BALASUBRHAMANYAN J.


The assessee which figures in this income-tax reference is a general insurance company. It carries on business with head office in India and branches abroad. For the account year ended December 31, 1966, the company's profit and loss account showed an item described as " profit due to devaluation Rs. 7, 75, 720. " The ITO brought to charge the whole of this sum for the purpose of income-tax, since it represented the balance of profits according to the assessee's own accounts. The I assessee, however, questioned the correctness of this assessment. According to the assessee an amount of Rs. 4, 58, 049 which forms part of .Rs. 7, 75, 720 could not be brought into the assessment, since it did not come to the assessee as profits from an outside source, but only represented a book surplus which resulted on the conversion, in terms of the devalued Indian rupee, of the existing balances of foreign currencies and the value of the net assets in the assessee's overseas branches in Ceylon, Singapore, Malaya and Kampala. This contention of the assessee received acceptance at the hands of the Tribunal when the assessment was taken in appeal. The Tribunal held that the assessment of Rs. 4, 58, 049 did not represent taxable income of the assessee. According to the Tribunal, the assessee's foreign branches were nothing but projections of the assessee's head office. The Tribunal relied on the principle that no man can earn a profit from himself. On this basis the Tribunal held that the assessee could not be said to derive any profit merely by converting and revaluing in terms of the devalued Indian rupee, the assessee's own net assets in foreign branches. On this basis, the Tribunal deleted the amount of Rs. 4, 58, 049 from the assessee's taxable income. This decision of the Tribunal is now challenged by the Department in the following question of law Whether, on the facts and in the circumstances of the case, it has been rightly held that surplus as a result of devaluation could not be said to represent any actual realisation of surplus or profit, being transaction between the main office and the branch offices ?We must first observe that the epigram " no man can derive a profit from himself " is based on the mere substantial proposition that no man can really trade with himself. But the assessment in this case cannot be settled on the basis of these general propositions. That is because the assessment of the income of insurance companies is dealt with in a special way by the taxing statute, apparently out of consideration for the peculiar nature of the insurance business and the special considerations which govern the computation of profit or loss from such business. Section 44 of our I.T. Act, 1961, lays down that the profits and gains of any business of insurance have got to be computed, not under the provisions contained in the body of the Act, but in accordance with the special rules set out in the First Schedule to the Act. The First Schedule is in two parts. One part relates to computation of profits from life insurance business. The other part governs the computation of profits from non-life insurance business. Rule 5, which relates to general insurance business, lays down a categorical imperative. It says that the assessable profits of any business of insurance other than life insurance " shall be taken to be " the balance of profits disclosed by the annual accounts of the business as drawn up by the assessee and as reported to the Controller of Insurance. The rule affords no leeway. Once the annual accounts are made up and the balance of profits from general insurance is arrived at, there can be no going back on the figures. The ITO may make some adjustments here and there under cls. (a) to (c) of r. 5, but barring these adjustments, what the assessee displays in its annual accounts as its balance of profits is not open to alteration or even rectification. In this case, the claim to exclude from the balance of profits Rs. 4, 58, 049 was made by the assessee on general principles, and not with reference to any particular provision in cl. (a) or (b) or (c) of r. 5. These clauses have no bearing whatever to the present discussion. Clause (a) relates to the disallowance of certain items of expenses; clause (b) relates to write off of loss or depreciation of investments; and clause (c) deals with reserves for unexpired risks. These clauses do not help the assessee to exclude Rs. 4, 58, 049 from the assessment. It follows, therefore, that there is no way by which the assessee can claim exclusion from assessment for this amount. The sum of Rs. 4, 58, 049 forms very much part of the balance of profits according to the asses

see's own annual accounts; that is how the accounts were submitted to the Controller of Insurance. The assessee having made its bed must lie on it for good or bad, whether to dream on insurance, or keep awake on income-taxThe Tribunal's approach has altogether missed the compulsions of r. 5 of the First Schedule, according to which the question at issue must have to be answered against the assessee. That is the answer we return in this reference. The assessee will have to pay the Revenue its costs. Counsel's fee Rs. 500.