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TMI Blog1985 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Officer, however, computed the proportionate managerial expenses of Rs. 1,35,025 as attributable to the earning of that income. He allowed deduction under section 80M after deducting the proportionate managerial expenses from the gross dividend income. The assessee preferred an appeal to the Appellate Assistant Commissioner who, following the decision of the Calcutta High Court in the case of CIT v. Darbhanga Marketing Co. Ltd. [1971] 80 ITR 72, directed the Income-tax Officer to recompute the deductions under section 80M with reference to the gross dividend income. The Department, being aggrieved, came up in appeal before the Tribunal. It was the contention of the Department before the Tribunal that as the assessee was an insurance company, its income was computed under section 44 of the Income-tax Act, 1961, in accordance with rules contained in the First Schedule. It was contended that as investment by an insurance company was part of its business activities, the income from dividend was income from business. According to the Department, dividend income lost its character as such after merging in the business income and section 80M was not applicable in such a case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ife insurance business. In Part B, the First Schedule provides that 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, to be furnished to the Controller of Insurance, subject to the adjustments mentioned therein. It is contended on behalf of the Revenue that since the special provisions in section 44 relating to the assessment of insurance business have to be invoked, sections 56 and 57 will not be applicable and the income under the head " Other sources " cannot be separately computed. Accordingly, no relief under section 80M on the (gross) dividend income is to be allowed. It is contended by the assessee that the dividend income of an insurance company can never be assessed under sections 56 and 57 of the Act in view of the non obstante clause with which section 44 opens. But the dividend income which is included in the gross total income of an insurance company does not lose its quality and character as income by way of dividend and accordingly such income is entitled to relief provided for under section 80M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o refer to the decisions cited at the Bar. A decision of the Privy Council in the case of CIT v. Western India Life Insurance Company Ltd. [1949] 17 ITR 125, has been relied on by the Revenue. In that case, the Privy Council held that the proviso to section 4(1) of the Indian Income-tax Act, 1922, did not apply to assessment of the profits and gains of a life insurance business under rule 2(b) of the Schedule to the Indian Income-tax Act, 1922. The next decision cited by the Revenue is in the case of CIT v. Asian Assurance Co. Ltd. [1962] 46 ITR 560, where the Bombay High Court held as follows (headnote): " The income, profits and gains of an insurance company are charged to tax not under the different heads of income mentioned in the Act but by the special mode provided in sub-section (7) of section 10 of the Act, read with the rules contained in the Schedule to the Act. It has, therefore, no income chargeable under the head 'Income from property' and cannot claim the benefit of the exemption under section 4(3)(xii) of the Indian Income-tax Act, 1922, in respect of buildings newly erected by it." The said view was approved by the Supreme Court in the case of Vanguard Fire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 496). In this context, the Supreme Court observed " it is equally impossible to apply the provisions of section 4(3)(xii) to an assessment made under section 10(7), read with paragraph 6 of the Schedule. There is no income chargeable under the head "Income from property" as far as a general insurance business is concerned. The effect of section 10(7) is to delete the heads " interest on securities ", " income from property " and income from other sources " from section 6 of the Act as far as general insurance businesses are concerned." (at page 500 of 60 ITR): Section 10(7) of the Indian Income-tax Act, 1922, corresponds to section 44 of the Income-tax Act, 1961. The effect of the Supreme Court decision, therefore, is that in the case of an insurance company, there is no income chargeable under the head " Income from property " or " Income from other sources " or " Interest on securities ". The entire income of an insurance company including interest on securities, income from property, income from other sources is computed in accordance with the special provision of section 44 read with rule 5 of the First Schedule. Income chargeable under the head " Income from house propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad " Income from property ". It is because of the reason that the assessee could not claim the benefit of section 4(3)(xii) of the Indian Income-tax Act, 1922. Section 80M or section 80AA does not use the expression " income chargeable under the head 'Income from other sources'" but uses the expression income by way of dividend which is included in the gross total income. It appears to us that there is no divergence on the issue. The Bombay High Court in the case of CIT v. New India Assurance Company Ltd. [1969] 71 ITR 761, held that exemption under sections 15B and 15C or under section 4(1) of the old Act cannot be denied to an insurance company. In Lakshmi Insurance Co. Ltd. v. CIT [1969] 72 ITR 474 (Delhi), the question was whether the exemption under section 60 is allowable to an insurance company or not. There, the Delhi High Court held that the exemption under section 60 is an overall exemption from the levy of tax under the Act itself and, consequently, the provisions of rule 2(b) of the Schedule did not come into operation at all. The Madras High Court in the case of CIT v. Madras Motor General Insurance Co. Ltd. [1975] 99 ITR 243, held that the special mode of comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that deduction in respect of intercorporate dividend should be allowed on the gross amount of dividend received. On the other hand, it is contended by the learned advocate for the assessee that even in accordance with the provisions of section 80AA of the Act, the quantum of the income which is by way of dividend included in the gross total income, is to be computed in accordance with the provisions of the Income-tax Act and with reference to the gross amount of dividend. In the case of an assessee, other than an insurance company, the dividend income is to be computed in accordance with sections 56 and 57 of the Act and, as such, in view of section 80AA of the Act, the net dividend after deduction of expenses is to be included for the purpose of relief under section 80M of the Act. We are, however, unable to accept this contention. Section 80AA provides that where any deduction is required to be allowed under section 80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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