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TMI Blog1967 (3) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... that policy. 3. That the policy was insured during the year for which bonus is declared. 4. That the bonus amount will be paid only if the policy is renewed on expiration and the bonus amount may be credited towards premium under the renewed policy." In proceedings for assessment of the income of the assessee-company for the assessment years 1957-58 and 1958-59 the assessee-company claimed allowance of Rs. 29,615 and Rs. 44,920, respectively, paid under the bonus scheme under bye-law 52, in the computation of its taxable income. The Income-tax Officer rejected the claim holding that payment of bonus was made after its profits for the relevant years were determined and on that account it was only a case of appropriation of profit afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aled to this court. By section 10(7) of the Income-tax Act the profits and gains of any business of insurance and the tax payable thereon are computable, notwithstanding anything to the contrary contained in section 8, 9, 10, 12 or 18, in accordance with the rules contained in the Schedule to the Act. Rule 6 of the Schedule which prescribes the method of computation of taxable income of insurance business (other than life insurance) provides: " The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Controller of Insurance after adjusting such balance so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or to examine any officer of the insurer on oath in relation to the return, or to decline to accept any such return unless the inaccuracy has been corrected or the deficiency has been supplied. By section 22 the Controller has the power to order investigation or re-valuation to be made by an actuary appointed by the insurer for the purpose. Having regard to the wide powers conferred upon the Controller, the Income-tax Act has in respect of the business of insurance, other than life insurance, provided that the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Controller of Insurance, shall be accepted by the Income-tax Officer, subject to any adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds paid during the year on account of the current year. Transfers to any particular funds or accounts, and Balance at the end of the year as shown in the balance-sheet." The assessee-company, in drawing up its profit and loss account instead of showing the actual disbursement in Form B against the head " Other expenditure ", estimated the amounts which it would be liable to pay and debited the same against the head " Transfers to any particular funds or accounts " in Form C. The High Court held that rule 6 merely provides for adjustment of the balance of expenses which are in the opinion of the Income-tax Officer not permissible allowances under section 10, and on that hypothesis inferred that the annual accounts referred to in rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C and other accounts, and there is no warrant for the view that the balance of profits disclosed by the annual account must be equated with the balance of profits disclosed in Form B. The other plea which appealed to the High Court, that the assessee-company had itself not treated the bonus paid as an expenditure related to the business, but only as disbursements made out of the profit after it had accrued to the assessee-company, also cannot be sustained. The assessee-company maintains its accounts according to the mercantile system. It chose to estimate the liability arising under bye-law 52 in respect of the business transacted by it, and debited it in the profit and loss appropriation account. By adopting that method of accounting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of the business of the assessee-company. Counsel for the Commissioner contended that the estimated liability was not " crystallised liability " and was on that account inadmissible as an allowance in the computation of taxable income. The liability, submitted counsel, was a mere contingent liability which could not amount to expenditure within the meaning of section 10(2)(xv), nor a permissible outgoing in the determination of the income, profits or gains of the business. This question apparently was not raised before the Tribunal. Assuming that it could be raised before the High Court and this court, we are of the view that under the scheme of bye-law 52, the liability is not a contingent liability. So long as the year of risk has n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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