My client is an insurance company and the Assessing Officer has computed its income head by head, disallowing items under sections 14A, 37 and 45. Is that computation open to him at all?
No, not on that footing. Section 44 begins "Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities', 'Income from house property', 'Capital gains' or 'Income from other sources', or in section 199 or in sections 28 to 43B", and directs that the profits and gains of any business of insurance — including such a business carried on by a mutual insurance company or by a co-operative society — shall be computed in accordance with the rules contained in the First Schedule. That non-obstante clause is the whole point of the section: it takes the four other heads of income out of play, takes section 199 out of play, and takes the ordinary business-computation machinery of sections 28 to 43B out of play, leaving the First Schedule as the exclusive code. Rule 2 computes life insurance profits as the annual average of the actuarial surplus; Rule 5 computes general insurance profits as the profit before tax and appropriations disclosed in the regulatory profit and loss account, subject only to the adjustments the rule itself lists.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text), reported as Income-tax Act, 1961, s.44, as printed on the departmental Year 2012 edition (incometaxindia.gov.in/w/section-44-9), the Year 2009 edition (/w/section-44), the Year 2006 edition (/w/section-44-16), the Year 2002 edition (/w/section-44-4) and the Year 2000 edition (/w/section-44-1). The First Schedule as printed on the Year 2024 (No. 1) edition (/w/first-schedule-17), the Year 2020 edition (/w/first-schedule-12), the Year 2014 edition (/w/first-schedule-1) and the Year 2013 edition (/w/first-schedule). Rule 6E of the Income-tax Rules, 1962 at incometaxindia.gov.in/w/rule-6e. It bears on section 44, section First Schedule, section Rule 1 of the First Schedule, section Rule 2 of the First Schedule, section Rule 4 of the First Schedule, section Rule 5 of the First Schedule, section Rule 6 of the First Schedule, section Rule 6E, section 43B, section 199 of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters.
Once the non-obstante clause is understood, most of the standard assessment-order arsenal falls away for an insurer. There is no separate head of capital gains on the insurer's investments, no separate head of income from other sources, no house-property computation, and no free-standing application of the sections 28 to 43B code. For general insurance the arithmetic starts from a figure the assessee did not choose — the profit before tax and appropriations as disclosed in the profit and loss account PREPARED IN ACCORDANCE WITH the Insurance Act, 1938 or the rules made thereunder or the Insurance Regulatory and Development Authority Act, 1999 or the regulations made thereunder — and the Assessing Officer's power is confined to the three adjustments in Rule 5: (a) adding back expenditure or allowance, including any amount debited to the profit and loss account by way of a provision for tax, dividend, reserve or any other prescribed provision, which is not admissible under sections 30 to 43B; (b) adding or deducting gain or loss on realisation of investments not already credited or debited, and adding back any provision for diminution in the value of investment debited to the profit and loss account; and (c) allowing as a deduction such amount carried over to a reserve for unexpired risks as may be prescribed — that prescription being Rule 6E of the Income-tax Rules, 1962, which caps the reserve at 100 per cent of net premium income for fire or engineering insurance providing terrorism cover, 50 per cent for other fire or miscellaneous insurance, and 100 per cent for marine insurance. A proviso added to Rule 5 allows a sum added back under clause (a) as a section 43B item to be deducted in the year it is actually paid. For life insurance the base is the actuarial surplus disclosed by the valuation under the Insurance Act, 1938, taken as the annual average of the surplus for the last inter-valuation period ending before the commencement of the assessment year, adjusted to exclude any surplus or deficit made in an earlier inter-valuation period; and Rule 1 requires life insurance profits to be computed separately from any other business. Keep the vocabularies apart: the "actuarial surplus" is a concept of the insurance regulatory code and the tax rule adopts it; it is not a tax concept in its own right, and the adjustments the tax rule permits are the only ones a tax officer may make.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 44, headed "Insurance business", reads in full: "Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities', 'Income from house property', 'Capital gains' or 'Income from other sources', or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule." The First Schedule is headed "THE FIRST SCHEDULE — INSURANCE BUSINESS — [See section 44]" and is divided into "A.—Life insurance business" and "B.—Other insurance business". Rule 1 requires that in the case of a person carrying on life insurance business the profits and gains of that business be computed separately from his profits and gains from any other business. Rule 2, headed "Computation of profits of life insurance business", provides that those profits "shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 (4 of 1938), in respect of the last inter-valuation period ending before the commencement of the assessment year, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period." Rule 3 is omitted. Rule 5, headed "Computation of profits and gains of other insurance business", provides that the profits and gains of any business of insurance other than life insurance "shall be taken to be the profit before tax and appropriations as disclosed in the profit and loss account prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the regulations made thereunder, subject to the following adjustments": (a) subject to the other provisions of the rule, any expenditure or allowance, including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed, which is not admissible under sections 30 to 43B in computing the profits and gains of a business, is to be added back; (b)(i) any gain or loss on realisation of investments is to be added or deducted if not credited or debited to the profit and loss account, and (ii) any provision for diminution in the value of investment debited to the profit and loss account is to be added back; (c) such amount carried over to a reserve for unexpired risks as may be prescribed is to be allowed as a deduction. A proviso, present on the Year 2020 and Year 2024 (No. 1) editions, adds that any sum payable by the assessee under section 43B which is added back under clause (a) shall be allowed as a deduction in the previous year in which it is actually paid. Rule 6, headed "Profits and gains of non-resident person", allows the profits of Indian branches of a non-resident insurer, in the absence of more reliable data, to be deemed to be that proportion of the world income which the premium income derived from India bears to total premium income, and provides that world income in relation to life insurance business of a non-resident is to be computed as this Act lays down for life insurance business carried on in India. Rule 6E of the Income-tax Rules, 1962, headed "Limits of reserve for unexpired risks", caps the amount carried over to the reserve for unexpired risks (including any additional reserve) allowable under Rule 5(c) at (a) 100 per cent of the net premium income of the business where it relates to fire or engineering insurance providing insurance for terrorism risks; (aa) 50 per cent where it relates to fire or miscellaneous insurance other than that covered by (a); and (b) 100 per cent where it relates to marine insurance; with a proviso that any amount not allowed in a previous year shall not be included in total income for the assessment year relevant to the immediately next succeeding previous year in the revenue account relating to which it is credited, and an Explanation defining "net premium income" as premium received reduced by reinsurance premium paid during the relevant previous year and providing that "marine insurance" includes Export Credit Insurance.
Not applicable — this entry states statutory text, not a holding.
Not applicable — this entry states statutory text, not a court's reasoning.
Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head "Interest on securities", "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule.
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Handle my notice → Ask a CA on WhatsAppNo, not on that footing. Section 44 begins "Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities', 'Income from house property', 'Capital gains' or 'Income from other sources', or in section 199 or in sections 28 to 43B", and directs that the profits and gains of any business of insurance — including such a business carried on by a mutual insurance company or by a co-operative society — shall be computed in accordance with the rules contained in the First Schedule. That non-obstante clause is the whole point of the section: it takes the four other heads of income out of play, takes section 199 out of play, and takes the ordinary business-computation machinery of sections 28 to 43B out of play, leaving the First Schedule as the exclusive code. Rule 2 computes life insurance profits as the annual average of the actuarial surplus; Rule 5 computes general insurance profits as the profit before tax and appropriations disclosed in the regulatory profit and loss account, subject only to the adjustments the rule itself lists. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 44, section First Schedule, section Rule 1 of the First Schedule, section Rule 2 of the First Schedule, section Rule 4 of the First Schedule, section Rule 5 of the First Schedule, section Rule 6 of the First Schedule, section Rule 6E, section 43B, section 199 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.44, as printed on the departmental Year 2012 edition (incometaxindia.gov.in/w/section-44-9), the Year 2009 edition (/w/section-44), the Year 2006 edition (/w/section-44-16), the Year 2002 edition (/w/section-44-4) and the Year 2000 edition (/w/section-44-1). The First Schedule as printed on the Year 2024 (No. 1) edition (/w/first-schedule-17), the Year 2020 edition (/w/first-schedule-12), the Year 2014 edition (/w/first-schedule-1) and the Year 2013 edition (/w/first-schedule). Rule 6E of the Income-tax Rules, 1962 at incometaxindia.gov.in/w/rule-6e. Once the non-obstante clause is understood, most of the standard assessment-order arsenal falls away for an insurer. There is no separate head of capital gains on the insurer's investments, no separate head of income from other sources, no house-property computation, and no free-standing application of the sections 28 to 43B code. For general insurance the arithmetic starts from a figure the assessee did not choose — the profit before tax and appropriations as disclosed in the profit and loss account PREPARED IN ACCORDANCE WITH the Insurance Act, 1938 or the rules made thereunder or the Insurance Regulatory and Development Authority Act, 1999 or the regulations made thereunder — and the Assessing Officer's power is confined to the three adjustments in Rule 5: (a) adding back expenditure or allowance, including any amount debited to the profit and loss account by way of a provision for tax, dividend, reserve or any other prescribed provision, which is not admissible under sections 30 to 43B; (b) adding or deducting gain or loss on realisation of investments not already credited or debited, and adding back any provision for diminution in the value of investment debited to the profit and loss account; and (c) allowing as a deduction such amount carried over to a reserve for unexpired risks as may be prescribed — that prescription being Rule 6E of the Income-tax Rules, 1962, which caps the reserve at 100 per cent of net premium income for fire or engineering insurance providing terrorism cover, 50 per cent for other fire or miscellaneous insurance, and 100 per cent for marine insurance. A proviso added to Rule 5 allows a sum added back under clause (a) as a section 43B item to be deducted in the year it is actually paid. For life insurance the base is the actuarial surplus disclosed by the valuation under the Insurance Act, 1938, taken as the annual average of the surplus for the last inter-valuation period ending before the commencement of the assessment year, adjusted to exclude any surplus or deficit made in an earlier inter-valuation period; and Rule 1 requires life insurance profits to be computed separately from any other business. Keep the vocabularies apart: the "actuarial surplus" is a concept of the insurance regulatory code and the tax rule adopts it; it is not a tax concept in its own right, and the adjustments the tax rule permits are the only ones a tax officer may make. If it applies to you, the first step is this: Open the assessment order and identify every addition. Any addition made under a head other than business, or made under section 199, or made by a free-standing application of a section between 28 and 43B, is met by the opening words of section 44 before any argument on merits.
Section 44, headed "Insurance business", reads in full: "Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities', 'Income from house property', 'Capital gains' or 'Income from other sources', or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule." The First Schedule is headed "THE FIRST SCHEDULE — INSURANCE BUSINESS — [See section 44]" and is divided into "A.—Life insurance business" and "B.—Other insurance business". Rule 1 requires that in the case of a person carrying on life insurance business the profits and gains of that business be computed separately from his profits and gains from any other business. Rule 2, headed "Computation of profits of life insurance business", provides that those profits "shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 (4 of 1938), in respect of the last inter-valuation period ending before the commencement of the assessment year, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period." Rule 3 is omitted. Rule 5, headed "Computation of profits and gains of other insurance business", provides that the profits and gains of any business of insurance other than life insurance "shall be taken to be the profit before tax and appropriations as disclosed in the profit and loss account prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the regulations made thereunder, subject to the following adjustments": (a) subject to the other provisions of the rule, any expenditure or allowance, including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed, which is not admissible under sections 30 to 43B in computing the profits and gains of a business, is to be added back; (b)(i) any gain or loss on realisation of investments is to be added or deducted if not credited or debited to the profit and loss account, and (ii) any provision for diminution in the value of investment debited to the profit and loss account is to be added back; (c) such amount carried over to a reserve for unexpired risks as may be prescribed is to be allowed as a deduction. A proviso, present on the Year 2020 and Year 2024 (No. 1) editions, adds that any sum payable by the assessee under section 43B which is added back under clause (a) shall be allowed as a deduction in the previous year in which it is actually paid. Rule 6, headed "Profits and gains of non-resident person", allows the profits of Indian branches of a non-resident insurer, in the absence of more reliable data, to be deemed to be that proportion of the world income which the premium income derived from India bears to total premium income, and provides that world income in relation to life insurance business of a non-resident is to be computed as this Act lays down for life insurance business carried on in India. Rule 6E of the Income-tax Rules, 1962, headed "Limits of reserve for unexpired risks", caps the amount carried over to the reserve for unexpired risks (including any additional reserve) allowable under Rule 5(c) at (a) 100 per cent of the net premium income of the business where it relates to fire or engineering insurance providing insurance for terrorism risks; (aa) 50 per cent where it relates to fire or miscellaneous insurance other than that covered by (a); and (b) 100 per cent where it relates to marine insurance; with a proviso that any amount not allowed in a previous year shall not be included in total income for the assessment year relevant to the immediately next succeeding previous year in the revenue account relating to which it is credited, and an Explanation defining "net premium income" as premium received reduced by reinsurance premium paid during the relevant previous year and providing that "marine insurance" includes Export Credit Insurance. It was decided by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not applicable — this entry states statutory text, not a holding.
Not applicable — this entry states statutory text, not a court's reasoning. In the words reproduced by the source cited on this page: "Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head "Interest on securities", "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule."
It was decided by the CBDT Circulars & Instructions and is reported as Income-tax Act, 1961, s.44, as printed on the departmental Year 2012 edition (incometaxindia.gov.in/w/section-44-9), the Year 2009 edition (/w/section-44), the Year 2006 edition (/w/section-44-16), the Year 2002 edition (/w/section-44-4) and the Year 2000 edition (/w/section-44-1). The First Schedule as printed on the Year 2024 (No. 1) edition (/w/first-schedule-17), the Year 2020 edition (/w/first-schedule-12), the Year 2014 edition (/w/first-schedule-1) and the Year 2013 edition (/w/first-schedule). Rule 6E of the Income-tax Rules, 1962 at incometaxindia.gov.in/w/rule-6e. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 44, section First Schedule, section Rule 1 of the First Schedule, section Rule 2 of the First Schedule, section Rule 4 of the First Schedule, section Rule 5 of the First Schedule, section Rule 6 of the First Schedule, section Rule 6E, section 43B, section 199, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not applicable — this entry states statutory text, not a holding. It arises in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters, on section 44, section First Schedule, section Rule 1 of the First Schedule, section Rule 2 of the First Schedule, section Rule 4 of the First Schedule, section Rule 5 of the First Schedule, section Rule 6 of the First Schedule, section Rule 6E, section 43B, section 199 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a general insurer, start from the profit before tax and appropriations as disclosed in the regulatory profit and loss account, and require the officer to place every adjustment inside clause (a), (b) or (c) of Rule 5. Test each Rule 5(a) add-back: it must be an EXPENDITURE, an ALLOWANCE or a listed PROVISION, and it must be inadmissible under sections 30 to 43B. An amount written off or amortised that is neither expenditure nor allowance nor provision does not answer the clause. Run the unexpired-risk reserve through Rule 6E and identify the class of business, because the cap is 100 per cent for marine and for fire or engineering with terrorism cover and 50 per cent for other fire and miscellaneous business, on net premium income (premium received less reinsurance premium paid). Where a section 43B item was added back under Rule 5(a) in an earlier year, claim it under the proviso to Rule 5 in the year of actual payment. For a life insurer, hold the actuarial valuation report for the inter-valuation period, compute the annual average, and exclude any surplus or deficit made in an earlier inter-valuation period; and keep the life business computed separately from any other business, as Rule 1 requires.
Validity check could not be completed. Validity check could not be completed, and the reason matters. Rules 2 and 5 of the First Schedule are corroborated on four departmental editions running to Year 2024 (No. 1), which is close to current. Section 44 itself is corroborated on thirteen editions running to Year 2013 (/w/section-44-12), all identical, and its only amendment footnote dates the present words to the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April 1989. I could not read an edition later than Year 2013, so I cannot certify from a departmental source that nothing has been done to the section since; that is why the label is 'unverified' and not 'good law'. Nothing read on this pass suggests any change, and the section is reproduced in the same terms in the Tribunal proceedings read for this batch, but a reader arguing a current year should satisfy himself on the point. I did not carry out any survey of judicial treatment of section 44 or of the First Schedule beyond the Kolkata Tribunal's order in DCIT v. National Insurance Co. Ltd., which is in this library under its own entry and which refers to two Supreme Court decisions — General Insurance Corporation of India v. CIT (1999) 240 ITR 139 (SC) and CIT v. Oriental Fire & General Insurance Co. Ltd. (2007) 291 ITR 370 (SC) — that I have NOT read and do not vouch for beyond noting that they were cited. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Section 44 was read on eleven year-stamped departmental editions — Year 1990, 1991, 1992, 1993, 1997, 2000, 2001, 2002, 2006, 2009, 2010, 2012 and 2013 — which print it identically, and on Year 1971, 1980 and 1984 editions which read "sections 28 to 43A" rather than "43B". The Year 2013 edition is at /w/section-44-12. The section's only amendment footnote, printed on the Year 2012 and Year 2013 editions, reads "Substituted for '43A' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, '43A' was substituted for '43' by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967" — so the section has stood in its present words since 1 April 1989 and there is a retrieved footnote, not an inference, behind that. What I still cannot do is read an edition later than Year 2013, so I cannot exclude a change made after that date from a departmental source; the First Schedule, by contrast, was read to Year 2024 (No. 1). The First Schedule, by contrast, was read on four editions — Year 2013, Year 2014, Year 2020 and Year 2024 (No. 1) — and Rules 2 and 5 are identical on all four save that the proviso to Rule 5 (the section 43B actual-payment proviso) appears on the Year 2020 and Year 2024 editions and not on the Year 2013 and Year 2014 editions, which brackets its insertion between 2014 and 2020; I could not date it to an instrument. The Year 2013 fetch of the First Schedule ended at Rule 7 and returned "NOT REACHED", so Rules 7 and 8 were not read at all and this entry says nothing about them. Rule 3 is printed on the Year 2013 edition as omitted by the Finance Act, 1976 with effect from 1 April 1977. `decided_on` is null rather than a commencement date because this entry states a section and four Schedule rules with different commencements; section 44 in its present words commenced on 1 April 1989. Rule 4 of the First Schedule — which displaces section 199 credit where an assessment of life insurance profits is made on the annual average of a surplus for an inter-valuation period exceeding twelve months, and substitutes credit for the annual average of the tax deducted — was read on the Year 2024 (No. 1) edition but is not set out in this entry, although section 199 is among the provisions the non-obstante clause displaces; a later pass should add it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not applicable — this entry states statutory text, not a holding.
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