Rule 6E

Rule 6E — the law in short

What the courts have decided on section Rule 6E, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• DCIT v National Insurance Co. Ltd (ITAT Kolkata) — under s.44 and Rule 5 an amortised premium and an investment written off are neither expenditure nor allowance nor provision, and the unexpired-risk reserve stays out of book profit ITATHelps taxpayerValidity unconfirmed
  The Assessing Officer has disallowed my general insurance client's amortisation of premium on investments and its investments written off, and has added the reserve for unexpired risks to book profit under s.115JB. What is the limit on his power?
  The Kolkata Tribunal dismissed all three of the Revenue's appeals. It upheld the Commissioner (Appeals) in deleting the disallowance of amortisation of premium paid on purchase of investments and of investments written off, on the footing that under section 44 read with Rule 5 of the First Schedule the Assessing Officer may add back only an expenditure, an allowance or a listed provision that is inadmissible under sections 30 to 43B, and an amount amortised or written off is none of those. It also upheld the Commissioner (Appeals) in holding that the reserve created for unexpired risk need not be added back in computing book profit under section 115JB, that reserve having been created not by a debit to the profit and loss account but out of the premium received, as the Insurance Act 1938 requires and as Rule 5(c) of the First Schedule and Rule 6E of the Income-tax Rules recognise.
• Statutory position — s.44 and the First Schedule: what the opening non-obstante words displace, Rule 2 for life insurance and Rule 5 for general insurance CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.