2017 (9) TMI 734 - HC - Income Tax

Relief admissible under section 35B - weighted deduction under Section 35B - assessee is a general insurance company - scope of Section 44 of the Income Tax Act, 1961 - Held that - Commissioner of Income Tax v. Hero Cycles Pvt. Ltd. and another 1997 (8) TMI 6 - SUPREME Court says when the Act speaks of section 28 to section 43B, then each one of the sections from section 28 to section 43B will be included. The newly inserted section 35B was not specifically mentioned because it was not necessary to do so, just as it was not necessary to specifically mention section 35B in section 29, which lays down that computation of profits and gains of business or profession shall be computed in accordance with the provisions contained in sections 30 to 43C. Moreover, when the Act specifically says that profits and gains of insurance business shall be computed in accordance with the rules contained in the First Schedule then such computation has to be made according to that rule and not any other rule. We are unable to accept the contention that the benefit of section 35B should also be given to any insurance company. - Decided against assessee.

Summary

Issues:
Interpretation of Section 35B of the Income Tax Act, 1961 in relation to insurance companies.

Analysis:
The High Court of Bombay considered a reference made by the Revenue regarding the entitlement of a general insurance company to relief under Section 35B of the Income Tax Act, 1961. The case involved the deduction under Section 35B for an expenditure incurred by the insurance company in its business operations. The company claimed a weighted deduction under this section due to its international business activities. The Income Tax Officer and the First Appellate Authority initially rejected the claim, leading to an appeal to the Tribunal. The Tribunal found that the relief under Section 35B was permissible for an insurance company involved in general insurance business and whose income was computed under Section 44 read with Rule 5(a) of the First Schedule to the Act. The Court referred to a previous decision but noted that an amendment had occurred in the statute, leading to the current question for consideration.

The Court heard arguments from both parties, with the Revenue relying on a Supreme Court judgment regarding the scope of Section 44 of the Income Tax Act, 1961. The Supreme Court had clarified that the profits and gains of any insurance business, including general insurance, should be computed according to the rules in the First Schedule of the Act. The Court rejected the contention that Section 35B should be applicable to insurance companies based on the non-obstante clause in Section 44. The Court emphasized that the computation of profits for insurance businesses must adhere to the rules in the First Schedule and not any other rule.

The Revenue argued that the Supreme Court judgment supported their position, while the assessee's representative could not provide any contrary opinion or statutory provision altering the situation. Consequently, the Court ruled in favor of the Revenue, concluding that the benefit of Section 35B should not be extended to insurance companies. The question referred was answered in favor of the Revenue, and the reference was disposed of with no costs incurred.