HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Pandhyan Insurance Co. Ltd. v. Commissioner of Income Tax, Madras
Civil Appeal No. 816 of 1963
[1965] 1 SCR 367 ·
Indian Income Tax Act, 1922: section 10(7) and Schedule rules 3(b) and 6 · Insurance Act, 1938
Sources & disclosures includedDownload original judgment / order
3-judge bench · K. Subba Rao, J. · J. C. Shah, J. · S. M. Sikri, J.
Assessment years: 1954-55
01 · Facts of the case
The general insurer built a modern office property and wrote off Rs. 1,21,245 depreciation for calendar year 1953. It occupied one-fifth and let four-fifths, whose rent was exempt. The Income Tax Officer disallowed the let-out share; the first appellate authority disallowed the whole amount on the view that rule 3(b) required proof of actual fall in value.
02 · Discussion by the Hon’ble Court
Reading Schedule rules 3(b) and 6 against the regulated insurance-accounting framework, the Court held that “expenditure” meant disbursement and did not include depreciation. Rule 3(b) addressed amounts written off or reserved for depreciation of assets, including notional depreciation. The provision followed the accounts and did not authorise the officer to substitute his own revaluation merely because the new building had not physically declined.
03 · Judicial decision
The Court allowed the appeal, answered the reference in the affirmative and awarded costs to the insurer.
Source: Holding and operative order
04 · Outcome / in whose favour
In favour of the assessee. All the depreciation in issue, including the four-fifths connected with let space, was allowable under the special Schedule.
Source: Operative result
05 · AKHB REVIEW POINT
AKHB analysis: first identify whether a business is governed by a special computation code. Reconcile tax adjustments to the prescribed regulatory accounts and distinguish cash expenditure, statutory reserves and depreciation before importing ordinary-business rules.
Source & verification
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Statutory scope
The ruling turns on the 1922 Act Schedule for insurance businesses and the then Insurance Act accounting framework. Present insurance-tax rules must be applied independently.
Later treatment
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