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Issues:
1. Allowability of depreciation claimed by the assessee for the buildings, air conditioning plant, lifts, transformers, and internal telephones. 2. Interpretation of rule 6 of the Schedule to the Income-tax Act regarding the computation of profits and gains for a business of general insurance. 3. Analysis of rule 3(b) in relation to the writing off or reservation in the accounts to meet depreciation. Detailed Analysis: 1. The judgment concerns the Pandyan Insurance Company Ltd., which claimed depreciation for various assets for the calendar year 1953. The Income-tax Officer disallowed four-fifths of the depreciation claimed, stating that only a fifth part of the building was utilized for the business. The Appellate Assistant Commissioner disallowed the entire claim, emphasizing that depreciation allowance should be limited to actual and real depreciation. The Appellate Tribunal restored part of the depreciation, disallowing four-fifths as it was not used for business purposes. The issue revolved around the allowance of depreciation for assets not fully utilized for business. 2. Rule 6 of the Schedule to the Income-tax Act was pivotal in this case. It states that the profits and gains of a business of insurance shall be taken as the balance of profits disclosed by the annual accounts, after adjusting for permissible expenditures under section 10. The rule empowers taxing authorities to scrutinize accounts and allow only permitted expenditures. The judgment highlighted the authority of taxing officers to exclude items of expenditure not sanctioned by section 10, emphasizing the need for adherence to permissible deductions while computing profits for insurance businesses. 3. Rule 3(b) of the Schedule addresses depreciation and appreciation of assets for both life and general insurance businesses. It allows amounts written off or reserved in the accounts to meet depreciation or loss on assets as deductions. The judgment emphasized that such write-offs should be to meet actual depreciation, not a notional value. Referring to past cases, the court reiterated that only amounts necessary to cover actual depreciation could be claimed. In the absence of evidence establishing actual loss due to depreciation, the Tribunal's decision to disallow the claimed amount was upheld. In conclusion, the judgment focused on the strict interpretation of rules governing the allowance of depreciation for insurance businesses, emphasizing the need for actual depreciation to be the basis for any write-offs or reservations in the accounts. The decision upheld the disallowance of depreciation claimed by the assessee for assets not fully utilized for business purposes.
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