M/s. GENERAL ASSURANCE CORPORATION OF INDIA, MUMBAI V. ADDL. CIT Rg. - 1(3), MUMBAI

ITA 6500/MUM/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1631 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 07-11-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Section: 80HHC; 80HH; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI B BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR AND SMT ASHA VIAJAYARAGHVA N ITA NO 6500 TO 6502/MUM/2005 (ASSESSMENT YEARS: 2002-03 TO 2004-05) M/S GENERAL INSURANCE CORPORATION OF INDIA , SURAKSHA 170 J TATA ROAD CHURCHGATE, MUMBAI -400 020 PAN: AAACG 0615 N VS ACIT -1(3), AAYAKAR BHAVAN, CHURCHGATE, MUMBAI -400 020 APPELLANT RESPONDENT APPELLANT BY: SH RI FARROKH V IRANI RESPONDENT BY: SHRI S S RANA O R D E R PER PRAMOD KUMAR: 1. THESE THREE APPEALS WERE ORIGINALLY DISPOSED OF VIDE ORDER DATED 27TH JUNE, 2008 BUT THE SAID ORDER HAD TO BE RECALLED, VIDE OR DER DATED 30TH SEPTEMBER, 2008, AS GROUNDS OF APPEAL NOS 1.1 TO 1.6 OF THE APPEAL R EMAINED TO BE DISPOSED OFF. IT IS IN THESE CIRCUMSTANCES THAT WE HAVE COME TO BE IN SEIS IN OF THESE APPEALS FOR THE LIMITED PURPOSES OF ADJUDICATING ON THE FOLLOWING C OMMON GRIEVANCES:- 1.1 THE COMMISSIONER OF INCOME-TAX (APPEALS) (THE CIT (A)) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER (THE AO) OF DISALLOWING THE EXEMPTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF PR OFIT ON SALE OF INVESTMENT. 1.2 THE CIT (A) FAILED TO APPRECIATE THE FACT THAT THE CENTRAL BOARD OF DIRECT TAXS (THE CBDT) CIRCULAR IS BINDING ON THE AO. GENERAL INSURANCE CORPORATION OF INDIA 2 1.3 THE CIT (A) OUGHT TO HAVE ALLOWED THE APPELLANT S CLAIM FOR AN EXEMPTION OF PROFIT ON SALE OF INVESTMENT. 1.4 THE CIT (A) ERRED IN NOT ALLOWING THE APPELLANT S CLAIM FOR A DEDUCTION IN RESPECT OF INVESTMENTS WRITTEN OFF. 1.5 THE CIT (A) ERRED IN HOLDING THAT THE APPELLANT S CLAIM FOR A DEDUCTION IN RESPECT OF INVESTMENTS WRITTEN OFF WOULD NOT BE ENT ERTAINED BY HIM. 1.6 THE CIT (A) FAILED TO APPRECIATE THAT THE DISAL LOWANCE OF THE APPELLANTS CLAIM FOR A DEDUCTION IN RESPECT OF INVESTMENTS WRI TTEN OFF WAS CONTRARY TO THE PROVISIONS OF SECTION 44 OF THE INCOME TAX ACT 1961 READ WITH RULE 5 OF THE FIRST SCHEDULE THERETO. 2. THE SHORT ISSUE WE ARE THUS REQUIRED TO ADJUDICA TE IS WHETHER OR NOT THE CIT (A) WAS JUSTIFIED IN HOLDING THAT THE PROFIT ON SAL E OF INVESTMENTS, IS TAXABLE IN THE HANDS OF THE ASSESSEE. THE ASSESSMENT YEARS INVOL VED ARE 2002-03, 2003-04 AND 2004-05 AND THE IMPUGNED ORDER DATED 17TH MARCH 200 5 IS COMMON ORDER PASSED BY THE CIT (A) FOR THESE THREE YEARS. 3. LEARNED REPRESENTATIVES AGREE THAT THE ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY PUNE BENCH DECISION DATED 31.8.2009 IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED VS ADDL CIT (ITA 1447/PN/ 07; CO 57/PN/07). LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, VEHEMENTLY RE LIES UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITS THAT, IN THE ABSENCE OF A SPECIFIC PROVISION, EXEMPTIONS CANNOT BE INFERRED. LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO FILED A WRITTEN SUBMISSION WHICH IS REPRODUCED BELOW FOR READY REFERENCE: DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE Y OUR HONOURS THE LEARNED COUNSEL OF THE APPELLANT PRODUCED AN APPELLATE ORDE R IN THE CASE OF M/S. BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. ITA NO. 1447/PN/ 07 FOR A.Y. 2003-04. THE ISSUE INVOLVED IN THIS CASE IS SIMILAR TO THE ISSUE INVOLVED IN THE PRESENT CASE. BEFORE DEPARTING WITH THIS OBSERVATION, MAY YOUR HO NOURS BE PLEASED TO CONSIDER THE WRITTEN ARGUMENTS AND SUBMISSION AS FO LLOWS:- GENERAL INSURANCE CORPORATION OF INDIA 3 IN BOTH THE CASES THE ISSUE INVOLVED IS TO TAX THE PROFIT ON SALE OF INVESTMENT IN VIEW OF THE OMITTED SUB RULE 5(B) OF RULE 5 OF THE 1 ST SCHEDULE READ WITH SECTION 44 OF THE I.T. ACT, 1961. THE HONBLE MEMBER OF TH E PUNE BENCH AFTER GOING THROUGH THE RELEVANT PROVISIONS OF THE I.T. ACT AND ALSO THE CIRCULAR NO. 528 DATED 16.12.1988 HAD CONCLUDED THAT THE DELETION OF SUB RULE(B) FROM RULE 5 OF THE FIRST SCHEDULE WAS WITH A SPECIFIC PURPOSE. TH IS SCHEDULE NOT ONLY PRESCRIBE THE METHOD OF COMPUTATION OF INCOME OF INSURANCE BU SINESS IN PART (A) BUT ALSO PRESCRIBE THE METHOD OF COMPUTATION OF OTHER INSURA NCE BUSINESS IN PART (B). RULE 5 IS WITHIN PART (B) AND EARLIER IT HAS PRESCR IBED THE METHOD OF TAXATION OF PROFIT ON SALE OF INVESTMENT WHICH WAS LATER ON SCR APED. EVEN BY APPLYING A REVERSE LOGIC WE MUST ARRIVE AT THE SAME CONCLUSION THAT HAD THE IMPUGNED INCOME WAS EARLIER TAXABLE UNDER ONE SPECIFIC CLAUS E BUT EVEN ON ITS DELETION NO CLAUSE WAS INTRODUCED OR REPLACED TO REPRESCRIBE TH E METHOD OF TAXATION OF SUCH INCOME; THEREFORE THE REVENUE DEPARTMENT HAS N O RIGHT TO TAX SUCH AN INCOME IN THE ABSENCE OF ANY ENABLING PROVISION. N ATURALLY, SUCH A DELETION CANNOT BE TREATED A SUPERFLUOUS ACTION BUT THIS CHA NGE HAD TO GIVE A DEFINITE JUDICIAL MEANING. WE HAVE TO SCRIBE A LOGICAL CONC LUSION TO THE SAID DELETION OF SUB RULE (B) FROM RULE 5 AND THE NATURAL MEANING IS THAT AFTER THE DELETION THE INCOME DESCRIBED THEREIN IS OUT OF THE PURVIEW OF C OMPUTATION OF INSURANCE BUSINESS FROM THE FIRST SCHEDULE THEREFORE CONSEQUE NTLY CANNOT BE TAXED U/S. 44 OF THE I.T. ACT. 02. THE OBSERVATIONS OF THE HONBLE MEMBERS OF THE PUNE BENCH AT PARA 7 OF THE ORDER IS ALSO RELEVANT AND FOR THE SAKE OF CONVENIE NCE THE SAME IS EXTRACTED BELOW:- IN ADDITION TO THE ABOVE CONTENTIONS THERE WAS NO DISPUTE THAT THE INDEPENDENT CODE IS ENACTED BY THE INTRODUCTION OF SEC. 44 IN I.T. ACT WHICH INDEPENDENTLY PRESCRIBED THE MODE AND MANNER FOR ASSESSMENT OF INSURANCE BUSINESS. THIS SECTION SINCE CONTAINS NO N-OBSTANTE CLAUSE THEREFORE NOTWITHSTANDING ANYTHING CONTAINED IN ANY OF THE SECTIONS OF THE ACT, THE PROFITS AND GAINS OF INSURANCE BUSINES S INCLUDING ANY SUCH BUSINESS CARRIED ON BY A MUTUAL INSURANCE COMPANY O R BY AN CO-OPERATIVE SOCIETY SHALL BE COMPUTED IN ACCORDANCE WITH THE RU LES CONTAINED IN FIRST SCHEDULE. ACCORDINGLY, THERE COULD NOT BE ANY OTH ER INCOME TAXABLE OTHER THAN INSURANCE BUSINESS BECAUSE SEC. 44 OVER-RULES ALL OTHER PROVISIONS OF THE I.T. ACT. 03. THE PROVISIONS OF RULE 5 OF FIRST SCHEDULE OF T HE I.T. ACT, 1961 CLEARLY SPECIFIED THAT PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE OTHER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE BALANCE OF THE P ROFIT DISCLOSED BY ANNUAL ACCOUNT COPIES OF WHICH ARE REQUIRED UNDER THE INSU RANCE ACT, 1938 (4 OF 1938) TO BE FURNISHED TO THE CONTROLLER OF INSURANCE. TH E RULES THEREIN FURTHER PROVIDES FOR THE ADJUSTMENT SPECIFICALLY GIVEN IN T HE RULE 5. NOWHERE IN THE RULE 5 OF THE FIRST SCHEDULE IT IS MENTIONED THAT T HE PROFIT ON SALE OF INVESTMENT IS TO BE REDUCED FROM THE BALANCE OF PROFIT DISCLOS ED BY ANNUAL ACCOUNTS. IT IS GENERAL INSURANCE CORPORATION OF INDIA 4 RELEVANT TO NOTE THAT CLAUSE B WHICH WAS EARLIER RE FERRING TO ADJUSTMENT IN RESPECT OF RIGHT OF RESERVE OR ANY APPRECIATION OR ANY GAIN ON REALISATION HAVE BEEN OMITTED BY THE FINANCE ACT, 1988 W.E.F. 1.4.19 89. IT IS ALSO EQUALLY CLEAR AFTER GOING THROUGH THE AMENDED ACCOUNTING PRINCIPL ES OF FINANCIAL STATEMENTS PRESCRIBED IN PART V WHEREIN IT IS SEEN THAT THE PR OFITS AND GAINS OF ANY BUSINESS OF INSURANCE SHALL BE THE BALANCE OF PROFI TS DISCLOSED IN THE P & L A/C. INCOME FROM INVESTMENT INCLUDES PROFIT ON SALE OF I NVESTMENTS LESS LOSS ON SALE OF INVESTMENT WHICH SHOULD FORM PART OF THE P & L A /C. THEREFORE, IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE CANNOT REDUCE TH E PROFIT OF SALE OF INVESTMENT FROM THE BALANCE OF PROFIT DISCLOSED BY ANNUAL ACCOUNTS, COPIES OF WHICH ARE REQUIRED UNDER THE INSURANCE ACT, 1938 TO BE FURNISHED TO THE CONTROLLER OF INSURANCE. 04. IT IS A SETTLED INCOME TAX MATTER, THE LAW TO B E APPLIED IS THE LAW ENFORCED IN THE ASSESSMENT ORDER UNLESS OR OTHERWISE STATED OR IMPLIED (CIT VS. ISTHMIAN STEAMSHIP LINES 20 ITR 572 (SC) 05. THE PROFIT ON SALE OF INVESTMENTS IS INCOME AND DUE TO THE NON-OBSTANTE CLAUSE IN SECTION 44 OF THE INCOME TAX ACT IS TO B E ASSESSED AS PROFITS AND GAINS OF THE BUSINESS OF INSURANCE COMPUTED IN ACCORDANCE WITH RULES CONTAINED IN THE FIRST SCHEDULE. BY MAKING SUCH AN ASSESSMENT, THERE IS NO MANIFESTLY ABSURD AND UNJUST RESULT WHICH COULD NEVER HAVE BEE N INTENDED BY THE LEGISLATURE. IT IS TO BE ADDED HERE THAT IN BOMBAY MUTUAL LIFE ASSURANCE SOCIETY LTD. VS. CIT 20 ITR 189(BOM), IT WAS HELD T HAT THE APPRECIATION IN THE VALUE OF SECURITIES WHICH IS NOT TAKEN CREDIT FOR I N THE REVENUE ACCOUNT OR IN THE ACTUARIAL VALUATION BALANCE SHEET BUT IS ONLY SHOWN IN THE BALANCE SHEET SHOULD BE INCLUDED IN THE SURPLUS FOR COMPUTING THE PROF ITS OF AN INSURANCE COMPANY HAVING REGARD TO RULE 3(B) OF THE SCHEDULE TO THE I NDIAN INCOME TAX ACT (THE PROVISION IS SIMILAR TO THE DELETED RULE 5(B) OF FI RST SCHEDULE OF INCOME TAX ACT, 1961. THEREFORE, THE DELETED RULE 5(B) CAN BE READ AS PROVIDING FOR ASSESSMENT AS PART OF THE PROFITS AND GAINS OF APPRECIATION OF OR GAINS ON THE REALIZATION OF INVESTMENTS EVEN WHEN SUCH APPRECIATION OR GAINS IS NOT CREDITED IN THE P & L A/C. COPY OF WHICH IS REQUIRED UNDER THE INSURANCE ACT, 1938 TO BE FURNISHED TO THE CONTROLLER OF INSURANCE. 06. IT HAS BEEN HELD IN ORIENTAL FIRE & GENERAL INS URANCE CO. LTD. VS. CIT 143 ITR 378(BOM) THAT THE CHARACTER OF THE ENTRIES IN T HE ANNUAL ACCOUNTS FURNISHED BY AN ASSESSEE-INSURER TO THE CONTROLLER OF INSURANCE CANNOT BE GONE INTO AND ACCOUNTS AS ACCEPTED BY THE CONTROLLER MUS T FORM THE BASIS OF ASSESSMENT IN THE CASE OF INSURERS WHO FALL WITHIN THE AMBIT OF THE RULES OF THE FIRST SCHEDULE AND THE INCOME TAX OFFICER HAS NO PO WER TO DO ANYTHING NOT CONTAINED IN RULE 5 OF THE FIRST SCHEDULE IN COMPUT ING THE INCOME FROM THE BUSINESS OF INSURANCE OTHER THAN LIFE INSURANCE. T HE APPELLANTS CONTENTION THAT AT LEAST THE APPRECIATION OF ASSETS IN BURMA A ND CEYLON SHOULD BE EXCLUDED FROM THE COMPUTATION OF PROFITS WAS NOT ACCEPTED IN TER-ALIA BECAUSE ONCE CERTAIN AMOUNTS HAD BEEN SHOWN AS PROFITS IN THE AN NUAL ACCOUNTS FURNISHED TO GENERAL INSURANCE CORPORATION OF INDIA 5 THE CONTROLLER OF INSURANCE IT WAS NOT OPEN TO THE ITO TO GO BEHIND THOSE FIGURES. A SIMILAR VIEW WAS TAKEN IN CIT VS. UNITED INDIA FIRE & GENERAL INSURANCE CO. LTD. 140 ITR 994 (MAD). THE HONBLE SUPREME COURT IN GENERAL INSUNRACE CORPN. OF INDIA VS. CIT 240 ITR 139(SC) ( RELEVANT PARA 8 & 12) HAS ALSO HELD THAT FOR THE PURPOSE OF INCOME-TAX, THE F IGURES IN THE ACCOUNTS OF THE ASSESSEE DRAWN UP IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDULE TO THE INCOME TAX ACT AND SATISFYING THE REQUIREMENTS OF THE INSURANCE ACT ARE BINDING ON THE ASSESSING OFFICER UNDER THE INCOME T AX ACT AND HE HAS NO GENERAL POWER TO CORRECT THE ERRORS IN THE ACCOUNTS OF AN INSURANCE BUSINESS AND UNDO THE ENTRIES MADE THEREIN. THE SAME RATIO H AS BEEN GIVEN BY SUPREME COURT IN THE CASE OF APOLLO TYRES WHEREIN WITH REFE RENCE TO ANALOGOUS PROVISION IN SECTION 115J THEY HAVE HELD THAT THE AO HAS POWE R TO DO ANYTHING EXCEPT WHAT HAS BEEN SPECIFICALLY PROVIDED IN THE SECTION. THE INTERPRETATION BY THE COURTS OF THE PROVISIONS OF SECTION 44 AND RULE 5 O F THE FIRST SCHEDULE SUPPORT THE CONCLUSION THAT THE INCLUSION OF THE PROFIT ON SALE OF INVESTMENTS IN HE TOTAL INCOME MANDATORY AND DEVIATIONS CAN BE MADE IF SPEC IFIC RULES SO REQUIRED. 07. THE APPELLANT HAS SOUGHT TO PLEAD THAT IT IS NO T OPEN TO THE AO TO TAKE A STAND CONTRARY TO CIRCULAR NO. 528 DT. 16.12.88 ISS UED BY THE CBDT EVEN ASSUMING THAT THE SAME DEVIATES FROM THE CORRECT LE GAL POSITION. THE CIRCULAR SEEKS TO EXPLAIN THE PROVISIONS OF THE FINANCE ACT, 1988 AND STATES THAT TO ENABLE THE GIC AND ITS SUBSIDIARIES TO PLAY A MORE ACTIVE ROLE IN CAPITAL MARKETS FOR THE BENEFIT OF POLICY HOLDERS, THE FINANCE ACT HAS AMENDED SUB-RULE (B) OF RULE 5 OF THE FIRST SCHEDULE FOR EXEMPTION OF THE P ROFITS EARNED BY THEM ON SALE OF INVESTMENT. THE DELETED RULE 5(B) CAN BE READ A S PROVIDING FOR ASSESSMENT AS PART OF THE PROFITS AND GAINS OF APPRECIATION OF OR GAINS ON THE REALIZATION OF INVESTMENTS EVEN WHEN SUCH APPRECIATION OR GAINS IS NOT CREDITED IN THE P & L A/C. COPY OF WHICH IS REQUIRED UNDER THE INSURANCE ACT, 1938 TO BE FURNISHED TO THE CONTROLLER OF INSURANCE. THE CIRCULAR DOES NOT SEEK TO OVERRIDE THE PROVISIONS OF SECTION 44 AND RULE 5 OF THE FIRST SC HEDULE (AFTER DELETION OF SUB- RULE (B) THEREOF) AND TO PROVIDE FOR EXEMPTION OF P ROFITS EARNED ON SALE OF INVESTMENTS EVEN THOUGH SUCH PROFITS ARE ASSESSABLE TO TAX BY VIRTUE OF THE PROVISION CONTAINED IN THE INCOME TAX ACT, 1961. 08 IT HAS BEEN HELD IN UNION OF INDIA & ANR. VS. DE OKI NANDAN AGGARWAL 1992 SUPP(1) SCC 323, THAT IT IS NOT THE DUTY OF THE CO URT EITHER TO ENLARGE THE SCOPE OF LEGISLATION OR THE INTENTION OF THE LEGISLATURE, WHEN THE LANGUAGE OF THE PROVISION IS PLAIN. THE COURT CANNOT REWRITE THE L EGISLATION FOR THE REASON THAT IT HAD NO POWER TO LEGISLATE. THE POWER TO LEGISLAT E HAS NOT BEEN CONFERRED ON THE COURTS. THE COURT CANNOT ADD WORDS TO A STATUT E OR READ WORDS INTO IT WHICH ARE NOT THERE. IN STATE OF KERALA VS. MATHAI VERGEHSE & ORS (1986) 4 SEC 746, THE COURT HAS REITERATED THE WELL SETTLED POSI TION THAT THE COURT CAN MERELY INTERPRET THE SECTION: IT CANNOT RE-WRITE, R ECAST OR REDESIGN THE SECTION. IN INTERPRETING THE PROVISION THE EXERCISE UNDERTAK EN BY THE COURT IS TO MAKE EXPLICIT THE INTENTION OF THE LEGISLATURE WHICH ENA CTED THE LEGISLATION. IT IS NOT FOR THE COURT TO REFRAME THE LEGISLATION FOR THE VE RY GOOD REASON THAT THE GENERAL INSURANCE CORPORATION OF INDIA 6 POWERS TO LEGISLATE HAVE NOT BEEN CONFERRED ON TH E COURT. IN GWALIOR RAYONS SILK MFG. (WVG) CO. LTD. CUSTODIAN OF VESTED FOREST S PALGHAT & ANR. 1990 (SUPP) SCC 785, THE COURT RIGHTLY OBSERVED THAT IN SEEKING LEGISLATIVE INTENTION JUDGES NOT ONLY LISEN TO THE VOICE OF THE LEGISLATU RE BUT ALSO LISTEN ATTENTIVELY TO WHAT THE LEGISLATURE DOES NOT SAY. IT HAS ALSO BEE N HELD IN HOUSE OF LORDS IN PINNER VS. EVERTT (1969) 3 ALL ER 257 (HL) APTLY OB SERVED THAT WE HAVE BEEN WARNED AGAIN AND AGAIN THAT IT IS WRONG AND DANGERO US TO PROCEED BY SUBSTITUTING SOME OTHER WORDS FOR THE WORDS OF THE STATUTE. THEREFORE THE LEGAL POSITION SEEMS TO BE CLEAR AND CONSISTENT THAT IT I S THE BOUNDEN DUTY AND OBLIGATION OF THE COURT TO INTERPRET THE STATUTE AS IT IS. IT IS CONTRARY TO ALL RULES OF CONSTRUCTION TO READ WORDS INTO A STATUTE WHICH THE LEGISLATURE IN ITS WISDOM HAS DELIBERATELY NOT INCORPORATED. IN THE CASE OF S.R.BOMMAI V. UNION OF INDIA (1994) 3 SCC1 THE IT HAS BEEN HELD THAT WHERE THE LANGUAGE OF A STATUTE IS CLEAR AND U NAMBIGUOUS, THERE IS NO ROOM FOR THE APPLICATION EITHER OF THE DOCTRINE OF CASUS OMISSUS OR OF PRESSING INTO SERVICE EXTERNAL AID, FOR IN SUCH A CASE THE W ORDS USED BY THE CONSTITUTION OR THE STATUTE SPEAK FOR THEMSELVES AND IT IS NOT T HE FUNCTION OF THE COURT TO ADD WORDS OR EXPRESSIONS MERELY TO SUIT WHAT THE COURTS THINK IS THE SUPPOSED INTENTION OF THE LEGISLATURE. IF A PARTICULAR CASE IS OMITTED FROM THE TERMS OF A STATUTE, EVEN THOUGH SUCH A CASE IS WITHIN THE OBVI OUS PURPOSE OF THE STATUTE AND THE OMISSION APPEARS TO HAVE BEEN DUE TO ACCIDE NT OR INADVERTENCE, THE COURT CANNOT INCLUDE THE OMITTED CASE BY SUPPLYING THE OMISSION. THIS IS EQUALLY TRUE WHERE THE OMISSION WAS DUE TO THE FAIL URE OF THE LEGISLATURE TO FORESEE THE MISSING CASE. TO PERMIT THE COURT TO SU PPLY THE OMISSIONS IN STATUTES, WOULD GENERALLY CONSTITUTE AN ENCROACHMEN T UPON THE FIELD OF THE LEGISLATURE. IN CONSTRUING THE CONSTITUTION WE CANN OT LOOK BEYOND THE LETTER OF THE CONSTITUTION TO ADOPT SOMETHING WHICH WOULD COM MEND ITSELF TO OUR MINDS AS BEING IMPLIED FROM THE CONTEXT. THE COURT WHEN CAUGHT IN PARALYSIS OF DELIEMMA SHOULD ADOPT SELF-RESTRAINT, IT MUST USE T HE JUDICIAL REVIEW WITH GREATEST CAUTION. IN CLASH OF POLITICAL FORCES IN POLITICAL STATEMENT THE INTERPRETATION SHOULD ONLY BE IN RARE AND AUSPICIOU S OCCASIONS TO NULLIFY ULTRA VIRES ORDERS IN HIGHLY ARBITRARY OR WHOLLY IRRELEVA NT PROCLAMATION WHICH DOES NOT BEAR ANY NEXUS TO THE PREDOMINANT PURPOSE FOR W HICH THE PROCLAMATION WAS ISSUED, DO DECLARE IT TO BE UNCONSTITUTIONAL AN D NO MORE. 10. IN THE CASE OF GRASIM INDUSTRIES LTD. VS. COLLE CTOR OF CUSTOMS (2002) 4 SCC 297 IT HAS BEEN HELD THAT THE ELEMENTARY PRINCIPLE OF INTERPRETING ANY WORD WHILE CONSIDERING A STATUTE IS TO GATHER THE MENS O R SENTENTIAL LEGIS OF THE LEGISLATURE. WHEREVER THE LANGUAGE IS CLEAR THE IN TENTION OF HE LEGISLATURE IS TO BE GATHERED FROM THE LANGUAGE USED. WHILE DOING SO, WHAT HAS BEEN SAID IN THE STATUTE AS ALSO WHAT HAS NOT BEEN SAID HAS TO BE NO TED. THE CONSTRUCTION WHICH REQUIRES FOR IS SUPPORT ADDITION OR SUBSTITUTION OF WORDS OR WHICH RESULTS IN REJECTION OF WORDS HAS TO BE AVOIDED. GENERAL INSURANCE CORPORATION OF INDIA 7 11. IN THE CASE OF JAGJIT SINGH V. STATE OF HARYANA (2006) 11 SCC1 IT HAS BEEN HELD THAT NO WORDS CAN BE READ INTO THE CONSTITUTI ON WHICH DO NOT EXIST. IT IS, ORDINARILY, NOT THE FUNCTION OF THE COURT TO READ W ORDS INTO A STATUTE. THE COURT MUST PROCEED ON THE ASSUMPTION THAT THE LEGISLATURE DID NOT MAKE A MISTAKE AND IT INTENDED TO SAY WHAT IT SAID. 12. IT HAS BEEN HELD IN M.H. DARYANI VS. CIT 202 20 2 ITR 731, 735 (BOM) THAT THE PRINCIPLE OF BENEFICIAL INTERPRETATION HAS NO A PPLICATION IN A CASE WHERE THE WORDS OF STATUTE ARE PLAIN, PRECISE AND UNAMBIGUOUS . IN SUCH A CASE, THE WELL- SETTLED PRINCIPLE OF INTERPRETATION IS THAT THE STA TUTORY PROVISION SHOULD BE CONSTRUED ACCORDING TO THE PLAIN NATURAL MEANING OF ITS LANGUAGE. WHEN THE LANGUAGE OF A PARTICULAR PROVISION IS CLEAR AND ACC ORDING TO THE PLAIN NATURAL MEANING THEREOF THE ASSESSEE IS NOT ENTITLED TO ANY REBATE, RELIEF OR ALLOWANCE, IT IS NOT FOR THE COURT TO STRAIN AND STRETCH THE L ANGUAGE OF THE STATUTORY PROVISION TO ENABLE THE ASSESSEE TO GET SUCH RELIEF . SUCH AN APPROACH WILL BE AGAINST ALL ACCEPTED PRINCIPLES OF INTERPRETATION. WITH REGARD TO SECTION 80HHC OF THE ACT, THE HONBLE SUPREME COURT IN IPCA LABORATORY LTD. 266 ITR 521 HAS STATED THAT EVEN THOUGH A LIBERAL INTERPRET ATION HAS TO BE GIVEN TO SUCH A PROVISION, THE INTERPRETATION HAS TO BE AS PER TH E WORDING OF SECTION 80HHC. IT WAS FURTHER OBSERVED THAT IF THE WORDING OF THE SECTION IS CLEAR, THEN BENEFITS WHICH ARE NOT AVAILABLE UNDER THE SECTION CANNOT BE CONFERRED BY IGNORING OR MISINTERPRETING THE WORDS IN THE SECTION. WITH REFE RENCE TO SECTION 80J OF THE ACT, IT WAS HELD BY THE HONBLE SUPREME COURT IN CI T VS. CELLULOSE PRODUCTS OF INDIA LTD. 192 ITR 155(SC) THAT IT IS ONLY WHEN THE RE IS ANY GENUINE DOUBT ABOUT THE INTERPRETATION OF A FISCAL STATUTE OR WHE RE TWO OPTIONS ARE CAPABLE OF BEING FORMED THAT THE RULE OF INTERPRETATION THAT A PROVISION GRANTING RELIEF SHOULD BE CONSTRUED LIBERALLY SO AS TO EFFECTUATE T HE OBJECT THEREOF MAY BE TAKEN RECOURSE TO. SIMILARLY, WITH REFERENCE TO SE CTION 80HH OF THE ACT, THE HONBE SUPREME COURT IN PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 (SC) THAT RULES OF INTERPRETATION WOULD COME INTO PLAY ONLY I F THERE IS ANY DOUBT WITH REGARD TO EXPRESS LANGUAGE USED. IT WAS FURTHER OB SERVED THAT WHERE THE WORDS ARE UNEQUIVOCAL THERE IS NO SCOPE FOR IMPORTING THE RULE OF LIBERAL INTERPRETATION. IN ANY CASE, IT HAS BEEN HELD IN C IT VS. VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC) THAT IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQUENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTORY TO BE TAKEN INTO ACCOUNT IN INTERPRETING A PROVISION. THEREFORE, THE INCOME FROM THE SALE OF INVESTMENT I S TAXABLE AND THE LEGISLATIVE INTENT CANNOT BE INFERRED IN THE FACTS OF THIS CASE , AS THE PROVISIONS EXEMPTING THE IMPUGNED INCOME FROM ITS AMBIT ARE MISSING AND NO CASUS OMISSUS CAN BE SUPPLIED BY THE HONBLE TRIBUNAL. GENERAL INSURANCE CORPORATION OF INDIA 8 4. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE SU BMISSIONS OF THE PARTIES, HOWEVER, WE ARE INCLINED TO FOLLOW THE STAND TAKEN BY THE CO ORDINATE BENCH IN THE CASE OF THE BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD (SUPRA). 5. IN OUR CONSIDERED VIEW, THE COMPUTATION OF TAXAB LE PROFITS OF AN INSURANCE COMPANY IS GOVERNED BY A SPECIFIC LEGAL PROVISION, I.E. SECTION 44 READ WITH FIRST SCHEDULE TO THE INCOME TAX ACT. UNDER THE SAID SCH EME OF THINGS ENVISAGED BY THESE PROVISIONS, ONLY SUCH ADJUSTMENTS CAN BE MADE TO TH E PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS DRAWN UP UNDER THE INSURANCE ACT, 1938, AS ARE SPECIFICALLY PROVIDES FOR UNDER CLAUSE 5 OF THE FIRST SCHEDULE. IT IS AN ADMI TTED POSITION THAT THERE ARE NO SPECIFIC PROVISIONS FOR MAKING AN ADJUSTMENT ON ACC OUNT OF PROFITS ON SALE OF INVESTMENT AFTER REMOVAL OF CLAUSE 5(B) WITH EFFECT FROM 1 ST APRIL 1989 AND TILL CLAUSE 5(B)(II) WAS INSERTED WITH EFFECT FROM 1 ST APRIL 2011. ACCORDINGLY, THERE IS NO OCCASION TO MAKE AN ADJUSTMENT OF PROFIT ON SALE OF INVESTMENTS IN THE PROFIT DISCLOSED BY THE ANNUAL ACCOUNTS DRAWN UP AS PER TH E INSURANCE ACT, 1938. IT IS IMPORTANT TO BEAR IN MIND THE LEGAL POSITION THAT T HE TAXABILITY OF INCOME IN THE CASE OF THE INSURANCE COMPANIES IS NOT ON COMMERCIAL PRO FITS BUT ON SUCH PROFITS AS ARE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE I NSURANCE ACT, SUBJECT TO, OF COURSE, PERMISSIBLE ADJUSTMENTS UNDER THE INCOME TA X ACT. IT IS, THEREFORE, FUTILE TO SUGGEST, AS HAS BEEN SUGGESTED BY THE LEARNED DEPAR TMENTAL REPRESENTATIVE, THAT THE PROFITS ON SALE OF INVESTMENTS ARE TAXABLE IN THE H ANDS OF THE ASSESSEE UNLESS THERE IS A SPECIFIC PROVISION FOR EXEMPTION OF SUCH PROFITS. THE QUESTION OF EXEMPTION ONLY ARISES WHEN SOMETHING IS TAXABLE, BUT, AS WE HAVE N OTED ABOVE, THE TAXABILITY OF PROFITS IN THE HANDS OF THE INSURANCE COMPANIES IS CONFINED TO PROFITS AS PER ANNUAL ACCOUNTS OF SUCH INSURANCE COMPANIES DRAWN UP IN AC CORDANCE WITH THE INSURANCE ACT. 6. WHAT IS TAXABLE IN THE CASE OF THE INSURANCE COM PANIES IS, AS WE HAVE NOTED ABOVE, IS NOT COMMERCIAL PROFIT AS PER THE NORMAL R ULES OF COMPUTATION OF BUSINESS GENERAL INSURANCE CORPORATION OF INDIA 9 INCOME BUT THE PROFIT REFLECTED BY ACCOUNTS DRAWN U P AS PER THE PROVISIONS OF THE INSURANCE ACT. ANY ADJUSTMENT TO SUCH PROFITS CAN O NLY BE MADE AS PER SPECIFIC PROVISIONS IN CLAUSE 5 OF FIRST SCHEDULE TO THE INC OME TAX ACT. IT IS NOT THE CASE OF THE REVENUE THAT, IN ACCORDANCE WITH THE PROVISIONS OF THE INSURANCE ACT, THESE PROFITS WERE REQUIRED TO BE REFLECTED IN THE ANNUAL ACCOUNTS OF THE ASSESSEE, OR THAT THERE IS A SPECIFIC ADJUSTMENT, DULY SANCTIONED BY LAW, WHICH WAS REQUIRED TO BE MADE TO SUCH BOOK PROFITS IN RESPECT OF THESE BOOK PROFITS. ON A PLAIN READING OF THE PROVISIONS OF THE LAW, SUCH PROFITS CANNOT BE BROUG HT TO TAX IN THE FIRST PLACE. WHEN THESE PROFITS CANNOT BE TAXED IN THE FIRST PLACE, T HERE IS NO NEED OF ANY SPECIFIC EXEMPTION PROVISION. THE PRINCIPLE OF CASUS OMMISUS IS NOT, THEREFORE, RELEVANT IN THE PRESENT CONTEXT. 7. IN THE CASE OF BAJAJ ALLIANZ (SUPRA), THE COORDI NATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS:- 6. THE LD CIT (A) HAS CALLED FOR A REMAND REPORT F ROM THE AO. WHEN THE SAME WAS HANDED OVER TO THIS ASSESSEE THE POINT-WIS E CONTENTION WERE AS FOLLOWS:- (A) THE APPELLANT IS NOT A PUBLIC FINANCIAL INSTITU TION AS PRESCRIBED U/S 4(A) OF THE COMPANIES ACT HENCE, IT WAS WRONG ON THE PAR T OF THE AO TO ALLEGE THAT IN ADDITION TO THE INSURANCE BUSINESS THE ASSESSEE COM PANY HAS ALSO ACTED AS A PUBLIC FINANCIAL INSTITUTION U/S 4(A) OF COMPANIES ACT. IT WAS PLEADED THAT AS PER THE DEFINITION OF A INSURANCE COMPANY UNDER THE INSURANCE ACT THE WHOLE AND SOLE PURPOSE OF A GENERAL INSURANCE COMPANY IS TO CARRY ON GENERAL INSURANCE BUSINESS. (B) THE ALLEGATION OF THE AO THAT TRANSACTION IN SHARE AND SECURITIES WAS ONE OF THE NORMAL BUSINESS ACTIVITY OF THE ASSESSEE HENCE, LIABLE FOR TAXATION. THE CONTENTION WAS THAT THOUGH IT WAS ONE OF THE ACTIVI TY TO EARN PROFIT ON SALE ON INVESTMENT BUT THE RESPECTED PARLIAMENT IN HIS WISD OM HAS DECIDED NOT TO TAX THE SAME. IN SUPPORT IT WAS CITED THAT THE INSURAN CE COMPANY ARE GOVERNED BY RULE 5 OF A SCHEDULE. RELIANCE WAS PLACED ON THE D ECISION OF SUPREME COURT IN THE CASE OF GENERAL COMPANY OF INDIA 240 ITR 139 AN D PANDYNE INSURANCE COMPANY 55 ITR 716. GENERAL INSURANCE CORPORATION OF INDIA 10 (C) THE ALLEGATION OF THE AO WAS THAT ANY PART OF T HE PROFITS AND GAINS NOT ATTRIBUTABLE TO THE INSURANCE BUSINESS COLD QUALIFY FOR EXEMPTION AND LIABLE TO BE TAXED. THE CONTENTION OF THE ASSESSEE WAS THAT FIRSTLY THE FINANCIAL STATEMENTS OF AN INSURANCE COMPANY HAS TO BE FINALI ZED IN ACCORDANCE WITH THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY. AS PER THE SAID REGULATION PROFITS EARNED BY A GENERAL INSURANCE COMPANY ON SA LE OF REDEMPTION OF INVESTMENT HAS TO BE CREDITED TO THE PROFIT AND LOS S ACCOUNT AND NOT TO BE SHIFTED TO THE BALANCE SHEET DIRECTLY. IT WAS WRONG ON THE PART OF THE AO THROUGH A SUGGESTION THAT HAD THE ASSESSEE EVER INTENDED TO C LAIM THE EXEMPTION THEN HE COULD HAVE REFLECTED THE PROFIT ON SALE OF INVESTME NT IN THE BALANCE SHEET DIRECTLY INSTEAD OF CREDITING IN P & L ACCOUNT. THE CONTENT ION OF THE ASSESSEE WAS THAT SUCH A METHOD HAS NOT BEEN PRESCRIBED BY THE DESIGN ATED REGULATORY AUTHORITY. (D) THE APPLICABILITY OF PROVISIONS OF SEC 43(D) AN D SECTION 36(1)(VIIA) HAVE ALSO BEEN DENIED. THE CONTENTION OF THE ASSESSEE W AS THAT THESE PROVISIONS ARE APPLICABLE TO PUBLIC FINANCIAL INSTITUTIONS (PFI) A ND THE ASSESSEE COMPANY DO NOT FALL UNDER THAT CATEGORY. 7. IN ADDITION TO THE ABOVE CONTENTIONS THERE WAS N O DISPUTE THAT THE INDEPENDENT CODE IS ENACTED BY THE INTRODUCTION OF SEC 44 IN IT ACT WHICH INDEPENDENTLY PRESCRIBED THE MODE AND MANNER FOR AS SESSMENT OF INSURANCE BUSINESS. THIS SECTION SINCE CONTAINS NON-OBSTANTE CLAUSE THEREFORE NOTWITHSTANDING ANYTHING CONTAINED IN ANY OF THE SE CTIONS OF THE ACT, THE PROFITS AND GAINS OF INSURANCE BUSINESS INCLUDING ANY SUCH BUSINESS CARRIED ON BY A MUTUAL INSURANCE COMPANY OR BY AN CO-OPERATIVE SOCI ETY SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN FIRST SCHEDU LE. ACCORDINGLY, THERE COULD NOT BE ANY OTHER INCOME TAXABLE OTHER HAND INSURANC E BUSINESS BECAUSE SECTION 44 OVER-RULES ALL OTHER PROVISIONS OF THE IT ACT. 8. A CONCLUSION CAN BE DRAWN ON THE BASIS OF THE AB OVE ELABORATE DISCUSSION THAT THE DELETION OF SUB-RULE (B) FROM RULE 5 OF TH E FIRST SCHEDULE WAS WITH A SPECIFIC PURPOSE. THIS SCHEDULE NOT ONLY PRESCRIBE THE METHOD OF COMPUTATION OF INCOME OF INSURANCE BUSINESS IN PART (A) BUT ALSO P RESCRIBE THE METHOD OF COMPUTATION OF OTHER INSURANCE BUSINESS IN PART (B) . RULE 5 IS WITHIN PART (B) AND EARLIER IT WAS PRESCRIBED THE METHOD OF TAXATIO N OF PROFIT ON SALE OF INVESTMENTS WHICH WAS LATER ON SCRAPED. EVEN BY AP PLYING A REVERSE LOGIC WE MUST ARRIVE AT THE SAME CONCLUSION THAT HAD THE IMP UGNED INCOME WAS EARLIER TAXABLE UNDER ONE SPECIFIC CLAUSE BUT EVEN ON ITS D ELETION NO CLAUSE WAS INTRODUCED OR REPLACED TO PRESCRIBE THE METHOD OF T AXATION OF SUCH INCOME; THEREFORE THE REVENUE DEPARTMENT HAS NO RIGHT TO TA X SUCH AN INCOME IN THE ABSENCE OF ANY ENABLING PROVISION. NATURALLY, SUCH A DELETION CANNOT BE TREATED A SUPERFLUOUS ACTION BUT THIS CHANGE HAD TO GIVE A DEFINITE JUDICIAL MEANING. WE HAVE TO ASCRIBE A LOGICAL CONCLUSION TO THE SAID DE LETION OF SUB RULE (B) FROM RULE 5 AND THE NATURAL MEANING IS THAT AFTER THE DELETIO N THE INCOME DESCRIBED THEREIN IS OUT OF THE PURVIEW OF COMPUTATION OF INS URANCE BUSINESS FROM THE FIRST SCHEDULE THEREFORE CONSEQUENTLY CANNOT BE TAXED U/S 44 OF I T ACT. GENERAL INSURANCE CORPORATION OF INDIA 11 8. WE HAVE ALSO NOTED THAT THE LEGISLATURE HAS NOW BROUGHT IN A PROSPECTIVE AMENDMENT, WITH EFFECT FROM ASSESSMENT YEAR 2011-12 , IN RULE 5(B)(I) OF FIRST SCHEDULE TO THE INCOME TAX ACT. BY THE VIRTUE OF T HIS AMENDMENT, PROFITS ON SALE OF INVESTMENTS, IN THE CASE OF INSURANCE COMPANIES WIL L BE TAXABLE W E F 2011-12. SINCE THE AMENDMENT SO MADE IN THE STATUTE, WHICH CAN NOT BE INFERRED TO BE A SUPERFLUOUS AMENDMENT, IS WITH EFFECT FROM 2011-12, THE CONCLUS ION ARRIVED AT BY THE PUNE BENCH STANDS FURTHER FORTIFIED. THIS FURTHER FORTIFIES THE STAND TAKEN BY THE CO ORDINATE BENCH IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANC E CO LTD (SUPRA). 9. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOLLOWING THE COORDINATE BENCH DECISION IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMP ANY LIMITED (SUPRA), WE UPHOLD THE GRIEVANCE OF THE ASSESSEE. THE PROFITS ON SALE OF INVESTMENT IN THE YEARS BEFORE US, WHICH ARE YEAR PRIOR TO THE YEARS WITH EFFECT F ROM WHICH PROSPECTIVE AMENDMENT IS MADE, ARE NOT TAXABLE IN THE HANDS OF THE ASSESS EE. THE TAXABILITY OF INCOME OF INSURANCE COMPANIES UNDER THE HEAD INCOME FROM BUS INESS AND PROFESSION AS GOVERNED BY PROVISIONS OF SECTION 44 READ WITH FIRS T SCHEDULE TO THE INCOME TAX ACT, DOES NOT EXTEND TO TAXABILITY OF PROFITS ON SALE OF INVESTMENTS SO FAR AS THE ASSESSMENT YEARS BEFORE US ARE CONCERNED. 10. FOR THE REASONS SET OUT ABOVE, WE DIRECT THE AS SESSING OFFICER TO EXCLUDE PROFITS ON SALE OF INVESTMENTS FROM INCOME OF THE A SSESSEE LIABLE TO BE TAXED. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 11. IN THE RESULT, THE APPEALS ARE ALLOWED IN THE T ERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 22 DAY O F OCTOBER 2009. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE: 22 OCTOBER 2009 GENERAL INSURANCE CORPORATION OF INDIA 12 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-XXI, MUMBAI. 4) THE CIT, CITYI, MUMBAI. 5) THE D.R. B BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBA I GENERAL INSURANCE CORPORATION OF INDIA 13 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 20.10.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 20.10.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER