GENERAL INSURANCE CORPORATION OF INDIA versus COMMISSIONER OF INCOME TAX BOMBAY

Citation: [1999] SUPP. 2 S.C.R. 742 · Decided: 21-09-1999 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
GENERAL INSURANCE CORPORATION OF INDIA 
v. 
COMMISSIONER OF INCOME TAX BOMBAY 
SEPTEMBER 21, 1999 
B 
(S. RAJENDRA BABU AND R.C. LAHOTI, JJ.] 
Income Tax Act, 1961-Ss. 30 to 43A, 44 read with Rule 5(a) of the 
First Schedule-Insurance Company-Amount set apart for redemption of 
preference shares-Debited to profit and loss account-Whether amounts to 
C expenditure-Held, No-General Insurance Business (Nationalisation) Rules, 
1973-Rule 2(2) (a)-Object of 
Interpretation of statutes 
Rule of Harmonius Construction-Two provisions contained in two 
D enactments having different purposes to achieve-Held, rule of harmonious 
construction would not sustain any view creating conflict between the two 
provisions. 
Non-obstente clause in S.44-Held, not only overrides the provisions 
E of the Act but also has overriding effect over the provisions of other 
enactments-Income Tax Act, 1961-S.44 . 
.. 
Appellant-assessee was an Insurance company wholly owned by Central 
Government. The Central Government contributed to the Capital of the 
appellant-assessee in the form of preference shares and equity shares. Rule 
F 2(2) (a) of the General Insurance Business (Nationalisation) Rules, 1973 
provides that the amount set apart for redemption of preference shares 
should be treated as an expenditure in the profit and loss account. In the 
profit and loss account for the relevant assessment year the appellant assessee 
made a debit entry for certain amount and transferred it to preference share 
capital redemption account. The Income Tax Officer, treating the said amount 
G as revenue expenditure in view of Rule 2(2) (a) of GIB Ru.es, added back the 
amount to the income of the assessee. On appeal, the Appellate Assistant 
Commissioner oflncome Tax (Appeals) and Income Tax Appellate Tribunal 
held that the amount set apart as redemption of preference shares could not 
be treated as expenditure. However on reference, High Court answered the 
H question in favour of the Revenue. Hence the present appeal. 
742 
-
GENERAL INSURANCE CORPN. v. C.l.T 
743 
Allowing the appeal, and setting aside the order of High Court, the A 
Court 
HELD: 1.1. The amount set apart by assessee for redemption of 
preference shares could not be treated as an expenditure. It is also not an 
expenditure or allowance of the nature covered under Ss. 30 to 43A of 
Income Tax Act, 1961. Consequently, the question of determining its B 
admissibility by reference to Rule S(a) of First Schedule to the Act does not 
arise nor could it have been added back by the assessing authority by 
purporting to exercise power under the said Act. 1749-H; 750-AI 
Indian Molasses Company Pvt. ltd. v. Commissioner of Income-tax, 
(1959) 37 ITR 66, relied on. 
C 
Anarkali Sarabhai v. C. /. T, (1997) 224 ITR 422 and Associated Power 
Co. Ltd. v. C.l.T, (1996) 218ITR195, held inapplicable. 
Cofoba Central Co-operative Consumers' wholesale and Retail Stores 
Ltd. v. Cl. T, (1998) 229 lTR 209 Born., disapproved. 
D 
1.2. S. 44 of the Income-tax Act is a special provision governing 
computation of taxable income earned from business of insurance. It opens 
with a non-obstante clause and thus has an overriding effect over other 
provisions contained in the Act. It mandates the assessing authorities to E 
compute the taxable income for business of insurance in accordance with the 
provisions of the First Schedule. A plain reading of Rule 5(a) of the First 
Schedule makes it clear that in order to attract the applicability of the said 
provision the amount should firstly _be an expenditure or allowance. Secondly, 
it should be one not admissible under the provisions of Ss. 30 to 43A. Thus, 
if the amount is not an expenditure or allowance, the question of testing its F 
eligibility for adjustment by reference to Rule 5(a) to the First Schedule 
would not arise at all. (748-F-G) 
2. Rule 2(2) (a) of General Insurance Business (Nationalisation) Rules 
1973 undoubtedly speaks of the amount set apart for redemption ofp~eference 
shares being treated as an item of expenditure in the profit and loss account. G 
However, the purpose and extent of the provision has to be kept in view. These 
rules have been framed in exercise of the power conferred by ciause (a) of 
sub-section (2) of S.39 of the General Insurance Business (Nationalisation) 
Act, 1972. These rules lay down the manner in which the profits, if any, and 
other monies received by the General Insurance Corporation may be dealt H 
744 
SUPREM

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