Law: Income Tax Act, 1961

Section: 256

Income tax--Computation of profits and gains of insurance business Certain amount shown as "profit on exchange" in profit and loss account----Not open to Income tax Officer to go behind the figure stated and ascertain whether it was really so. A I R 1964 S C 1403; A I R 1965 S C 1004; 1973 Tax L R 127 (Delhi) and (1977) 106 I T R 969 (Bom.) rel. (1969) 71 I T R 761 (Bom.) and 1978 Tax L R 1241 (Bom.) distinguished. 115 IT R 45 (Born.) ; (1977) 106 IT R 969 (Bom.) ; 90 IT R 243 (Delhi) ; (1969) 71 IT R 761 ; 63 IT R 328 ; 55 IT R 716 ; 51 IT R 773 and (1962) 46 I T R 590 (Bom.) ref. ORDER CHANDURKAR, J. In this reference at the instance of the assessee, the following two questions have been referred to this Court under section 256 (1) 'the Income tax Act, 1961 : "(1) Whether on the facts and in the circumstances of the case and on a proper construction of the First Schedule read with section 44 of the Income tax Act, 1961, the assessee could claim that a sum of Rs. 21,26,932 representing the appreciation in value of some of its foreign assets consequent on the devaluation of the rupee was not assessable to income tax. (2) If the assessee could so claim, whether this amount of Rs. 21,26,932 was on the facts and in the circumstances of the case liable to tax as income tax under the Income tax Act, 1961 ?" 2. The assessee Company, The Oriental Fire and General Insurance Company Limited. Bombay, carries on business of general insurance. The relevant assessment year is 1967 68 for which the previous year was the slender 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 upto 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…

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