was shown as 'profit on exchange'. The said amount represented the appreciation in value of some of its foreign assets consequent on the devaluation of the rupee. In the annual accounts submitted to the Controller of Insurance under section 15 of the Insurance Act, 1938, the assessee had shown the aforesaid amount as a part of its profits. While making computation of income, of the assessment year 1967-68, the assessee deducted the abovementioned sum on the ground that it did not represent income, as there was no physical transfer of funds to it. The ITO held that the gain on devaluation of currency was profit which could not be excluded from the income. On appeal, the assessee contended that there were certain assets in Ceylon, Burma and Pakistan and since the assessee had stopped doing business in these countries, these assets were immobilised and any appreciation in the value of such assets could not constitute the income of the assessee. The AAC upheld the assessee's claim and directed the ITO accordingly. On further appeal, the Tribunal accepted the revenue's contention that the scheme of taxing profits of insurance business was distinct and separate and that the ITO could not go beyond the limits of the rules prescribed in the First Schedule read with section 44. Accordingly, it reversed the order of the AAC and restored that of the ITO. On reference : Held The provisions of rule 5 of the First Schedule are the only mode prescribed by the…

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