TMI Blog1995 (4) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and according to the assessee credit for the same would be taken in the year of realisation. The question that arises in this reference for determination is whether the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 could be applicable to the case of an insurance company. The assessee is the insurance company. In the proceeding for assessment of tax for the accounting year relating to the assessment year 1983-84, the Assessing Officer noticed that an amount of interest of Rs. 37.35 lakhs on certain mortgage loans where the mortgagors were defaulters or where the rate of interest is disputed had been kept in suspense account. The Assessing Officer relying on the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 added the aforesaid amount to the total income of the assessee. The assessee relied upon the provision of section 44 of the Income-tax Act read with the First Schedule thereto and it was argued that inclusion of Rs. 37.35 lakhs was arbitrary and illegal. Before the appellate authority, the following copy of interest suspense account was furnished : Rs. P. "Opening balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevents the accrual of the income, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play but the notion of real income cannot be brought into play where income has accrued according to the accounts of the assessee and there is no indication by the assessee treating the amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the event of accrual, corroborated by appropriate entry in the books of account, on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. (iii) The concept of reality of the income and the actuality of the situation are relevant factors which go to the making up of the accrual of income but once accrual takes place and income accrues, the same cannot be defeated by any theory of real income. The concept of real income cannot be so used as to make accrued income non-income simply because after the event of accrual, the assessee neither decides to treat it as a bad debt nor claims deduction under section 36(2) of the Act, but still enters the same with a diminished hope of recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the charging section is section 4 and not section 5 and further that such charge is determined "subject to the provisions (including provisions for the levy of additional income-tax) of this Act." The charging section having itself stipulated that its applicability would be subject to the provisions of the Act, counsel's submission that section 44 should not be relied upon is not correct. Section 44 is a non obstante provision and it clearly provides that the income charged to tax for an insurance company has to be computed in accordance with the rules contained in the First Schedule. According to him, the provisions relied upon by the Department did not apply in the present case. He submitted that section 44 expressly makes the First Schedule to the Income-tax Act applicable to the case of an insurance company. Rule 5 of the said Schedule is the particular rule which is applicable in the present case. It states clearly that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance 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 Superintendent of Insurance after adjusting such balance so as to exclude from it any expenditure other than expenditure which may under the provisions of section 10 of this Act be allowed for in computing the profits and gains of a business...." At page 320, the Supreme Court observed that :".... the Income-tax Officer is bound to accept the balance of profits disclosed by the annual accounts, copies of which have been submitted to the Superintendent of Insurance. He can only adjust this balance so as to exclude from it any expenditure other than expenditure which may under the provisions of section 10 be allowed for in computing the profits and gains of a business. We are not concerned here with the latter part of rule 6 dealing with profits and losses on the realisation of investments, and depreciation and appreciation of the value of investments. This court examined the provisions of the Insurance Act in connection with the Schedule in Pandyan Insurance Co. Ltd. v. CIT [1965] 55 ITR 716 (SC) and arrived a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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