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TMI Blog1958 (6) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... surance business in conjunction with assurance business of any other class, the life assurance business of the company shall for the purposes of this Act be treated as a separate business from any other class of business carried on by the company. Rule 3 of the rules applicable to Case III of Schedule D has an important bearing on this case. [His Lordship read it and continued :] These provisions are those contained in the Income Tax Act, 1917. There are seven years assessments concerned in the case, from 1947-48 to 1951-52. The Act of 1918 applies to the five earlier years and the Act of 1952 applies to the last two years. There is no material difference between the Act of 1918 and the Act of 1952 for the present purpose, so I can confine my references to the provisions in the Act of 1918. The relevance of the fact that the company is a mutual insurance concern is this : it is well settled that a mutual insurance company is not liable to tax on its mutual insurance business on the ground that the surpluses arising arise from transactions by the members inter se which are not, for income tax purposes, regarded as a trade carried on by the company. Rule 3 of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existence of exempted income affect the application of rule 3 ? Does the mere fact that it it is included as an item in the computation of the profits charged under rule 3 amount to charging it with tax ? The real question to be determined is whether, on the true construction of the rule, there has been any error or mistake in the case of this society which holds in its life assurance fund investments exempt from income tax, and further what is the right decision in view of the fact that the revenue has, in effect, made the concession that the existence of the exempted income makes a difference to the calculations. In the course of his speech Viscount Simon said : Section 15 of the Finance Act, 1915, was, it would seem, aimed at meeting this difficulty - that was the difficulty of taxing insurance companies situate as the respondent company in this case was, that is to say, foreign insurance companies with branches in this country - and it did so by providing for a conventional figure, which should be deemed to be profits, comprised in Schedule D, on which a non-resident life insurance company, with a branch in the United Kingdom, would make a contribution to Unite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oughout their speeches made no reference at all to the circumstances that inasmuch as that was a mutual insurance company it was not taxable on the profit of its insurance business as distinct from the income of its investments. If the sum so arrived at could be regarded as a figure of investment income conventionally ascertained there would actually be an end of this case, for it will be seen on reference to the Australian double taxation relief agreement that income from investments is excluded from its scope, so, on that view, the position would simply be that the company would be liable to tax on the figure arrived at by the calculation laid down in rule 3 as income from investments and would pay tax accordingly; but, as their Lordships left the matter, there can be no doubt that the figure arrived at under rule 3 must be regarded for tax purposes as being a figure representing business profits and nothing else, in that state of the law the Order came into operation. The agreement was signed on behalf of the government of this country and of the Commonwealth of Australia on October 29, 1946. The necessary steps to bring it into operation and give it statutory effect we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to Case III of Schedule D, on the one hand, and the agreement, on the other hand, then the agreement, having duly been given statutory effect, must prevail over the rule. I should next refer to some of the provisions of the agreement. It is scheduled to the Double Taxation Relief (Taxes on Income) (Australia) Order, 1947, Statutory Rules and Orders 1947, No. 806. The body of the Order says, by paragraph 1, that it may be cited as the Double Taxation Relief (Taxes on Income) (Australia) Order, 1947, and, by paragraph : It is hereby declared- (a) that the arrangements specified in the agreement set out in the Schedule to this Order have been made with the Government of Australia with a view to affording relief from double taxation in relation to income tax, excess profit tax or the national defence contribution and taxes of a similar character imposed by the laws of Australia; and (b) that it is expedient that those arrangements should have effect. The agreement is set out in the Schedule. [His Lordship referred to the relevant parts of articles II and III and continued :] There is nothing else to which I need refer until article XV, which provides for the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a foreign insurance company a sum representing the profits arising to that company from its life insurance business in the United Kingdom. That is the object of it and to carry out that object it applies the proportion formula. On the other hand, the agreement (which, as I have mentioned, must be taken to override the Act where the two conflict) provides in paragraph (3) of article III its own method of estimating and arriving at the profits arising to an Australian company (including an insurance company) from its business (including life insurance business) in the United Kingdom. The system adopted in rule 3 is a rough and ready method of taking the proportion to which II have referred. The system prescribed by the agreement is of a far more elaborate and detailed character; but both, in the case here relevant of an Australian company carrying on life insurance business in this country, aim at the same object, which they seek to achieve by different means. It may be that the figures arrived at by applying one or other of the two formulae would be widely different, but, in my view, the agreement must prevail by the terms of the Act under which it was made. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be one carrying on the business of life insurance; accordingly, albeit that the company in this case is a mutual society, it is clearly an enterprise within the Order. Secondly, that enterprise must have a permanent establishment in the United Kingdom, and there is no doubt that this company had. The third condition is that what may be taxed are only profits from the activities or business of that enterprise, not including income in the form of dividends, interest, etc. The sole question really in this case is whether the profits on which the company were assessed to tax are profits within that Relief Order. I am afraid that for my part I am conscious of the inability fully to understand the decision of the House of Lords in Inland Revenue Commissioners v. Australian Mutual Provident Society but, be that as it may, it is a decision clearly binding upon this court. As I understand it, their Lordships were there construing rule 3 of Case III as providing that a certain proportion of the investment income of such a company as this should be deemed to be the business profits of that company and that, be it observed, whether the company in question was a proprietary compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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