9911796707
TMI Blog1946 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... n called the General Family Pension Fund founded and formed for the purpose of carrying on any business that has for its objects the acquisition of gain within the meaning of Section 4 of the said Act (Indian Companies Act, 1882). (b) To grant terminable pensions or annuities dependent on human life or any other event or contingency in favour of any subscriber and/or any nominee or nominees (within the categories therin mentioned) of a subscriber to the funds of the company. (d) To grant invest and deal with the moneys of the company not immediately required. (g) To pay out of any of the company's funds all expenses of management of the company's business and objects. 4. The income and property of the company whensoever derived shall be applied solely towards the promotion of the business and objects of the company as set forth in the Memorandum of Association and no portion thereof shall be paid or transferred directly by way of dividend or bonus or otherwise by way of profit to the members of the company. Provided that nothing therein contained shall prevent ( i) payment of specified salaries and wages and (ii)............granting to any member a pension or annuity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Fund has considerable sums invested in Indian Government and similar securities and also some other investments, e.g., banking, Indian Treasuries and sterling securities brought into British India. The assessment for the year 1937-38 was made with regard to the Fund's financial year ending on 31st December, 1936, and the other assessment relates to the next financial year. Reference, in any detail, to the earlier year is alone necessary as the later year, except for some variations in amounts, is substantially the same. During 1936 the total investments amounted in value to ₹ 77 lakhs, approximately, of which the main portion was Indian Government and like securities; the investment income amounted to about ₹ 4,75,000 in respect of which, in most instances, income-tax was deducted at source; the other receipts, to use a neutral term, were from the members and amounted to a, sum slightly in excess of ₹ 1 lakh, being their annual subscriptions for pensions and annuties; the Fund paid about ₹ 4,12,000 in pensions and annuities and about ₹ 66,000 for management expenses. For many years, the profits of the Fund have been ascertained by means of qui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld seem that the whole of the Fund's receipts were considered to appertain to its business of a mutual insurance company and that rule 25 of the Income-tax Rules, which was then in force, was applicable to the Fund. This rule provides that: "In the case of Life Assurance Companies incorporated in British India whose profits are periodically ascertained by actuarial valuation, the income, profits and gains of the Life Assurance Business shall be the average annual net profits disclosed by the last preceding valuation, provided that any deductions made from the gross income in arriving at the actuarial valuation which are not admissible for the purpose of income-tax assessment, and any Indian income-tax deducted from or paid on income derived from investments before such income is received, shall be added to the net profits disclosed by the valuation". After the first assessment for 1937-38 had been made by application of rule 25, the Income-tax department subsequently formed the opinion that the rule did not apply to the company and it should be assessed upon its actual income during the year preceding the year of assessment, namely, in respect of its financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 25 is silent, it should be inferred that the rule was inapplicable to a mutual company. The provisions of a subsequent enactment are not a safe guide to ascertain the meaning and effect of a repealed earlier enactment dealing with the same subject matter. Although an earlier enactment may not expressly make its provisions applicable in a particular instance, it does not necessarily follow that the provisions do not apply because a later enactment dealing with the same subject matter, contains an express provision for applicability in that instance. To ascertain its effect, the earlier enactment must be construed by reference to its provisions and those of the statute in which it is contained and not by reference to the later enactment. The exemption from the operation of the Indian Life Assurance Companies Act, it is argued, prevents the application of rule 2ft. The rule does not restrict its application to those companies which are subject to that Act nor make it inapplicable to companies which are exempted from the operation of the Act. If limited application was intended, language to that effect could have been used, but there is none. The non-applicability of the Act does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention by the Commissioner is that the Fund must derive "profits" from its life assurance business as a condition precedent to the application of the provisions of the rule; if there are no "profits" from that business, the rule cannot be applied; the Fund is a mutual insurance company and the receipts from its members are mutual dealings, the excess of those receipts over expenditure is not "profits"; and since there are no profits, the condition precedent is not fulfilled and the rule is inapplicable. Styles' case (supra) is relied upon as having decided that the receipts, or the excess of receipts over expenditure, from members of a mutual life assurance company, are not income or profits. The question for decision in that case was whether income-tax was payable upon the surplus from those receipts, after discharging the expenses for which they were obtained from members. This is made clear by the opening words of the argument for the insurance company at page 387 of the report. In Commissioners of Inland Revenue v. Cornish Mutual Assurance Co., Ltd. [1926] 12 Tax Cas 841, Pollock, M.R., at p. 852 and Warrington, L.J., at page 857, pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per se and alone, but only to the question of trading incidental to the question which they had to decide, namely, whether the surplus was subject to income-tax". With respect to Lord Watson's observations Viscount Cave said, at page 867 of the report in the House of Lords in Cornish's case, that "I cannot help thinking that the very learned Lord directed his observations only to the real question before the House, namely, whether there were taxable profits within the Income Tax Acts". Two earlier decisons, by the Court of Appeal, were not cited to, and were not considered by, the House of Lords in Styles' case but they were quoted with approval by Pollock, M.R., in the Court of Appeal and by Lord Cave in the House of Lords, in Cornish's case. Arthur Average Association for British and Colonial Ships [1875] 10 Ch. App. 542 and Padstow Total Loss and Collision Assurance Association [1880] 20 Ch D. 137 concerned mutual marine assurance associations, in which the opinions were expressed that each such association carried on the business of marine insurance and carried it on for the purpose of gain for itself or for its individual members. In Cornish' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to include the words "profits" and "gains" as being included in the effect of the above observation. In the present reference the Fund is a mutual company which, it is admitted, carries on the business of life insurance, the transactions of insurance are effected between the Fund and its members from whom the Fund obtains receipts with respect to those business transactions. The Concise Oxford Dictionary defines income as "periodical receipts from one's business". In the judgment of the Board in Commissioner of Income-tax v. Shaw Wallace and Company [1932] 59 I.A. 206, it is stated at page212 that "income,' their Lordships think, in the Act (the Indian Income-tax Act, 1922) con notes a periodical monetary return coming in with some sort of regularity, or expected regularity, from definite sources". The annual payments by the members to the Fund are covered by the above observation. Whilst, as its Memorandum of Association provides, the income of the Fund shall be applied solely towards the promotion and objects of the company and no portion shall be paid direct to its members, I am unable to see that there cannot be profits upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on provides, this is "subject to the provisions of the Act". Sub section (1) of Section 59 empowers the Central Board of revenue to make rules for the purpose of the ascertainment and determination of any class of income; by sub-section (5) the rules made under the section shall have effect as if enacted in the Act; and by sub-section (2) the rules may prescribe the manner in which and the procedure by which the income, profits and gains shall be arrived at in the case of, by clause (ii), insurance companies. The Income-tax Rules, including rule 25 which relates to an Indian life assurance company, and rule 33, which attracts the provisions in rule 25 to a non-resident life assurance company having business in India, were made in pursuance of Section 59; rule 25 is in effect, a provision of the Act and is mandatory in its terms; it provides that the income, profits and gains of Indian life assurance companies, whose profits are ascertained by periodical actuarial valuation, shall be the average annual net profits disclosed by the last preceding actuarial valuation. Since Section 3 is subject to the provisions in the Act, of which rule 25 is one, the provisions in the rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mutual company, and to be in a position to fulfill its obligations. Reports of the decisions in the Liverpool and London and Globe Insurance Company v. Bennett are found, before Hamilton, J., in [1911] 2 K.B. 577, before the Court of Appeal in [1912] 2 K.B. 41, and in the House of Lords in [1913] A.C. 610. That was a case of an English Fire and Life Assurance Company which carried on a fire insurance business in the United States and in the Dominion of Canada, it made investments (called class A) in those countries for the purpose of complying with their laws; and also other investments (called class B) to comply with the laws of New York and other laws of the Dominion; it also made certain voluntary investments (called class C), not under legal obligation, but for the purpose of deriving income from funds consisting of accumulated profits acquired in past years but not distributed among the shareholders and the investments were made in order to have a fund easily realisable, if required. Generally it had not been necessary for the company to realise or expend any part of those moneys for the immediate purpose of carrying on its business as insurers. In each of the three Courts it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions by the noble Lords, which I have quoted, it emerges that the investments of the fund form part of its insurance business. The profits from those investments are part of the business profits and those profits, as well as other profits, are ascertained by an actuarial valuation. This was done at the quinquennial valuation as on 31st December, 1934. Incidentally this is an additional circumstance which fulfills the requirements of rule 25 for its application to the fund. National Mutual Life Association of Australasia v. Commissioner of Income-tax, Bombay Presidency and Aden [1936] 63 LA. 99,- 4 ITR 44 concerned a non-resident mutual life assurance company which effected 98 per cent, of its total business with members. It was accepted before the Board, in that case, as it was accepted in this reference, that the principles in Styles' case applied; the head office of the company was in Melbourne and it had two branches in India; rule 35 of the Income-tax Rules makes the provisions of rule 25 applicable to a non-resident life assurance company, in the absence of more reliable data, to ascertain its income, profits and gains; the application of the rule is also subject, as in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey-General [1901] AC 26 and Edinburgh Life Assurance Co. v. Lord Advocate [1910] AC 143. I will refer later to those authorities. Since the profits of the Fund's life assurance business are ascertained by means of a periodical actuarial valuation, rule 25 applies; by this means, the income, profits and gains for purposes of assessment in any year are the average annual net profits disclosed by the last preceding valuation, after making any addition, which the rule specifics, and to which reference is not necessary. All assets and liabilities, including management expenses, are taken into account when computing the valuation and before arriving at the estimated surplus for the period covered by the valuation. In those circumstances the question of an allocation of a special fund or of a particular source of income, out of which the management expenses should be paid, or should be deemed to have been paid, does not arise. Allocation or appropriation with respect to payment of management expenses could only arise if rule 25 were inapplicable and if the income-tax assessment of the Fund's life assurance business were properly made pursuant to other provisions of the Act. Alth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are readily available for that purpose and should be so utilised. If they are not so spent, they are not used for that purpose. Further, the Fund can, under the Memorandum of Association, invest moneys not immediately required. This must mean that they are to remain invested until needed. The capital of the investments cannot be realised to meet liabilities, e.g., management expenses, when other moneys are available, e g., members' subscriptions. Since the subscriptions are, I would say, ear-marked for those liabilities to the extent which would be covered by them, if the interest from investments is used to pay for the management expenses and the subscriptions are not used, that is not dealing with the subscriptions in a correct manner. If other moneys are used to pay for the object for which the subscriptions are received, the whole of those subscriptions is not the surplus after utilisation of the fund for its special purpose. In the London County Council and Edinburgh cases, in the House of Lords, there arose the meaning and effect of an English enactment, Section 24(3) of the Customs and Inland Revenue Act, 1888, which provide that "upon payment of any interest of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect thereof. In the above two cases in the House of Lords, payments were made, of interest upon loans by the London County Council and, of annuities by the Edinburgh Insurance Company, out of income from which tax was deducted before it was received by the payer, or debtors. Each debtor had two sources of receipts, charged and uncharged, and sought to allocate the payments to charged receipts and to retain the amount of tax deducted. It was emphasised, by Lord Macnaghten at page 40 and by Lord Davey at page 42 in the London Country Council's case (supra) and by Lord Atkinson at page 158 in the Edinburgh's case (supra), that tax is not payable twice on the same income; at pages 42 and 43 in the London County Council case, Lord Davey pointed out that the Crown receiving tax on the whole income in the first instance from the owner had no further claim against the mortgagee or annuitant on whose account the owner is deemed to have paid as well as his own and, at page 45, Lord Davey held that the Council was entitled to retain the deductions in respect of income-tax with respect to payments made out of charged income and to account to the Crown only for income-tax on so much of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depended upon whether a man made a payment out of his professional income or out of his invested income, I should have said that that was solved by considering the actual fact whether the money did in fact come out of his professional income or..................out of his invested income. If, on the other hand, the question was what were the expenses of his profession, then the fact that he had charged those expenses to invested income or to some other item of income than his professional income would be irrelevant because he could not prevent the fact of it being an expense of his professional income from being determined properly merely by his making a different account in his book". In this case, again, there was not a fund, apart from the mixed fund, out of which the debenture interest should have been paid and there was no attempt to avoid using a fund for its special purpose. If the General Family Pension Fund allocated the management expenses to interest upon securities, instead of to the members' subscriptions, they would not be using the subscriptions upon the purpose for which they are received and out of which the expenses should be paid; but they would be uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income, profits and gains of insurance companies, and that this schedule has been made directly applicable to mutual concerns. Whether or not certain points now raised in this case may possibly arise also directly or indirectly in connection with the application in future cases of the schedule, we are not now adjudicating on the position as it stands today under the schedule but as it stood before the schedule. The nature of the decision to be arrived at in the present case in any event is one that will make a difference to the extent of large sums to the assessee company. In spite of the directions (at page 1 of the Paper Book) for one reference (meaning presumably the papers for one case relating to one assessment year) to be printed, this has not been done in any clear simple way. The result is that it is not as easy as it should be to trace the details of the various orders made relating to any one of the years of assessment with which the four appeals before us are concerned. The history of the various assessments actually made is found to be this. As regards the earlier years of assessment between 1928-29 and 1933-34 (inclusive):-These were originally made on the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of reasoning involved in this decision, it will be seen, must I think be this: Take the actual expenditure (₹ 19 lacs odd): Pay this first out of the non mutual actual receipts (₹ 16 lacs odd) as far as these will go thus absorbing them entirely; then pay the remaining balance of the total of expenditure (say ₹ 3 lacs approximately) out of the mutual receipts (₹ 7 lacs odd); you thus arrive at a resultant balance or surplus said to consist of the unused portion of the mutual receipts; then, because these mutual receipts are not taxable you conclude that no tax is payable by the company on these assessment years in any respect. (I shall come back to this). The assessee company was then assessed in accordance with the foregoing decision of the Appellate Assistant Commissioner for the assessment years 1928-29 to 1934-35. It was also assessed on, the same lines for the assessment year 1935-36. Its income for each one of these two assessment years was computed as nil. Moreover refunds were directed to be allowed to it on all income-tax already paid by it by deduction at source in respect of interest received on investments. In pursuance of that decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting year from 1st January to 31st December, 1937. At the same time as making the new assessment for the year of assessment 1938-39, the Income-tax Officer also served on the assessee a notice under Section 34 in respect of the year of assessment 1937-38 for the purpose of reopening that assessment. And he made a revised assessment for the year 1937-38 on the same lines as his new assessment for the year 1938-39. The revised assessment for 1937-38 as then made by him is set out at page 9 of the Paper Book. Both these assessments were made on 16th January, 1941 (the date 1943 on page 10 being a misprint). From these two assessments for 1938-39 and 1937-38 the assessee appealed to the Appellate Assistant Commissioner. That appeal was disposed of by an order of the Appellate Commissioner on 19th/23rd December, 1941. The effect of his order then made was:- 1.That these two assessments of the Income-tax Officer should be set aside. 2.Revised assessments for each of these two years should be made applying rule 25. 3.But at the same time, as stated in the statement of case, he also directed that "interest on securities" should be separately assessed under Section 8 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was right in directing assessment under rule 25. 3.That the assessee was entitled to the benefit of favour able appropriation as laid down in the Edinburgh's case ( supra); that in pursuance of that principle it should be held that the company had met its expenses first from its non-mutual receipts, absorbing all these, so that any surplus of receipts must be derived from mutual dealings; and that the result should be held to be, as contended by the assessee, that there was finally no taxable income for assessment. (The order dated 28th July, 1942, is printed at page 25 of the Paper Book). It was ordered that the Appellate Assistant Commissioner's direction that the assessment should be made under rule 25 was not correct. To this extent his order was modified. But except in this respect (which was in fact on a point not taken by the assessee, who wished to have the assessment made under rule 25) the directions given by the Appellate Assistant Commissioner were upheld and the appeal of the assessee was dismissed. The ever-changing seesaw effect of these various decisions in these long drawn-out proceedings is noteworthy. The first assessment for 1938-39 was originally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25:- For an insurance business the actual receipts and actual expenditure in any given year of account give little real indication of the financial state of progress of the business or whether it is heading in the long run towards a profit or a loss. When it is considered that an assured may pay a single lump sum entitling him to receive an annuity payment every year for the rest of his life, it is no proper indication of the solvency or profit of the business to point in one given year to the single large receipt for premium counterbalanced during that accounting year by no outgoing payment at all (which will have to be paid if it all many years later), or to point in another given year to the single small payment for an annuity for that year counterbalanced during that accounting year by no incoming receipts at all (since the premium will have been received many years before). So with all other dealings in connection with life insurance other than actual annuities. Such reasons, no doubt, prompted the observations of the Board by Lord Thankerton in National Mutual Life Association of Australasia Ltd. v. Commissioner of Income-tax, Bombay [1936] 63 IA 99, at p. 112; 4 ITR 44 , a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before. For the purposes of the actuarial valuation report the prospective liabilities and prospective assets of the company are taken at a valuation on a capitalised or discounted basis to represent their valuation at the date of the report, after allowing for the prospects of the length of life of the assured on actuarial life tables. Assuming the company is in a solvent state, a sin plus will be shown of the valuation of assets on that date over the valuation of liabilities. A difference can then be struck between the figure for surplus on the current actuarial valuation report and the figure for surplus on the last preceding actuarial valuation report made five years before. Such difference is (subject to minor adjustments) taken for the purposes of income-tax as the total income, profits and gains of the company over the five year period covered by the current actuarial valuation report. And one fifth of this is then taken as the average annual income, profits and gains for that period. While one particular actuarial valuation report may show as a "surplus", a figure representing a difference as on that date between the valuation of potential assets over the valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the elimination of that debit figure. By that amount (irrespective of other elements) the profits of the insurance company (if a non-mutual company) will have been increased by the difference between that debit figure as it stood in 1929 and as it now stands at zero, in 1934. Yet there will have been no actual receipts during the 5 year period covered by the report which can be said to be responsible for this profit. In the actuarial valuation report in addition to taking account of the valuation of prospective assets and liabilities arising from premiums expected to be received and payments expected to be made on policies, account is also taken on the valuation of the assets of the company arising from its investments as the position is assessed on the date of the report. In addition to receipts or prospective receipts for interest, capital appreciation or depreciation may thus come to be reflected in the report, such as would not be included in an assessment of interest on investments if made under Section 8. If it is correct to hold, as I do hereafter, that for an insurance company such as the assessee company it is an integral part of its business to manage its investments s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted would be actual receipts of interest actually received during the accounting year between 1st January and 31st December, 1936. But for application of rule 25, the position would be different. In 1937 the last quinquennial actuarial valuation report to have been made would be the one for the five years ending on 31st December, 1934. So the computation under rule 25 of income, profits and gains would be based on a difference in the surplus (of potential assets over potential liabilities) at 31st December, 1934, from the surplus at 31st December, 1929; for which the company's actual transactions over these 5 years and of nothing later than 31st December, 1934, would form the basis of calculation. It is clear that none of the actual receipts actually received and none of the actual expenditure actually spent during the accounting year 1st January, 1935, to 31st December, 1936, could find any place or reflection in the actuarial report for the quinquennium ending 31st December, 1934. Moreover for assessments made under rule 25 the same notional figure for average annual income, profits and gains would be worked on for a consecutive period of five assessment years until the next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so similarly intended, I think, when a computation is to be made under the rule to bo brought in to the same calculation based on the actuarial valuation report as being "income, profits and gains" of the company's "business". I need not here consider whether there might be any receipt other than interest on investment which as outside the business might be open to separate assessment under Section 12. There are no such other receipts concerned so far as I am aware in the present case Apart from considerations arising on the wording of the rule, it would, I think, also be highly impracticable in any practical working of the rule when rule 25 is applied, and a computation is made under it based on the actuarial valuation report, to make any separate assessment under Section 12 in respect of interest on investments. As already observed the investments are taken into account for the valuation in the actuarial valuation report. Not only would there be the ordinary intricacies of calculation in arriving at a figure for their exclusion from the difference in the two surpluses taken at the two dates at five years intervals, but there would be the added difficulty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. In respect of its mutual receipts, by the rule in Styles' case being a mutual concern it could not have profits. And in respect of its interest on investments these were not included in the term "business" mentioned in rule 25; since the management of its investments did not form an integral part of the company's "business". In any event, having no profits, the assessee company was therefore outside the rule, (iii) That, conceding, as he did, that the principle of Styles' case was applicable in India, any application of rule 25 did not make sense; and the rule became impossible of practical application and could not be worked out. Regarding the first of these objections: In my view rule 25 is not restricted to insurance companies governed by the Act of 1912 for reasons already stated by my learned brother. Had this been intended it would have been easy to say so. In my view the rule applies to all insurance companies. The assessee company carries on in my view insurance business and it is a company incorporated under the Indian Companies Act, therefore it is an insurance company within the meaning of rule 25. I pass now to the second of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in which you took account of all matters (including in this case mutual dealings) which you would take into account if the company were a non-mutual company. In my view the computation to be made under the rule can only mean a computation of the income profits and gains liable to tax. I agree with Dr. Gupta's argument therefore this far that the rule then will only be applicable to a company which has or may have profits in this sense of "profits chargeable to income-tax". Secondly, on the authority of Styles' case which, it was conceded by counsel on both sides, is applicable in India, any surplus resulting from mutual dealings in the insurance business of a mutual concern such as the assessee company does not constitute a profit chargeable to income-tax. Thirdly, it may now be taken, I think, as settled, in view of the decision in the case of Liverpool and London and Globe Insurance Company v. Bennett [1913] A.C. 610 (in the House of Lords) (reported also in [1911] 2 K.B. 577, and [1912] 2 K.B. 41, as to the hearing in the Court of first instance and on appeal) that the management of its investments is an integral part of the business of an insurance compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of rule 25. Holding as I do that for this insurance company the management of its investments is an integral part of its business, and in view of the obligatory wording of rule 25 (by use of the word "shall") and holding as I do that rule 25 is applicable to this case, there is no room in my opinion for any assessment under Section 8 or Section 12 in this case. The position then is, since the management of its investments forms an integral part of its business, this assessee company has a combined business which includes its mutual insurance business and the management of its investments. On this position rule 25 has to be applied in a manner to achieve computation of profits from that side of the combined business which deals with and produces the profits from investments; but not from that side of the combined business which is concerned with the mutual dealings in insurance. The real difficulty to my mind arises as to the method of application of rule 25. This is the substance of the third of the objections as I have stated them above By what method of calculation are the profits and gains of the business to be arrived at so as to exclude from the computation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeking to show "as the most favourable method of payment for himself" payment out of the taxed income or payment out of the untaxed income. In the Edinburgh case and other cases the assessee was contending that moneys had been paid out of funds already charged or subject to charge. In the Sterling Trust case it was the other way about. That this made no difference is clear from the passage in the judgment in the Sterling Trust case of Atkin, L.J., at page 887 when he said: "So far that seems to me to establish what was undoubtedly in all those cases a material fact, namely, that the annuities or the interest whatever it might be, was paid, and paid out of, in that case, the taxed income; and I think the same principle leads one to the conclusion that in this case whore the advantage is the other way to the taxpayer, that the payment of the debenture interest was paid out of the untaxed income". In the London County Council case the point arose in relation to Section 24(3) of the Customs and Inland Revenue Act, 1888, because under that section in paying the dividends on their consolidated stock out of the Consolidated Loans Fund the London County Council were bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rule 25 entails an assessment on a basis of valuation, which is not dependent on or directly concerned with actual payment, and therefore no question of attribution of payments arises at all. It stands to reason that any principle of attribution entails a notion of attribution of some payment to any particular fund, as having been made from, or as having been deemed to have been made from, that particular fund. And if there are no actual payments to be considered, there can be no process of attribution. I should, to explain myself better, enlarge slightly on these two reasons. In the first place the question arising in the present case is entirely different to my mind from that which arose in those cases to which the principle of favourable attribution was held to be applicable. There the question was whether or not moneys were being paid by the company to persons entitled to receive payment from the company from a fund of a particular class or from a fund of another class; the question was whether the moneys had in fact been so paid, or whether they should have been deemed to have been so paid. There was no question arising about calculating an amount of profits. Here the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the profit has been ascertained. This, it seems to me, was what Lord Atkin was referring to when he said (in the Sterling Trust Ltd. case (supra)) when giving an illustration:- "If, on the other hand, the question was what were the expenses of his profession, then the fact that he had charged those expenses to invested income or to some other item of income than his professional income would be irrelevant because he could not prevent the fact of it being an expense of his professional income from being determined properly merely by his making a different account in his book, and I do not think the cases go to any different decision than that". What is I think a related aspect of the matter was also referred to by Lord Halsbury in the Gresham Life Assurance Society v. Styles [1892] A.C 309, at p. 315, when he observed :- "When once an individual or a company has in that proper sense as certained what are the profits of his business or his trade, the destination of those profits...........is perfectly immaterial". The present computation to arrive at a figure for profits (though working here under rule 25 on the basis of the actuarial valuation) is similar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od. The surplus itself is only notional figure. Since there is no question of actual expenditure or actual receipts there can be no question of attributing payment in fact to any particular class of receipts or to any particular fund. The result is, I hold therefore, that the principle of favourable attribution as exemplified in the Edinburgh erne for example, is not applicable to the present case. This brings me back again to the third objection rasied by Dr. Gupta concerning the actual application of rule 25 as a practical proposition in the present case. Is there any difficulty making it so impracticable in application as was suggested by Dr. Gupta as to make it proper for us to hold in spite of its terms, that on a general construction of the Act it is impossible for the legislature to have intended that rule 25 should be applied in such a case as the present? There is another aspect of this matter in so far as practicability of application is concerned. Some comment was made in argument, and I think justifiably, in regard to certain of the rulings given in this case by one or other of the Income-tax authorities, that whether or not the ruling was legally or theoretically wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. It would be the similar thing in the result as taxing the company on its interest on its investments under Section 8 and not in relation to its business under Section 10. To hold, on the other hand, that the whole of the expenses of the company's business may be deducted in full against its interest on investment would be tantamount to holding that the company had no expenses in its insurance side of its business. As at present advised, though this is not part of the question directly referred to us, once it is decided that it is correct in the case of this insurance company to treat the management of its investments as part of its business, and to treat the carrying on of its insurance business even though this arises solely out of mutual receipts and mutual payments also as part of its business, it must follow, in my view, that the total expenses of its business must be shared between the non-taxable part of its business, (that is, its insurance work) and the taxable part of its business, (that is, the management of its investments). I have taken careful note of the somewhat caustic comments of Lord Davey in London Country Council case (supra), when dealing with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany had been a non-mutual insurance company; and then taking some proportionate part of that figure so as to arrive at a proper figure representing that part of such total annual figure as would represent the portion of taxable profit in the case of this inuiual insurance company It will be for the Income-tax Officer to divide the figures of the relation in which the proportion should be calculated. Such an assessment though based on valuations on the actuarial reports would have a similar effect as alloting (if an assessment had been carried out under Section 10) a portion of the total expenses of the carrying on of the whole combined business of the company to the earning of the taxable profit. There should be no practical difficulty that I can see in this. In regard to the manner in which the questions referred to us should be answered, I agree with my learned brother that the answers should be:- (1)Does not arise. (2)In the affirmative. (3)In the negative. I would like, however, for myself to add these qualifying or explanatory remarks. Regarding question No. 2 I understand this question to relate to the year of assessment 1937-38. I wish to reiterate that if rule 25 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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