2003 PLP 1321 (PTD)

Mr. Aqeel Ahmed Abbasi, learned counsel for the applicant/department has contended that a substantial question of law is involved which requires consideration by this Court and therefore, the reference application-may be admitted to regular hearing. After hearing Mr. Aqeel Ahmed Abbasi; learned counsel for the applicant and perusal of the Tribunal's order, rejecting the reference application under section 136(1) of the Income Tax Ordinance, 1979, we are persuaded to agree with the views held by the learned ITAT. The issue under consideration already stands decided by the Hon'ble Supreme Court and this Court repeatedly and therefore, no fresh consideration is required. The general principles pertaining to the assessment of profits and gains of the insurance business stand decided by the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Alpha Insurance Company (Supra). In this case Hon'ble Supreme Court considered the provisions contained in section 10(7) of the repealed Income Tax Act, 1922 which reads as follows:

"(7) Notwithstanding anything to the contrary contained in sections 8, 9, 10, 12 or 18, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the First Schedule to this Act." While considering the above' provisions the Hon'ble Supreme Court held that the expressed words of subsection (7) of section 10 of the Income Tax Act, have unmistakably the effect of applying by incorporation the rules contained in the First Schedule to the Income-tax Act. This has been done "notwithstanding anything to the contrary contained in sections 8, 9, 10, 12 or 18 of the Income Tax Act." The Hon'ble Supreme Court agreed with proposition that the result is that except for the provisions of the First Schedule no other provision of the Income Tax. Act is applicable. While agreeing with the proposition the Hon'ble Supreme Court of Pakistan referred with approval, the view held by Indian Supreme Court in the case of Life Insurance Corporation India v. Commissioner of Income Tax (1964) 51 ITR 773 as follows:-- "The assessment of the profits of an insurance business is completely governed by the rules in the Schedule and there is no power to do anything not contained in it. The Hon'ble Supreme Court ultimately concluded as follows:-- "The rules contained in the First Schedule of the Income Tax Act, completely, exhaustively, and to the exclusion of every other provision not expressly incorporated, govern computation of profits and gains of insurance business." The issue pertaining to the applicability of section 10(2-A) of the repealed Act, 1922 again came for consideration before this Court in the case of Commissioner of Income Tax v. Messrs Mercantile Fire and General Insurance Co. Ltd. His Lordship Mr. Justice Saleem Akhtar (as his lordship then was) while placing reliance on the ratio, in the case of Commissioner of Income Tax v. Alpha Insurance Co. (Supra) held that section 10 of the repealed Income Tax Act, has been applied for limited purposes only and the entire section 10 cannot be applied under the garb of limited application and consequently, section 10(2-A) of the repealed Income Tax Act, 1922 was held inapplicable. The question pertaining to jurisdiction of Assessing Officer, in respect of insurance company again came for consideration before this Court in the case of Commissioner of Income Tax v. Premier Insurance Company Ltd. 1989 PTD 1022, arid it was reiterated by following the dictum laid down by the Hon'ble Supreme Court in the case of Alpha Insurance Company (Supra) that," It is well-settled that the Income Tax Officer has no authority to make any addition to the annual accounts submitted to the Controller of Insurance." It was further held that, "it is thus; clear that the Income Tax Officer has to refer the rules in Schedule for assessing the profits of an Insurance company and in that regard he cannot exercise any power not contained in it." The general principles pertaining to the computation of profits and gains of an insurance company came for consideration before a Division Bench of this Court in the case of Adamjee Insurance Company v. Central Board of Revenue 1989 PTD 1090, with reference to the provisions contained in section 26(a) of the Income Tax Ordinance, 1979, which reads as follows:-- "(26) Notwithstanding anything contained in this Ordinance:-- (a) the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Fourth Schedule;" The respondent in this case is engaged in general insurance business and the assessee in the cited case was also engaged in general insurance business. In the said case, Insurance Company had claimed exemption from payment of Income-tax on the income arising from Khas Deposit Certificates by virtue of the exemption available in Second Schedule to the Income Tax Ordinance. Speaking for the Division Bench, his lordship Mr. Justice Saeeduzaman Siddiqui (as his lordship then was), observed that, "a careful analysis of section 26(a) of the Income Tax Ordinance, 1979 showed that the profits and gains of any business of insurance and the tax payable thereon is to lie computed in accordance with the rules contained in the Fourth Schedule to the Ordinance". After referring rule 5 of the Fourth schedule, dealing with the computation of profits and gains from the general insurance, it was held that,' "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 assessee in the annual accounts submitted by it before the Controller of Insurance under the provisions of Insurance Act of 1938, which means that no further enquiry or probe with regard to the above declared profits and gains of the assessee is permitted by the Income Tax Officer, except to the extent as provided in sub-rules (a) and (b) of Rule." A contention was raised that notwithstanding the provisions contained in section 26(a) of the Income Tax Ordinance, 1979 and Rule 5 contained in the Fourth Schedule, the scope of total income as defined in section 11 of the Income Ordinance and the provisions contained in section 9 of the Ordinance pertaining to the levy/charge on the total income of an assessee were applicable and consequently, income derived by the Insurance Company from Khas Deposit Certificates which enjoyed exemption under second Schedule could not be subjected to the charge of income tax. The contention was not accepted and it was held as follows:-- "It is not disputed before us that for assessment' of profits and gains and tax payable thereon in respect of insurance Companies, special provisions have been made in the Ordinance and same is given overriding effect over other provisions of the Ordinance." Ultimately it was held that the provisions contained in Second Schedule allowing exemption were not applicable to the computation of profits and gains of an Insurance Company. The question pertaining to the jurisdiction of the Income Tax Officer in respect of the computation of profits and gains derived by an Insurance Company, came for. consideration before the Hon'ble Supreme Court in the case of E.F.U. General Insurance Company Ltd. v. Federation of Pakistan PI:D 1997 SC .

700. A larger Bench of Hon'ble Supreme Court held as follows:

"(9) From section 26(a) of the Income Tax Ordinance, section 10(7) of the Act read with rule 5 of the Fourth Schedule, First Schedule of the Act and the relevant provisions of the Insurance Act, 1938, it would follow that the Income Tax Officers have very limited jurisdiction to challenge the accounts submitted by a company dealing in insurance business. The jurisdiction of the Income Tax Officer is limited to the clauses (a) and (b) of rule-5 of the Fourth Schedule to the Ordinance (and provided in rule 6 of the First Schedule to the Act). Subject to the above, the Income Tax Officer is not competent to challenge the accounts submitted by the assessee under the Insurance Act, 1938. The Income Tax, Officer cannot go behind such accounts. This question has been considered in sufficient detail by this Court in an earlier judgment in the case of Commissioner of Income Tax v. Phoenix Assurance Company Limited 1991 SCMR 2485. It was inter alia noted in the said judgment as follows:-- (I) Under section 11 of the Insurance Act, 1938, every Insurance Company has to prepare, at the expiration of each calendar year, as balance-sheet, a profit and loss account and a revenue account in the prescribed form to be authenticated: (II) Under section 15, such audited accounts and statements have to be furnished to the Controller of Insurance as return; (III) Section 18 of the Insurance Act requires every insurance company to furnish to the Controller of Insurance a certified copy of every report on the affairs of the concern which is submitted to the members or policy holders of the insurance; (IV) Section 21 enables the Controller of Insurance to call for such further information from the insurer in respect of the return furnished by it if he feels that the same is inaccurate or defective in any manner; (V) He can examine the books of accounts, registers and documents as well as any officer of the insurer; (VI) He is empowered 'to decline to accept any return unless the inaccuracy has been corrected or the deficiency has been supplied and in case the Controller of Insurance declined to accept any return, the insurer shall be deemed to have failed to comply with the provisions of section 15 of the Insurance Act relating to, the furnishing of return. After referring to these provisions of the Insurance Act, it was then observed by this Court that it was in this context that finality has been given to the accounts for purposes of rule 6 of the First Schedule to the Act (rule 5 of the Fourth Schedule to the Ordinance). It was held that the Income Tax Officer was not competent to upset the integrity of the accounts submitted by the assessee under the Insurance Act, 1938 by applying the ordinary rules for computation of profits and accounts and for assessment of tax in the light of the provisions of Income Tax law in respect of the income in regard to the head "business". It was also held that there was no substance in the contention that the combined effect of section 10(7) read with rule 6 of the First Schedule to the Act (section 26(a) read with rule 5 of the Fourth Schedule to the Ordinance) was that the Income Tax Officer was vested with the power to probe into the accounts submitted by the insurance company with a view to determining the real nature of any item of such accounts for purpose of excluding it in order to adjust the balance of profits." Dilating on the effect of non obstante clause contained in section 26(a) of the Income Tax Ordinance, 1979 the Hon'ble Supreme Court held as follows; "A non obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in such non obstante clause. In case there is any inconsistency between the non obstante clause and another provision, one of the objects of such a clause is to indicate that it is the non obstante clause which would prevail over the other clause (Bindra on Interpretation of Statutes, 7th Edition)." A perusal of the above judgments clearly shows that the principles pertaining to the computation of income/profits and gains of an Insurance Company are fully established to the effect that to the exclusion of any other provision contained in the Income Tax Ordinance, the profits and gains-of business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Fourth Schedule. The jurisdiction of the Assessing Officer in the matter of computation of the profits and gains and the tax payable thereon are limited to the provisions contained in the Fourth Schedule and the Assessing Officer can make adjustments to the extent provided in Rule 5 of the Fourth Schedule in respect of profits and gains of any business of insurance other than life insurance and the jurisdiction of the Assessing Officer is not extended to any other provision contained in the Ordinance until and unless included in the Fourth Schedule itself. Mr. Aqeel Ahmed, learned counsel for the department is not able to show that the provisions contained in section 12(9-A) have been included in the Fourth Schedule to the Income Tax Ordinance, thereby extending the jurisdiction of the Assessing Officer and thus, we are of the considered opinion that the learned ITAT has rightly deleted the addition to which no exception can be taken. Since the general principles pertaining to the assessment of Insurance Company already stand established, therefore, the learned Tribunal rightly rejected the reference application to which no exception can be taken. The Reference application submitted under section 136(2) of the Income Tax Ordinance, 1979, stands dismissed in limine. M.B.A./C-69/K Application dismissed.