Law:

Section:

section 44 of the income-tax act, 1961 read with rule 5 of first schedule thereto-insurance business-computation of profits and gains of general insurance-assessee, a general insurance company, held certain investments in some companies-in its annual accounts submitted to controller of insurance, it wrote off an amount representing depreciation in value of certain investments but it did not take into account appreciation in value of certain other investments-ito allowed only the difference between amounts of depreciation and appreciation in investments-whether in view of rule 5(b ), ito was debarred from taking into account appreciation in investment since it was not reflected in assessee's accounts and had to allow depreciation in investment in full-held, on facts, yes Facts The assessee, a general insurance company, held over a period of time considerable investments in company shares and the like. In making up its annual accounts for the year ended 31-12-1965 (relevant to the assessment year 1976-77), it did not follow a uniform method in valuing these investments. While it wrote off in its accounts an amount of Rs. 4,52,510, representing the depreciated value of the investments, it did not account for in its annual accounts, the amount of Rs. 2,22,083 representing appreciation in the value of certain investments. The ITO allowed a deduction not for the entire amount of Rs. 4,52,510, as claimed by the assessee, but only a sum of Rs. 2,30,427 (Rs. 4,52,510 minus Rs. 2,22,083). The Tribunal held that the ITO's action was not warranted under rule 5 of the First Schedule to the Act. The Tribunal, accordingly, allowed the entire deduction for the written off loss of Rs 4,52,510. On reference: Held The principal of global assessment of changes in the value of securities, incorporated in rule 3(b) of the Schedule to the 1922 Act, cannot be extended to the computation of the profits of general insurance business under Part B of the First Schedule to the 1961 Act. Under rule 5(b) of the First Schedule, either allowance of loss or depreciation of investment, on the one hand, or the charging of profits on the appreciation of investments, on the other, can only be done…

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