TMI Blog1964 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,245 written off in the books of the assessee as depreciation for the calendar year 1953 is allowable as a deduction in the assessment completed under section 10(7) and the rules contained in the Schedule of the Income-tax Act ?" The facts relevant for answering the question are as follows: The assessee is a public limited company carrying on the business of general insurance. It erected a modern substantial building with lifts and air-conditioning at a cost of Rs. 12,08,252 and got it ready for occupation from December 1, 1952. In its books for the calendar year 1953, the previous year for assessment year 1954-55, it wrote off Rs. 1,21,245 as depreciation as follows: Rate Amount Rs. Buildings 10% 1,06,940 Air-conditioning plant 15% 2,973 Lifts 15% 6,214 Transformers 15% 1,442 Internal telephone 15% 3,676 --------------------- Total 1,21,245 --------------------- It was common ground before the Income-tax Appellate Tribunal that one-fifth of the building could be considered as occupied for its own purposes and the remaining four-fifths as let out to tenants for rent. The Income-tax Officer disallowed four-fifths of the depreciation claimed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet on account of appreciation of or gains on the realisation of the securities or other assets shall be included in the surplus: Provided that if upon investigation it appears to the Income-tax Officer after consultation with the Controller of Insurance that having due regard to the necessity for making reasonable provision for bonuses to participating policyholders and for contingencies, the rate of interest or other factor employed in determining the liability in respect of outstanding policies is materially inconsistent with the valuation of the securities and other assets so as artificially to reduce the surplus, such adjustment shall be made to the allowance for depreciation of, or to the amount to be included in the surplus in respect of appreciation of, such securities and other assets, as shall increase the surplus for the purposes of these rules to a figure which is fair and just;... 6. 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 (4 of 1938), to be furnished to the Controller of Insurance after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fund or Account). The Third Schedule sets forth the regulations and forms for the preparation of a revenue account. (One of the items to be shown in Form D is " Rents for offices belonging to and occupied by the Insurer "). Form F is form for Revenue Account applicable to fire insurance business, marine insurance business, and miscellaneous insurance business. One of the items to be shown is " expenses of management " and note (c) says that if any sum has been deducted from this item and entered on the assets side of the balance-sheet, the amount to be deducted must be shown separately. After the balance-sheet, profit and logs account and revenue account have been prepared, they have to be audited unless they are subject to an audit under the Indian Companies Act. Under section 15 the audited accounts and statements above referred to have to be furnished to the Controller as returns. Section 18 requires every insurer to furnish to the Controller a certified copy of every report on the affairs of the concern which is submitted to the members or policyholders of the insurer. Section 21 enables the Controller to get such further information from the insurer as he may consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly compels the Income-tax Officer to allow certain amounts as deductions and to include certain amounts for which credit had been taken in the accounts of the assessee. It, therefore, does not warrant what the Income-tax Officer did, namely, to adjust the accounts on the basis of a revaluation made by him. " (Emphasis supplied). Hidayatullah J. said this about rule 3(b) : " Under the main part of rule 3(b) certain special deductions and additions must be made to the annual average of the surplus determined under the second rule. Since the life fund is held in securities and the price of stocks and shares fluctuates, provision has been made in rule 3(b) to make adjustments. Rule 3(b) in its main part speaks of adjustments on the basis of the accounts and amounts as entered in the accounts determine what must be added to or deducted from the surplus. The Income-tax Officer must deduct from the annual average of the surplus for purposes of rule 2 any amount entered in the account to cover depreciation of the securities and assets and add any amount taken credit for on account of appreciation. The Income-tax Officer here follows the accounts and gives effect to the entries such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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