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-Assesses, a general insurance company, had book surplus on conversion, in terms of devalued indian rupee, of the existing balances in foreign currencies and value of net assets in its overseas branches which was shown under the head 'profits due to devaluation' in profit and loss account-Whether said surplus could be charged to tax as income of assessee-Held, on facts, yes Facts The assessee was a general insurance company with head office in India and branches abroad. For the accounting year ended 31-12-1966, its profit and loss account showed an item 'profit due to devaluation' at Rs. 7,75,720 which included Rs. 4,58,049 representing the book surplus on conversion, in terms of the devalued Indian rupee, of the existing balance in foreign currencies and the value of net assets in the assessee's overseas branches. The ITO charged the entire sum of Rs. 7,75,720 to tax on the ground that it represented the balance of profits according to the assessee's own accounts. The assessee, however, contended that the sum of Rs. 4,58,049 should be excluded from profits since it had not come to the assessee as profits from an external source. This contention of the assessee was subsequently accepted by the Tribunal which observed that the assessee's foreign branches were nothing but projections of the assessee's head office and relied on the principle that no man can earn a profit from himself. The Tribunal, accordingly, held that the assessee could not be said to derive any profits merely by converting and revaluing in terms of the devalued Indian rupee in its own assets in foreign branches. Thus, the Tribunal deleted the impugned amount from the assessee's taxable income. On reference: Held Section 44, read with the rules laid down in the First Schedule, governs the computation of profits and insurance business. Rule 5 of the said Schedule, which relates to general insurance business, lays down that the assessable profits of any business of insurance other than life insurance 'shall be taken to be' the balance of profits…

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