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TMI Blog2009 (2) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... est accrued on loans, bonds and debentures - the recovery of which was deferred or has remained outstanding - business of general insurance - HELD THAT:- Identical issue arose in assessee's own case for AY 1985-86. The Tribunal accepted the plea of the assessee and in fact the issue went up to the Hon'ble Delhi High Court in AY's 1986-87 to 1988-89, decided the issue in favour of the assessee by holding that s. 44 is a special provision dealing with the computation of profits and gains of business of insurance. It being a non obstante provision, has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rules contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of s. 44, as held in the case of General Insurance Corporation of India vs. CIT [ 1999 (9) TMI 3 - SUPREME COURT] , held that the provision of s. 44 being a special provision, governs computation of taxable income earned from business of insurance. It mandate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn countries does not constitute income arising in those countries in terms of s. 5(1)(c) of the Act. The assessee company credited interest, dividend, rent and net of TDS to its P L a/c after deducting TDS. The TDS was not grossed up while computing the income. The AO did not accept the assessee's contention that the TDS did not constitute income. 3. At the time of hearing of these appeals, the assessee has not pressed this ground. Accordingly, order of the CIT(A) on this issue for both the assessment years in question is upheld. 4. Next common ground in both these appeals relates to disallowance of investment written off. The CIT(A) following his predecessor's orders in assessee's own case for asst. yrs. 1989-90 to 1999-2000 sustained the addition made by the AO. 5. The learned counsel for the assessee filed copies of the orders de29th Sept., 2004of the Tribunal involving asst. yrs. 1990-91 to 1995-96. The Revenue sought approval of the CoD to file appeal against this order, which the CoD has not permitted. Our attention was drawn to p. 56 of the paper book. The learned counsel further relied upon the order dt.6th June, 2008of the Tribunal in asst. yr. 1998-99 wherein the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictly in accordance with the guidelines issued by General Insurance Corporation. These guidelines permit the assessee to book a loss which has for all practical purposes, been suffered on account of depreciation in value of investments beyond any reasonable hope of recovery. In such circumstances, the guidelines permitted the insurance company to book the loss in the accounts rather than waiting for actual realization of loss on sale of investment. Thus, the amounts claimed by the assessee are to be understood as a loss on investments suffered by the assessee. Such 'loss' can neither be considered an 'expenditure' nor an 'allowance'. We find support in this view from the judgment of Hon'ble Supreme Court in the case of General Insurance Corporation of India vs. CIT (1999) 156 CTR (SC) 425 : (1999) 240 ITR 139 (SC). In that judgment Hon'ble Supreme Court held that 'spending' in the sense of 'paying out or away' of money is the primary meaning of 'expenditure'. 'Expenditure' is what is paid out or away and is something which is gone irretrievably. In that case, Hon'ble Supreme Court held that certain amounts set apart which is treated to be an expenditure for the purpose of Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 has held that expenditure incurred for maintenance of the company's own guest houses is covered under s. 30(a)(ii) of the Act. Therein the Tribunal accepted the plea of the assessee that in respect of the guest houses owned by the assessee, repair expenses will have to be allowed as deduction under s. 30(a)(ii) of the Act. Once the expenditure is allowable under s. 30(a)(ii), if the expenditure is incurred on repair and maintenance of guest house taken on lease should also be allowed. In the light of the aforesaid order of the Tribunal, we decide the matter, for the assessment years in question, in favour of the assessee. 13. The next common dispute relates to the addition on account of interest accrued on loans, bonds and debentures, the recovery of which was deferred or has remained outstanding. 14. The assessee is engaged in the business of general insurance. In its return of income for the assessment years in question the assessee did not include the amount of interest outstanding on term loan etc. on the plea that the debtors have deferred in making payments and recoveries were outstanding for more than one year. The Department went on to make addition relying upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned from business of insurance. It mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no question of law, much less a substantial question of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted. 18. The next common dispute relates to the order of the CIT(A) in sustaining the action of AO in making (sic) allowing only 50 per cent of the management expenses by invoking the provisions of s. 14A of the Act. The addition is made by the AO on the plea that the provision of s. 14A was inserted by Finance Act, 2001 w.e.f.1st April, 1962. It is stated that the investments made- by the assessee are both taxable as well as tax-free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P L a/c is treated as expenses incurred in connection with the looking after tax-free investment. 19. The learned counsel for the assessee vehemently argued that the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule." 23. The above provision makes it very clear that s. 44 applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is no requirement of head-wise bifurcation called for while computing the income under s. 44 of the Act in the case of an insurance company. The income of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r. 5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to travel beyond these provisions. 24. Sec. 14A contemplates an exception for deductions as allowable under the Act are those contained under ss. 28 to 43B of the Act. Sec. 44 creates special ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The provision for bad and doubtful debt is allowable under s. 36(1)(viia)(c) only to the extent of 5 per cent of income and, therefore, extra debit of 2.5 per cent made by the assessee in the P L a/c is required to be added under cl. (a). This is what the assessee has done. The adjustment made by the assessee is as per r. 5(a). The judgment of the Hon'ble High Court of Madras in the case of United India Insurance Co. is distinguishable. We are, therefore, unable to sustain the order of CIT(A) the order is accordingly set aside and the claim of the assessee is allowed." 29. Following the same reasoning, we accept the claim of the assessee and direct the AO to compute the income and if the total income is positive then only the deduction to the extent of 5 per cent be allowed under s. 36(1)(viia) of the Act. We order accordingly. 30. The next common dispute relates to the disallowance made by the AO and confirmed by the CIT(A) out of depreciation claimed by the assessee. 31. The AO noted from the computation of depreciation claimed, as given in Annex. 'A' to the tax audit report filed under s. 44AB along with the return of income, that during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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