TMI Blog1976 (12) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of its business income for the assessment years 1961-62 and 1962-63 ? (2) Whether, on the facts and in the circumstances of the case, was the sum of Rs. 51,361 incurred by the assessee for management expenses, over and above the limit set for it under section 40C of the Insurance Act, allowable as business expenditure in the computation of its income for the assessment year 1962-63 ? " It may be mentioned that one of the assessment years in question would be governed by the Indian Income-tax Act, 1922, whereas the second of the assessment years in question would be governed by the Income-tax Act, 1961. A few facts may be stated: The assessee, M/s. Devkaran Nanjee Insurance Company Ltd., was at all material times a company d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the employees, the Appellate Assistant Commissioner was of the opinion that taxation of these very amounts in the hands of the employers, viz., the assessee-company, would amount to double taxation and, therefore, he allowed the claim of the assessee for deduction to the extent of these two amounts. The claim, however, of the assessee as to the balance was rejected by the Appellate Assistant Commissioner, who upheld the orders of the Income-tax Officer as to these portions of the entertainment allowance. The assessee carried the matter in further appeal to the Income-tax Appellate Tribunal. Before the Tribunal it was contended on behalf of the assessee that though the amounts paid to the employees were styled and named as entertainment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses in the computation of its business income for the said assessment year. Under section 40C of the Insurance Act, 1938, a certain limit had been set on expenses on management in general insurance business. The Income-tax Officer found that the amount of management expenses claimed by the assessee exceeded the limit set under the Insurance Act by Rs. 51,361 and accordingly he disallowed this excess. On appeal, the Appellate Assistant Commissioner upheld the disallowance and add-back. Before the Tribunal it was urged on behalf of the assessee that the said expenditure had in fact been incurred by the assessee for the purpose of its business and it was not even contended by the department that even a single rupee had been expended for pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37(2) would only apply to such expenses as could be held to have been incurred by the company and there would be no occasion for applying these provisions where certain amounts were paid to the employees which could be considered as part of their salary and where there was no obligation on the part of the recipient to spend out of them for actual entertainment nor could it be shown that they were accountable to the assessee in respect of such amounts received by them. We are also in agreement with the view accepted by the Tribunal that in such a case whether the recipients would be entitled to claim any deduction (which would depend upon whether the amounts received as such allowances were within the prescribed limit or not) would not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealisation of investments shall be treated as part of the profits and gains: Provided that the Income-tax Officer is satisfied about the reasonableness of the amount written off or reserved in the accounts, as the case may be, to meet depreciation of or loss on the realisation of investment; (c) such amount carried over to reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction." It is clear that the profits and gains of any business of insurance other than life insurance are required to be taken as disclosed in the annual accounts of such insurer as are furnished to the Controller of Insurance and the only adjustments as are permissible are those provided in clauses (a), (b) and (c). These do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmissible to travel beyond the provisions of the Income-tax Act and deny the benefit of the deduction under the appropriate section of the Income-tax Act on the ground that the payment was unauthorised or had been prohibited by some other statute. In our opinion it is unnecessary to apply our mind to the provisions of the Companies Act and consider whether they are comparable with the prohibitions or limits on expenses imposed by the Insurance Act, 1938. We are in agreement with the view taken by the Tribunal as to what was the adjustment permitted to the Income-tax Officer under rule 5 of the First Schedule, which rule has been fully set out hereinabove. On the clear wording of the said rule we are of opinion that it was not permissible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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