UNION CO-OPERATIVE INSURANCE SOCIETY LTD., BOMBAY versus COMMISSIONER OF INCOME TAX, BOMBAY

Citation: [1967] 3 S.C.R. 279 · Decided: 23-03-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
UNION CO-OPERATIVE INSURANCE SOCIETY LTD., 
BOMBAY 
B 
c 
D 
E 
F 
G 
H 
v. 
COMMISSIONER OF INCOME· TAX, BOMBAY 
March 23, 1967 
(J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.] 
Indian Income-tax Act 1922, ,; 10 and Rule 6 of Schedule-llldian 
Insurance A.ct, 1938, s. 15-Profits of insurance companies. assessment 
of-Bonus paid by company to policy-holder on renewal of policies on 
which no claim had been made.--Estimated amoultl so payable debited 
by company to appropriation account and not to profit and loss account 
-Bonus paid during previous year whether allowable expenditure. 
The appellant company carried on general insurance business. 
One 
of the bye-laws of the 
company allowed payment of bonus 
where a 
policy was renewed and there had been no claim in the preceding year. 
The company did not debit in its profir and loss account the amount so 
paid in the previous years relevant to the assessment years 1957-58 and 
1958-59; it showed an amount estimated to be payable as bonus in its 
profit appropriation account. The Income-tax Officer held that ( i) the 
payment of bonus was made after the profits for the relevant year were 
determined and on that account it was only a case of appropriation of 
profits after they were earned, (ii) in any event since the company had 
not charged the bonus paid to 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 I! of 
the Insurance 
Act 1938 submitted to the Controller of Insurance.' The High Court in 
a reference under s, 66 of the Income-tax Act held against the company 
The company appealed. 
HELD: (i) Rule 6 of the Schedule to the Income-tax Act enjoins the 
Income-tu Officer to take the balance disclosed by the annual accounts 
as the profits and gains of insurance business other than life insurance : it 
does not oblige him to accept the figure disclosed at the foot of the profit 
and loss account in the determination of the quantum of profits and gains 
1Jf the insurance buSiiness. 
Section 15 of the Insurance Act requires the 
insurer to submit not merely the profit and loss account in Form B but 
also the balance sheet and the ·account in Form C and other accounts, and 
there is no warrant for the view that the balance of profits disclosed must 
be equated with the balance of profits disclosed in Form B. [28JG-H] 
(ii) By debiting the estimated bonus payment to the profit appropria-
tion account the company did not seek to alter the character of the 
expenditure. If it had been debited in the profit and loss 
account it 
cou)d not with any show of reason be regarded as not incidental to the 
bustness of the assessee company. 
Merely because it was debited· as an 
estimated amount an intention not to treat it as expenditure for the pur· 
pose o~ the business is not indicated. It was open to the assessee company 
to debit to its annual accounts a certain outgoing actual or estimated 
and if sanctioned by the Controller to claim that amount or such other 
amount as the Income-tu Officer may irnder s. 10(2) allow as a permis-
sible deduction. 
[2R4B-D] 
(iii) The bonus scheme was clearly intended to advance the business 
of the insurer and the expenditure in this regard was expenditure laid 
280 
SUPREME COURT REPORTS 
[1967] 3 S.C.R. 
out wholly and exclusively for the purpose of the business of the com· 
pany within the meaning of s. 10(2) (xv). [284F] 
• 
(iv) The liability of the company for payment of bonus was not a 
conungent liability. 
So long as the year of risk bas not expired the 
liability is contingent, but once the year of risk is over, and the policy 
ra renewed the liability becomes actual and concrete. 
The 
assessee 
company had not claimed the full amount for which an estimate was 
matle in the accounts submitted to the Controller of Insurance but only 
those amounts which were entered in the balance sheet as actually paid. 
This expenditure could not be said to be contingent. [284 H; 285 A] 
CIVIL APPELLATE JurusDICTION : Civil Appeals No. 1052 
& 1053 of 1966. 
Appeals from the judgment and order dated October 4, 5, c 
1963 of the Bombay High Court in Income-tax Reference No. 50 
of 1961. 
R. l. Ko/ah, and Ravinder Narain, for the appellant. 
R. M. Hazarnavis, S. K. Aiyar, S. P. Nayyar for R. N. Sach-
they, for the respondent. 
D 
The Judgment of the Court was delivered by 
Shah, J. The Union Co-operative Insurance Society Ltd.-here-

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