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TMI Blog1977 (11) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian I.T. Act, 1922, half of the amount reserved for policyholders was allowed as a deduction under r. 3(a). Half of the amount was allowed because at the material time r. 3(a) provided that in computing the surplus for the purpose of r. 2 half of the amount paid to or reserved for or expended on behalf of policyholders shall be allowed as a deduction. In respect of the assessment year in question, that is, 1951-52, the ITO found that the amount originally reserved for the policyholders in the earlier actuarial valuation had ceased to be so reserved in the second actuarial valuation. Therefore, acting under the second proviso to r. 3 the ITO, added back onehalf of the amount reserved for the policyholders and proceeded to assess the assessee to tax. This action of the ITO was challenged in appeal by the assessee and the AAC confirmed the order of the ITO. The matter was, therefore, carried in appeal further to the Tribunal. It was contended before the Tribunal that the earlier inter-valuation period being a period of five years for the purposes of the average surplus contemplated by r. 2(b), so far as the earlier assessment year was concerned, what had entered into the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not concerned in this case with the first proviso to cl. (a). We must, however, notice the fact that the words " four-fifths " were substituted for the words " one-half " by Act No. 25 of 1953 and by sub-s. (2) of s. 30 of the Amending Act the amendments in r. 3 were provided as being deemed to be operative in relation to any assessment subsequent to the assessment for the year ending on 31st March, 1951, whether such assessment has or has not been made before the commencement of the Amending Act and where any such assessment has been made before such commencement, it was provided that it shall be lawful for the ITO to revise it wherever necessary to give effect to such amendment. The other material amendment made was in the second proviso and in place of the words " one-half of such amount " the words and brackets " that proportion of such amount (one-half or four-fifths , as the case may be)" were substituted. Mr. Joshi appearing on behalf of the revenue contends that the order of the Tribunal runs counter to the express words in the proviso to r. 3 and inasmuch as in respect of the earlier year of assessment, half of the amount referred to in cl. (a) of r. 3 was allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. Joshi and have allowed Mr. Colah to produce the said document which will be treated as annex. " D " and a part of the statement of the case. Now, it is not possible to dispute as a fact the contention of Mr. Colah that if an analysis is made of the annual average of the surplus, which was taken into account for the assessment year 1950-51, in so far as the amount reserved on behalf of the policyholders was concerned, only one-fifth of one-half of the amount has entered that part of the surplus. That this would be the position so far as mathematical calculation is concerned would be clear from the order which is now produced by Mr. Colah. The assessment order, now annex. " D ", shows that in the relevent assessment year Rs. 6,36,094 were shown under the head " Dividends to policyholders " and Rs. 9,01,995 were found to be in the nature of profits reserved on behalf of the policyholders. The total of these two figures came to Rs. 15,38,089. The ITO then made allowance which was stated to be allowance under s. 2(3)(a) and the figure shown was Rs. 15,38,089/2. The amount thus came to Rs. 7,69,044. Making allowance for the inadmissible expenses and other adjustments the surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending Act No. 25 of 1953, the words " that proportion of such amount (one-half or four-fifths, as the case may be) " have been substituted for the words " one-half of such amount ". If we read the unamended rule, there is no difficulty in holding that it only provided that what was to be added was one-half of the amount which was originally deducted. It is obvious that it became necessary to introduce the words " that proportion of such amount " as a result of the amendment because, by the amendment, the amount to be deducted under r. 3(a) had been changed to " four-fifths ". A consequential amendment was, therefore, required to be made in the latter part of the second proviso. At the same time, there were likely to be cases where the assessee having got a deduction to the extent of half as originally provided, after the change of the words " one-half " to " four-fifths " the amount in respect of which deduction was allowed might cease to be reserved, in which case the question would have been as to which is the amount to be added in view of the second proviso to r. 3(a). It is on account of this that it became necessary to make it clear that the addition would be either one-half ..... X X X X Extracts X X X X X X X X Extracts X X X X
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