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TMI Blog1944 (10) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... h the rules contained in the Schedule to this Act. Turning to the Schedule, it is to be observed that it is headed : Rules for the computation of the profits and gains of insurance business. Rule 1 provides: In the case of any person who carries on, or at any time in the preceding year carried on, life insurance business, the profits and gains of such person from that business shall be computed separately from his income, profits or gains from any other business. Rule 2 is: The profits and gains of life insurance business shall be taken to be either - (a) the gross external incomings of the preceding year from that business less the management expenses of that year, or (b) the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made for the last inter-valuation period ending before the year for which the assessment is to be made, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period and any expenditure other than expenditure which may under the provisions of Section 10 of this Act be allowed for in computing the profits and gains of a busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dically ascertained by actuarial valuation shall be computed in the manner laid down in these rules for the computation of the profits and gains of life insurance business carried on in British India. Lastly, rule 9 provides: These rules apply to the assessment of the profits of any business of insurance carried on by a mutual insurance association. 4. The rules as a whole provide for the computation of profits and gains of insurance business; and whilst rules 1 to 4 deal with one type of insurance business, namely life insurance business, rule 6 deals with non-life insurance business rule 5 providing a sort of general definition clause : so that down to the end of rule 6 what has been dealt with are the methods of computation of the profits and gains of insurance business, whether the business belongs to an individual, firm, company or association of persons. The difference between these rules is the type of business, and not the status of the owner who is to be assessed to tax. On the other hand, rules 7, 8 and 9 deal with status. Rule 7, whilst it deals with a special type of business, only applies to resident and non-resident companies, and has no application to ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference that it applied only to residents, and not, as the whole of rule 2, to persons whose status is either resident or non-resident. Further, old rule 25 postulates only one basis of assessment and not two as are provided by rule 2, the alternative resulting in the greater assessment being the one to be taken. Old rules 27 and 28 approximate to new rule 5; and old rule 35 approximates to new rule 8. But as old rule 25 did not touch non-residents, old rule 35 could alone be applicable to a non-resident company. There was not provided by the old rules any other possible method of assessment of the Indian business of a non-resident company with the necessary data for which a comparison of reliability could be made with the data necessary to produce the artificial method of computation provided by old rule 35 and now provided by new rule 8. Their Lordships of the Privy Council, therefore, had to consider what data it was which could be less reliable than that underlying the artificial method contained in old rule 35; and Lord Thankerton, delivering the judgment of the Board said:- There can be no doubt that the total income, profits or gains of the company would fall to be com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, and, therefore, cannot be made to fit as an ancillary to the computation of the profits and gains of a British Indian branch of a non-resident insurance company under rule 8. We are concerned with a life insurance company, and, therefore, although the scheme of the Schedule as a whole can be usefully tested by considering the application of rule 6, the question we have to determine is : whether the operation of rule 2 is what is meant as supplying the more reliable date than the artificial method of rule 8. Dealing with this question, the Appellate Tribunal says in its judgment: Rule 8, in our opinion, does not bear the interpretation put upon it by the Appellate Assistant Commissioner. If there is more reliable data available, a computation under rule 2 (a) or 2 (b) is not called for. 8. In my opinion, the statement should be extended as excluding the application of rule 2 as a whole. In my judgment, the reliable date referred to in rule 8 is the necessary to assess the profits and gains of a branch business by some recognized business method, which can be applied having regard to the manner in which the insurance company conducts its affairs. The Tribunal has found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her date has been put forward. It follows, in my judgment, that question (2) must be answered in the affirmative. The Commissioner must pay the costs. H.J. Kania, J. 12. I agree. The relevant provisions of the Income Tax Act, and the rules in the Schedule enacted for the computation of the profits and gains of the insurance business of an assessee, are summarized in the judgment of the learned Chief Justice. The real question for consideration is : whether in respect of a non-resident insurance company, having a branch in British India and carrying on life insurance business, the assessment must in the first insurance be attempted to be made under rule 2, or whether the assessee-company is entitled to contend that in view of rule 8 the assessment must be made on the computation made thereunder. The Commissioner relied on Section 10 (7) of the Indian Income Tax Act, which runs as follows:- Notwithstanding anything to the contrary contained in Section 8, 9, 10, 12 or 18, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Schedule to this Act. 13. From that it was argued that the Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e? The answer is that it is a non-resident company which has a British Indian branch. The object being to assess the profits and gains of the British Indian branches of such company, the assessment should be according to that rule. 14. It was strenuously urged on behalf of the Commissioner that the words life insurance business in rule 2 are not confined to such business carried on by resident companies only. To that extent the contention may be accepted. As that rule stands, it is capable of covering the case of a foreigner doing business individually in British India and having a branch in British India. It may cover the case also of a firm or association of person doing similar business. I do not pronounce any definite opinion on the point, as it is not necessary to do so. But the contention may be accepted in such cases, not on the ground that in the rule 2 do not exclude such person or association, but on the ground that in the Schedule there is no other specific rule which covers their case. As I have pointed out, rule 8 in terms open with the words, The profits and gains of the British Indian branches of an insurance company not resident in British India. Therefore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in with the contention urged on behalf of the Commissioner. The point is made more clear on reading rule 6. I have already pointed out that it deals with the business of an insurance company, which is not doing life insurance business. Rule 6 provides that the profits and gains of such companies shall be taken to be the balance of the profits disclosed by the annual accounts copies of which are required under the Insurance Act to be files with the Superintendent of Insurance. Now, under the Insurance Act, 1938, Section 16 prescribes the filing of such statements by foreign companies in respect of Indian business. The word India is defined in the General Clauses Act, and in the absence of any other definition, that definition would be applicable to the word used in the Insurance Act. The definition given in the General Clauses Act includes Indian State under the suzerainty of His Majesty and also British India governed under the Government of India Act. A foreign company, therefore, having a branch in a Native State and in British India will have to file a statement of account under Section 16. The balance of the profits disclosed by such statement, must be taken to be the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with the addition of the word British before the word Indian in two places in that rule. The structure of rule 25 is wholly changed. It must be remembered that before the amendment the world income of a resident was not liable to be taxed, unless the foreign income was brought in British India. The whole scheme of assessment was materially altered by the amendments made in 1939. The effect of incorporation of a limited company was materially altered by the definitions contained in Section 4A and Section 4B, which define the word resident and not ordinarily resident, respectively within the meaning of the Act. It should be noticed that while rule 25 has been substituted by a series of rules, rule 8 substantially is retained in the same terms. This strongly lends support to the contention that the original method of approach, which was contemplated by the old rules, has not been altered by the new Act. 17. Against this contention it was strenuously urged that Section 10 (7) is new, and alters the whole aspect of legislation. But if calculation of income could not be made under rule 2 (a) or 2 (b), what is to be don? I do not think the legislature contemplated that althou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. It has nowhere been suggested, at any time, by any one, that computation based on such valuation does not result in the proper determination of profits and gains of the life insurance company. Indeed rule 2 (b) incorporates that as one of the methods of calculation. Therefore, it seems to me that, because the legislature has not stated how the computation should be made, if more reliable data was available, rule 8 does not cease to be an independent rule capable of being worked out. In this connection, the last sentence of rule 8 should be particularly noted. That sentence limits the calculation of the total profits of the world business of such companies according to the rules in that Schedule only when their profits are periodically ascertained by actuarial valuation. Therefore, in cases where there is no such valuation, the rule does not prescribe the mode of computation, and yet to ascertain the income based on the proportion on Indian premium a method of computation must be resorted to. Therefore the contention urged on behalf of the Commissioner that the legislature had adopted the method of calculation, prescribed in rule 2, in such cases also, is not correct. 20. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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