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Interpretation of provisions under section 4(3)(xii) and section 10(7) of the Income-tax Act for exemption of rental income from a house property for an insurance business. Analysis: The case involves the assessment of an insurance company's income from a building partly used for its business and partly rented out. The Income-tax Officer initially granted exemptions under section 4(3)(xii) for the rental income due to the new construction. However, the Commissioner of Income-tax disagreed and issued a notice under section 33B to rectify the assessment, leading to the denial of exemptions and allowances previously granted. The Appellate Tribunal upheld the Commissioner's decision, prompting the assessee to appeal. The key issue revolves around the interpretation of section 10(7) of the Income-tax Act, which specifies that the profits and gains of an insurance business must be computed according to the rules in the Schedule, overriding other sections like 8, 9, 10, 12, or 18. The Schedule outlines specific rules for computing profits and gains of insurance businesses, treating them as business income exclusively. This means that income from various sources is consolidated and treated as business income, limiting the scope of deductions and exemptions available under other sections of the Act. The judgment references past cases to support the conclusion that the rules in the Schedule provide an artificial method of calculating profits and gains for insurance businesses, distinct from the traditional heads of income under section 6. The decisions in Commissioner of Income-tax v. Western India Life Insurance Co. Ltd. and Lakshmi Insurance Co. Ltd. reinforce the notion that income from insurance businesses is considered solely as business income under the Schedule, regardless of its original source. The case law cited emphasizes the artificial nature of income calculation for insurance businesses and the exclusivity of the Schedule's rules in determining taxable income. Ultimately, the court rejects the assessee's argument that income computed under the Schedule retains its original character and is eligible for exemptions under section 4. The judgment affirms that income from insurance businesses is treated uniformly as business income under the Schedule, precluding separate treatment based on the source of income. Therefore, the rental income from the house property, despite being a distinct source, is not exempt under section 4(3)(xii) due to the specific computation rules outlined in section 10(7) and the Schedule. In conclusion, the court rules in favor of the department, affirming that the rental income from the house property for the assessment years in question is not exempt under section 4(3)(xii) of the Income-tax Act. The assessee is directed to pay the costs of the department, highlighting the strict application of the Schedule's rules in determining taxable income for insurance businesses.
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