TMI Blog1982 (6) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year is 1967-68, for Which the previous year was the calendar 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 up to 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 5th June, 1966, was not ascertained. The amount of outstanding claims in respect of the foreign business as at 31 st December, 1965, was converted at the new rate of exchange.." While making a computation of the income for the assessment year in question, the assessee deducted the abovementioned sum of Rs. 21,26,932 on the ground that it did not represent income as there was no physical transfer of funds to him. The ITO held that the gain on devaluation of cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Tribunal which held that the ITO could not travel beyond the annual accounts and treat some amount as balance of profits other than the balance of profits disclosed by the annual accounts furnished by the assessee under the Insurance Act. The order of the AAC was thus set aside and the order of the ITO was restored. The correctness of this order of the Tribunal is put in issue by the questions raised at the instance of the assessee in this reference. Mr. Munim, appearing oil behalf of the assessee, has contended that the surplus arising as a result of conversion of foreign currency into Indian currency is an accretion to fixed capital and not liable to tax and further that an entry in the balance-sheet of the assessee was not conclusive. According to the learned counsel, taxability could not be decided solely on the basis of the entry made by the assessee. His further contention was that the assessee-company did not carry on any business ill Burma, Ceylon and Pakistan in the relevant assessment year and if there was any appreciation in the value of the assets of the company in those countries, the appreciation could not be treated as profits because it did not arise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by s. 44 read with r. 2 of the First Schedule to the I.T. Act, 1961, were allowable. Now, at the outset, we must refer to the provisions of s. 44 of the I.T. Act, 1961, which reads as follows: " Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities', 'Income from house property ', 'Capital gains ' or 'Income from other sources' or in section 199 or in sections 28 to 43A, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule." If we go to the First Schedule, it deals with two categories of insurance business-life insurance business and other insurance business. The mode of computation of profits or gains of life insurance business is dealt with by rr. 1 to 4. We are concerned with r. 5 which deals with computation of profits and gains of other insurance business. This rule reads as follows " The profits and gains of any business of insurance other than life insurance shall be taken to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible and could be made by the ITO as indicated in cls. (a), (b) and (c) of r. 5. None of these clauses are relevant for the purposes of the present case. Now it is difficult to accept the arguments of the learned counsel for the assessee that though the amount of Rs. 21,26,932 is shown as a part of the profits of the assessee in the annual accounts which are submitted to the Controller of Insurance as required by s. 15 of the Insurance Act, that amount should not really be treated as part of the profits. Such an argument would run counter to the provisions of r. 5. The provisions of the First Schedule and r. 5 in the instant case being the only mode prescribed by the Legislature for determining the profits and gains of business of insurance other than life insurance and the mode being to look at the balance of profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Controller of Insurance, and the permissible adjustments not being relevant in the instant case, no power can be found in the I.T. Act under the provisions of the Act to meddle with the balance of profits disclosed by the annual accounts. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers conferred on the Controller of Insurance and the sanctity that is attached to the returns accepted by him that provision has been made in the Income-tax Act precluding any further investigation and the Income-tax Officer is required to accept, subject to any adjustment he may make so as to exclude from it any expenditure other than expenditure which may under the provisions of section 10 of the Income-tax Act be allowed in computing the profits and gains of business, the accounts that have been submitted to the Controller of Insurance. Since that statute so provides, once the annual statements of accounts have been submitted by the assessee-insurance company, and the same have been accepted by the Controller of Insurance, the assessee cannot be heard to argue that the revenue receipts as shown in the statement of accounts were really not revenue receipts but had some other character. This court has also taken the same view in South India Insurance Company Ltd. v. CIT [1977] 106 ITR 969, in which dealing with s. 10(7) and rr. 3 and 6 in the Schedule to the 1922 Act, the Division Bench held that the intention of rr. 3 and 6 of the Schedule to the Indian I.T. Act, 1922, was t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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