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Issues Involved:
1. Method of computation of taxable income for the Burma assessment of 1937-38 for Lakshmi Insurance Company, Limited. 2. Inclusion of interim bonus paid to policyholders in the computation of income. Issue-Wise Detailed Analysis: 1. Method of Computation of Taxable Income: The first issue concerns the method of computing the taxable income of Lakshmi Insurance Company, Limited, for the Burma assessment year 1937-38. The question is whether the income should be computed based on the proportion of the Burma premium to the world premium received in the previous year 1936-37 or during the quadrennial valuation period ended April 30, 1936. The judgment clarifies that the total income, profits, and gains of the whole business, both inside and outside of Burma, must first be determined. Rule 25 of the Burma Income-tax Rules is applied to ascertain the total income, profits, and gains of life assurance companies incorporated in British Burma, which is extended to non-resident life assurance companies by the second part of Rule 35. Rule 25 states that the income, profits, and gains of life assurance business shall be the average annual net profits disclosed by the last preceding valuation. The next step is to determine what fraction of this total income is taxable in Burma. According to the first sentence of Rule 35, the total income of the Burma branches of non-resident insurance companies may be deemed to be the proportion of the total income, profits, or gains corresponding to the proportion which their Burma premium income bears to their total premium income. This means that the premiums paid in the previous year are used to ascertain the proportion of the business in Burma relative to the entire undertaking. The judgment concludes that the income, profits, and gains of the assessees should have been computed for the Burma assessment 1937-38 on the proportion of the Burma premium to the world premium received in the previous year 1936-37. 2. Inclusion of Interim Bonus in Computation of Income: The second issue is whether the Income-tax Officer was right in adding back the interim bonus paid to policyholders in the computation of income based on the valuation surplus. The judgment references the decision of the Judicial Committee of the Privy Council in Bharat Insurance Co. v. Commissioner of Income-tax, Punjab, which established that amounts distributed by way of interim bonus are distributed out of, or in anticipation of, net profits in the year they are distributed. The Actuary's report for the quadrennium ending April 30, 1936, disclosed a surplus of Rs. 9,69,762, to which the interim bonuses paid during the period of four years amounting to Rs. 37,140 were added, making a total of Rs. 10,06,902. The judgment asserts that the total represents the income, profits, and gains for the period under review, and the interim bonuses should not be regarded as mere refunds of overpaid premiums but as part of the profits. The assessee must show that the interim bonuses constitute expenditure incurred for earning the profits of the company within the meaning of Section 10(2)(ix) of the Act, which they could not do. The judgment concludes that the Income-tax Officer was right in including the sums paid to policyholders by way of interim bonus in the total divisible surplus for the quadrennium ending April 30, 1936. Separate Judgments: Dunkley, J., agreed with the answers proposed by the Chief Justice and emphasized the non-ambiguity between the provisions of Rules 25 and 35 and the Act. He reiterated that Rule 25 prescribes the method for ascertaining the income, profits, and gains of the previous year of a life assurance company, and the second part of Rule 35 lays down that the total income, profits, and gains of a non-resident life assurance company shall be ascertained in the same manner. He also pointed out that the second question arose due to an error by the Income-tax Officer in making the assessment. Sharpe, J., dissented on the first issue, arguing that "premium income" in Rule 35 should mean "premium income in the period to which relate the total income, profits or gains" and not "premium income in the previous year." He reasoned that the rule-making authority could have explicitly stated "premium income in the previous year" if that was the intention. He also highlighted the practice in India, where the method for which the assessee contended was used, and suggested that the courts in Burma should follow this practice until the Privy Council decides otherwise. However, he agreed with the other members of the court on the second issue. Conclusion: The reference was answered accordingly, with the majority of the court agreeing on the method of computation of taxable income and the inclusion of interim bonuses in the computation of income. The assessee was ordered to pay the cost of the reference, with an advocate's fee of 20 gold mohurs.
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