Law: Income Tax Act, 1922

Section: 10(7)

Section 44 of the Income-tax Act, 1961 [Corresponding to section 10(7) of the Indian Income-tax Act, 1922] - Insurance business - Assessment years 1952-53 to 1954-55 - Whether in computation of profits and gains of insurance company, ITO has to accept annual average of surplus disclosed by actuarial valuation made in accordance with Life Insurance Act in respect of last inter-valuation period, so as to exclude therefrom any surplus or deficit included therein which was made in earlier inter-valuation period, and expenditure not allowable under section 10 of 1922 Act in computing profits - Held, yes - Whether it is obligatory upon ITO to make computation of surplus for purpose of rule 2 according to scheme provided in clauses (a), (b) and (c) of rule 3 - Held, yes - Whether ITO has, therefore, no power to change figures in accounts of assessee insurance company and has to take surplus as disclosed by actuarial valuation made by assessee under Insurance Act and then to arrive at average mentioned in rule - Held, yes - Whether assessment of profits of an insurance business is completely governed by rules in Schedule and there is no power to do anything not contained in it and tampering with accounts of an insurer by an ITO may seriously affect working of insurance companies - Held, yes - Whether where ITO made adjustments in accounts of assessee insurance company on ground that securities had been undervalued, adjustment made by ITO was not justified - Held, yes FACTS The assessee insurance company had debited certain amount to its consolidated revenue account and credited it to the investment reserve fund. There was no dispute that the assessee had to maintain the investment reserve fund. The transfer had been made because the assessee thought that the securities in respect of which the investment reserve fund had been constituted having depreciated the fund had become inadequate. By this transfer the assessee's surplus, on which the tax had to be assessed under rule 2, was reduced. The ITO thought that this transfer made the balance in the investment reserve fund exceed the deficit disclosed on the book values of the securities in that fund. He also checked up…

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