UNION CO-OPERATIVE INSURANCE SOCIETY LTD.,BOMBAY vs COMMISSIONER OF INCOME-TAX, BOMBAY

The Supreme Court held that under Rule 6 of the Schedule to the Income-tax Act, the Income-tax Officer is not obliged to accept the profit and loss account figure for determining the profits of insurance business. The Court clarified that debiting estimated bonus payments to the profit appropriation account does not alter the character of the expenditure, which is allowable under Section 10(2)(xv) as it is incurred wholly and exclusively for business purposes. The Court ruled that the liability for bonus payment becomes actual once the policy is renewed, thus allowing the company to claim the deduction.