UNION CO OPERATIVE INSURANCE SOCIETY IN BOTH THE APPEALS Vs. COMMISSIONER OF INCOME TAX BOMBAY IN BOTH THE APPEALS

JUDGEMENT

(1.) The Union Co-operative Insurance Society Ltd., hereinafter called 'the assessee Company' -carries on general insurance business. Bye-law 52 of the assessee Company provides that bonus shall be paid on those policies (not being Reinsurance Policies) on certain conditions, the following of which are relevant:

(2.) In proceedings for assessment of the income of the assessee Company for the assessment years 1957-58 and 1958-59 the assessee Company claimed allowance of Rs. 29,615 and Rs. 44,920 respectively, paid under the bonus scheme under Bye-law 52 in the computation of its taxable income. The Income-tax Officer rejected the claim holding that payment of bonus was made after its profits for the relevant years were determined and on that account it was only case of appropriation of profit after it was earned, and that in any event since the assessee Company had not charged the bonus paid to the revenue account and had merely made a provision in the appropriation account it could not claim relief after modifying the accounts in Form B to Schedule II of the Insurance Act, 1938, submitted to the Controller of Insurance. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer. The Income-tax Appellate Tribunal, however, held that the payments were not mere appropriation of profits, and were admissible as permissible deductions on the ground of business expediency. The following question submitted for determination of the High Court of Judicature at Bombay -

(3.) The High Court held that since the amounts paid were not entered in the profit and loss account in Form B Schedule II to the Insurance Act and were also not regarded by the assessee Company as expenditure charged on profits, they were not admissible as deductions in the computation of the taxable income of the assessee Company under Rule 6 of the Schedule to the Income-tax Act. With special leave, the assessee Company has appealed to this Court.