Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment years 1957-58 and 1958-59 - Assessee insurance company in drawing up its profit and loss account instead of showing actual disbursement by way of bonus paid to renewing policy holders under byelaws 52 of Insurance Act in Form B against head 'other expenses' allocated an estimated amount in profit and loss appropriation account - Account was certified by Collector of Insurance - Whether by adoption of different method of accounting, assessee sought to alter character of expenditure - Held, no - Whether, therefore, the amounts paid to policyholders by assessee-company were admissible deductions for purpose of computation of its taxable income for relevant assessment years - Held, yes FACTS The assessee, an insurance company, had paid bonus to the renewed policy holders. The actual disbursement by way of bonus was not included in the statement of profit and loss account but in the profit and loss appropriation account under the head 'Policy holders Bonus Fund'. The ITO disallowed the deduction of the expenditure incurred on the ground that it was appropriation of profit after it was earned. On appeal the AAC confirmed the order of the ITO. On second appeal, the Tribunal set aside the order of the AAC. The High Court again disallowed the assessee's claim. On appeal to the Supreme Court: HELD The assessee-company had submitted its balance-sheet, the profit and loss account and profit and loss appropriation account. The balance-sheets for the two years, had not been printed in the record and only the profit and loss accounts and the profit and loss appropriation accounts had been printed. In the statements of profit and loss account (Form B) for the two years, disbursements by way of bonus to the renewing policy-holders were not included. But in the profit and loss appropriation accounts (Form C) for the years 1956 and 1957, entries for allocations were made under the head 'Policy-holders Bonus Fund'. In Form B in Schedule II of the Insurance Act under the head 'Other Expenditure (to be specified)',…

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