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TMI Blog1941 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of the Legislature enacts that income tax shall be charged for any year .... tax shall be charged for that year . . . in respect of all income, profits and gains of the previous year. The Lakshmi Insurance Co., Limited, deals with Life Insurance and the first question relates to the method of computation of its taxable income for the Burma assessment of 1937-38. The head office is in Lahore in the Punjab, but the Company has a local agency in Rangoon. It is therefore necessary to find, first, what is the total income, profits and gains of the whole business both inside and outside of Burma; and secondly, what proportion of this total income falls to be taxed in respect of that part of the business which lies in Burma. Two questions arise for determination, the first dealing with the computation of total income, and the second not dealing with that at all but merely inquiring what fraction of the total income is represented by the Burma business. For the purpose of arriving at the total income of the whole business a Rule has been made, bearing in mind no doubt the decision in Scottish Union & National Insurance Co. v. Smiles [1889] 2 Tax Cas. 551. In that case it was pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... say the year ending April 30th, 1937, must be ascertained by applying Rule 25. But the premiums paid to the assessees both in respect of the total business and in respect of the Burma branch for the year ending April 30th, 1937, are directly ascertainable without recourse to any such rule. Inquiry into the amount of premiums paid in the single year ending April 30th, 1937, is not made for the purpose of ascertaining the total income of the whole business; it is made only for the purpose of ascertaining what proportion the business in Burma represents to the entire undertaking. There is nothing in Rule 25 which says that the premiums paid in the previous year shall be ignored, or that, for the purpose of calculating the proportion which part of the undertaking bears to the whole, resort shall be had to an arbitrary method based upon the average annual premiums over a valuation period. Rule 25 exists as a means of calculating total income which cannot be calculated fairly in any other way; but the figures for the premiums paid in the previous year do not need to be ascertained by any artificial method, since they are ascertainable directly. The second part of Rule 35 reads:- &qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down for the computation of the actual premiums paid : None is necessary: and regard is had to the sums paid by way of premium solely in order to arrive at the proportion which a part of the business bears to the whole. The answer to the first question must therefore be 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 its previous year 1936-37. Passing to the second question, the difficulty, if any, is concluded by the decision of the Judicial Committee of the Privy Council in Bharat Insurance Co. v. Commissioner of Income-tax, Punjab [1934] 2 I.T.R. 63 ; 7 I.T.C. 151. The amounts distributed by way of interim bonus were plainly distributed out of, or in anticipation of, net profits in the year in which they were so distributed. In the order of reference the Commissioner has repeated the Actuary's report for the quadrennium ending April 30, 1936, which is as follows:- The surplus disclosed by the valuation on the basis mentioned above is Rs.9,69,762 To this is to be added the amount of the interim bonuses paid during the period of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h June in each year, furnish to the Income-tax Officer a return of the total income of the company during the previous year. Under Section 59(2)(a)(ii), rules may be made to prescribe the manner in which, and the procedure by which, the income, profits and gains shall be arrived at in the case of an insurance company, and under Section 59(3)(a) where the income, profits and gains liable to tax cannot be definitely ascertained, the rules may prescribe methods by which an estimate of such income, profits and gains may be made. Rules 25 and 35 of the Income-tax Rules have been framed under these provisions of Section 59. What are the "income, profits and gains" referred to in Section 59? Clearly, they are the income, profits and gains which are liable to tax, that is, the income, profits and gains of the previous year. Hence it is plain that Rule 25 merely prescribes the method by which the income, profits and gains of the previous year of a Life Assurance Company shall be ascertained, and the second part of Rule 35 merely lays down that the total income, profits and gains of a non-resident Life Assurance Company shall be ascertained in the same manner. The result of the cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " which appear in two places at the end of the first sentence of Rule 35 of the Burma Income-tax Rules made under sub-sections (1), (2)(a)(ii) and (3) of Section 59 of the Income-tax Act by the Financial Commissioner, who, since the separation of Burma from India, has replaced the Central Board of Revenue as the rule-making authority under that Act. The question is: Does "premium income" in Rule 35 mean "premium income" in the "previous year" or "premium income" in the period to which relate "the total income, profits or gains" mentioned earlier in the same sentence of that Rule? Rules 25 to 32 (both inclusive) and Rule 35 of the Burma Income-tax Rules prescribe-to use the words of sub-section (2)(a)(i) of Section 59 of the Income-tax Act-the manner in which and the procedure by which, the income, profits and gains shall be arrived at in the case of insurance companies. Those rules deal with four classes of insurance companies, namely, (i) Life Assurance Companies incorporated in Burma, to which I will hereafter refer as "resident life companies"; (ii) insurance companies incorporated in Burma and doing insurance bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds upon which of these two reasons is the right one. Does "premium income" in Rule 35 mean that in the case of non-resident non-life companies the premium income to be taken into account is that of the previous year because "premium income" in Rule 35 means "premium income in the previous year" or because "premium income" in that Rule means "premium income in the period to which relate "the total income, profits or gains' mentioned earlier in the same sentence of that Rule?" In my view it is for the later reason, and the grounds on which I base that view I shall state in a moment. I have dealt with non-life companies both resident and nonresident and I will now turn to life companies. The income, profits and gains of such a company, if it is a resident one, shall, if its profits are periodically ascertained by actuarial valuation, be the average net profits disclosed by the last preceding valuation; that is what is provided by Rule 25, and about that also there is no dispute. That does not, however, result in a new resident life company which sets up business in Burma for the first time, being immune from income-tax until ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny will not be in default as regards the making of the return of the company's income and therefore the Income-tax Officer will not be required to make an assessment to the best of his judgment under sub-section (4) of Section 23, which it was suggested in the course of the argument before us was what the Income-tax Officer would be compelled to do if a life company could not make a return of its total income in its early years. This position of resident life companies may be thought to be an anomaly under the Income-tax Act, but if the results which I have just been indicating are correct in regard to resident life companies, as I think they are, I see no reason for suggesting that it must necessarily be wrong for similar result to follow in the case of a non-resident life company. I now come to the last of the four classes of insurance company which I mentioned at the beginning of this judgment, namely, non-resident life companies, and the assessee in the present case is such a company. Rule 35 provides that in their case also, as in the case of non-resident non-life companies, a certain arithmetical sum may be done in order to ascertain what part or portion of their income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the calculation prescribed by Rule 25 the Burma portion of the resultant figure-in the case of a nonresident life company-must necessarily be ascertained by using as the numerator and denominator, respectively, of the fraction which is to be used for the purpose of multiplying the average net annual profits disclosed by the last preceding valuation figures which are to be taken form the period covered by the valuation and not from outside that period. It appears to me wholly unreasonable to say that the Burma portion of the average annual net profits should be ascertained by using figures which relate to a period wholly outside the period in respect of which those average annual net profits are calculated. My principal reason for holding that "premium income" in the first part of Rule 35 does not mean "premium income in the previous year" is that, if the rule-making authority had intended that to be its meaning, it could easily have said so. In Rule 31 it did in fact use the phrase "premium income in the previous year". If that phrase had been used in Rule 35 it would undoubtedly have conveyed more clearly than do the words "premium income" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then, the position is this: if the intention had been that "premium income" should mean "premium income in the previous year," it could have been so stated; the latter phrase is used in another rule dealing with a similar subject-matter (namely, another class of assessee which also has a premium income) so that it could equally well have been used in rule 35 if that was intended to be the meaning of that rule; there is another possible meaning which can be given to the words: and that other meaning is a reasonable one. For these reasons I am of the opinion that "premium income" in Rule 35 does not mean "premium income in the previous year," as the Income- tax Officer has decided that it does, but has that meaning for which the assessee has contended before us. There is another aspect of this matter to which I desire to refer. It seems to me that a strong argument in favour of the present assessee might have been founded upon what is stated by the Commissioner of Income-tax in paragraph 4 of the case before us, and a further consideration of the matter since we reserved our judgment causes me to regret that such an argument was not developed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x authorities in India in the manner for which the assessee has contended before us. This would seem to me to be an argument in favour of saying that, if this question were to come before an Indian High Court, an additional ground for deciding in favour of the assessee could be made out in the way which I have just indicated. His Majesty's Privy Council is the commune forum of both India and Burma in these matters, sub-section (2) of Section 66A of their respective Income-tax Acts being the same in both countries. The decisions of the Judicial Committee tend to render uniform throughout the Empire the rules relating to the construction of Statutes, so that it would not be likely to give an interpretation in an appeal from this country which would be different from the interpretation it would give in respect of precisely similar words in an appeal from India. All these considerations might well, I think, lead to the conclusion that, unless and until the Burma Legislature uses words which clearly indicate that a method of computation is intended which is different from the one which has always been in actual use in India, of which until recently, Burma was a Province, the Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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