Prakash Narain, J.
1. The short question which arises in this case is the construction to be put on and the effect of Rule 6 in the Schedule to the Income-tax Act, 1922, which reads as under :
' 6. The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Controller of Insurance after adjusting such balance so as to exclude from it any expenditure other than expenditure which may under the provisions of Section 10 of this Act be allowed in computing the profits and gains of a business. Profits and losses on the realisation of investments and depreciation and appreciation of the value of investments shall be dealt with as provided in Rule 3 for the business of life insurance. '
2. The assessed is a public limited company doing insurance business. During the accounting year ending on 31st December, 1957, relevant to the assessment year 1958-59, it carried on the business of general insurance. In the profit and loss account of the relevant assessment year, i.e., 1958-59, the assessed credited in its profit and loss account a sum of Rs. 1,00,000 by transfer from the dividend equalization fund to revenue account. A sum of Rs. 1,55,726 was also shown in the revenue account by a transfer entry from general reserve. In computing the profits of the assessed for the assessment year in question, the Income-tax Officer, Companies Circle at New Delhi, included the above sums in the assessment, rejecting the contention of the assessed that the aforesaid two sums did not represent income for the relevant assessment year and that they were merely adjustment entries effected by the transferring of the said two sums to the revenue account.
3. The assessed filed an appeal before the Appellate Assistant Commissioner, ' A ' Range, New Delhi, who confirmed the order of the Income-tax Officer. On further appeal, the Income-tax Appellate Tribunal also upheld the contention on behalf of the revenue. On this, the assessed moved the Tribunal for stating a case to the High Court for its opinion and now the following questions have been referred to this court for its opinion :
' Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,00,000 transferred from the dividend equalisation fund to revenue account could be taken into consideration in computing the profits of the relevant year and taxed ?
(2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,55,726 shown in the revenue account by making a transfer entry from the general reserves could be taken into consideration in computing the profits of the relevant year and taxed '
4. Mr. K.K. Jain, the learned counsel for the assessed, urged that in order to make the two amounts brought by transfer entries into the revenue account assessable as income of the assessed, the said amounts must be received or deemed to be received in the accounting year or should have accrued or deemed to have accrued during the accounting year. Merely because the assessed made transfer entries does not make these amounts profits or income of the company as the character of the amount entered as revenue receipts has to be taken into account and showing these amounts as revenue receipts cannot change the character of the so-called receipts. Reliance in support of this argument was placed on the decision of the Supreme Court in Union Co-operative Insurance Society v. Commissioner of Income-tax, : 66ITR360(SC) .
5. In the Union Co-operative Insurance Society's case, the Supreme Court was concerned with certain disbursements made by the appellant for the calendar years 1956 and 1957. In drawing up its profit and loss account, instead of showing the actual disbursements in Form B, i.e., the profit and loss account, against the head 'other expenditure', it estimated the amounts it would be liable to pay, under a bonus scheme, and debited the same against the head ' transfers to any particular funds or accounts ' in Form C, i.e., the profit and loss appropriation account. The estimated sums so debited were Rs. 50,000 and Rs. 70,000, respectively, under the head ' policyholders bonus fund '. For the corresponding assessment years it, however, claimed deduction of only the sum of Rs. 26,650 and Rs. 44,920, which were paid towards bonus, in computing its taxable income. It was held that the payment or adjustment of bonus against renewal from time to time made under the scheme adopted by the appellant was intended to advance its business and constituted expenditure laidout wholly and exclusively for the business of the appellant and was a permissible deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922 ; and that merely because the appellant debited an estimated liability in its profit and loss appropriation account the character of the expenditure was not altered.
6. In our opinion, the above decision does not advance the case of the assessed at all. Under Section 10(7) of the Indian Income-tax Act, 1922, the profits and gains of any business of insurance and the tax payable thereon have to be computed in accordance with the rules contained in the Schedule to that Act and not in accordance with the provisions of Section 8, 9, 10, 12 or 18. Rule 6 has already been read earlier and is the one which is attracted in the present case. By virtue of Section 15 of the Insurance Act, 1938, every insurer is obliged to furnish to the Controller of Insurance, the audited accounts and statements referred to in Section 11 of that Act. The insurer is to prepare on the expiration of every calendar year, with regard to that year--
(a) accounts and statements in respect of insurance business transacted in accordance with the regulations contained in Part I of the First Schedule, a balance-sheet in the form set out in Part II of the Schedule to that Act ;
(b) in accordance with the regulations contained in Part I of the Second Schedule, a profit and loss account in the form set forth in Part II of that Schedule except where the insurer carried on business of one class only of the classes specified in Clauses (a), (b) and (c) of Sub-section (1) of Section 7 and no other business.
7. Section 21 of the Insurance Act authorises the Controller of Insurance, if it appears to him that any return furnished to him under the provisions of that Act is inaccurate or defective in any respect, to require the insurer to correct or supplement such return, or to call upon the insurer to submit for his examination any books of account, registers or other documents or to examine any officer of the insurer on oath in relation to the return, or to decline to accept any such return unless the inaccuracy has been corrected or the deficiency supplied. By Section 22 of the Insurance Act, the Controller is empowered to order investigation or revaluation to be made by an actuary appointed by the insurer for the purpose. It is on account of this wide powers conferred on the Controller of Insurance and the sanctity that is attached to the returns accepted by him that provision has been made in the Income-tax Act precluding any further investigation and the Income-tax Officer is required to accept, subject to any adjustment he may make so as to exclude from it any expenditure other than expenditure which may under the provisions of Section 10 of the Income-tax Act be allowed in computing the profits and gains of business, the accounts thathave been submitted to the Controller of Insurance. Since that statute so provides, once the annual statements of accounts have been submitted by the asseessee-insurance company, and the same have been accepted by the Controller of Insurance, the assessed cannot be heard to argue that the revenue receipts as shown in the statement of accounts were really not revenue receipts but had some other character.
8. In Life Insurance Corporation of India v. Commissioner of Income-tax, : 51ITR773(SC) the Supreme Court laid down the rule that the assessment of profits of an insurance business is completely governed by the rules in the Schedule to the Indian Income-tax Act, 1922, and the Income-tax Officer has no power to do anything not contained in it ; there is no general right to correct errors in the accounts of an insurance business. The court in that case was concerned with the annual average of the surplus disclosed by the actuarial valuation made in accordance with the Insurance Act. The assessed in that case had debited a sum of Rs. 18,75,000 to its consolidated revenue account and credited it to the investment reserve fund. By this transfer the assessed's surplus, on which the tax had to be assessed under Rule 2 of the Schedule, was reduced. The Income-tax Officer thought that this transfer made the balance in the investment reserve fund exceed the deficit disclosed on the book values of the securities in that fund by Rs. 30,420. The Income-tax Officer also checked the market value of the securities and he was of the view that the investment reserve fund was in excess by Rs. 1,89,185 of the amount which it should have had to its credit. He, thereforee, directed that the transfer from the revenue account to the investment reserve fund be reduced by Rs. 1,75,000. It was common case that the accounts submitted by the assessed had been accepted by the Controller of Insurance. In these circumstances, it was held that the revenue could not go behind the accepted accounts and assessment had to be made on the basis of the statement of accounts accepted by the Controller of Insurance.
9. In Pandyan Insurance Co. Ltd. v. Commissioner of Income-tax, : 55ITR716(SC) the above rule was reiterated. Sikri J. (as hon'ble the Chief Justice then was), speaking for the court, quoted with approval the observations of Hidayatullah J. (as his Lordship then was) in the case of Life Insurance Corporation of India, to the effect that the Income-tax Officer while acting under the rules given in the Schedule to the Income-tax Act ' follows the accounts and gives effect to the entries such as they are. The provision is mandatory and the Income-tax Officer has no discretion. . . . The entire subject of such disparity between fact and actual entries is comprehended in the proviso.'
10. Thus, the law seems to be settled that the character of the entries cannot be gone into and the accounts as accepted by the Controller of Insurance must form the basis of assessment in case of insurers who fall within the ambit of the rules enacted in the Schedule to the Indian Income-tax Act, 1922. Accordingly, both the questions referred for our opinion are answered in the affirmative, in favor of the revenue and against the assessed. The revenue will be entitled to its costs. Counsel fee Rs. 300.