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Issues Involved:
1. Applicability of Section 10(2)(vi) vs Rule 3(b) for depreciation allowance. 2. Inclusion of tax paid through assessments in "income tax paid by deduction at source." 3. Correctness of adding back a sum of Rs. 1,058 to the actuarial surplus. 4. Deduction of one-half of the policy-holders' share in the surplus. 5. Exclusion of the sum of Rs. 13,831 under the first proviso to Rule 3(a). 6. Deduction of Rs. 31,317 under Rule 3(b) for "other assets written off." 7. Deduction of Rs. 50,081 carried to the Investment Reserve Fund under Rule 3(b). Detailed Analysis: Issue 1: Applicability of Section 10(2)(vi) vs Rule 3(b) for depreciation allowance The court examined whether the depreciation on furniture, motor-cars, and books should be governed by Section 10(2)(vi) or Rule 3(b). The Income-tax Officer added back Rs. 7,938 and then deducted Rs. 7,090 as allowable depreciation. The court concluded that "expenditure" in Rule 2(b) does not include depreciation, and thus Section 10(2)(vi) does not apply. Rule 3(b) was also found not to cover such assets, as it is limited to securities and similar assets capable of both appreciation and depreciation. Therefore, depreciation on these assets must be allowed in full since no other provision in the Schedule disallows or reduces it. Issue 2: Inclusion of tax paid through assessments in "income tax paid by deduction at source" The court held that Rule 4 only substitutes the credit allowable under Section 18(5) with a different kind of credit and does not include tax paid directly on assessment. The expression "paid by deduction at source from interest on securities or otherwise" refers to tax deducted at source and the amount by which dividend income is increased under Section 16(2). It does not import tax paid directly on assessment. Issue 3: Correctness of adding back a sum of Rs. 1,058 to the actuarial surplus The court found that the sum of Rs. 1,058 was a belated appropriation of a portion of the 1932 surplus and not an expense of carrying on the business during the last valuation period. Therefore, it was rightly added back by the Income-tax Officer, as it was not included in the surplus disclosed by the 1937 valuation. Issue 4: Deduction of one-half of the policy-holders' share in the surplus The court held that the sum of Rs. 6,575 was not allocated to policy-holders but was carried forward unappropriated. Therefore, the assessee was not entitled to a deduction of one-half of the entire amount of Rs. 1,15,195 under Rule 3(a). The statutory abstract of the valuation report clearly showed that Rs. 6,575 was not reserved for policy-holders. Issue 5: Exclusion of the sum of Rs. 13,831 under the first proviso to Rule 3(a) The court concluded that the sum of Rs. 13,831, which was the surplus of the previous valuation period, was rightly excluded by the Income-tax Officer in the first computation under the new rules. The proviso to Rule 3(a) directs that no account shall be taken of any amounts paid out of or in respect of any surplus brought forward from a previous inter-valuation period. Issue 6: Deduction of Rs. 31,317 under Rule 3(b) for "other assets written off" The court found that organization expenses are not "assets" within the meaning of Rule 3(b) and cannot be considered as assets capable of realisation. Therefore, the assessee was not entitled to a deduction of Rs. 31,317 on the basis that it was an amount written off to meet a loss on the realisation of assets. Issue 7: Deduction of Rs. 50,081 carried to the Investment Reserve Fund under Rule 3(b) The court held that Rule 3(b) contemplates actual loss or depreciation that has occurred. Since there was no loss or depreciation in the present case, the sum of Rs. 50,081 taken to the Investment Reserve Fund was not deductible under Rule 3(b). Final Judgments: Reference No. 2 of 1946: - Question (i): By neither. - Question (ii): No. Reference No. 4 of 1947: - Question (i): Yes. - Question (ii): Does not arise. - Question (iii): Does not arise, the facts assumed not being correct. On the correct facts, the answer is No. - Question (iv): Yes, a part proportionate to the total amount utilised for the policy-holders. - Question (v): No. - Question (vi): No. The Commissioner was awarded three-fourths of the costs and the full costs of the application resulting in Reference No. 4 of 1947.
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