The interpretation of Rule 25 under the Income Tax Act, specifying the method for ascertaining the average annual net profits of a Life Assurance Company, was the central legal principle established in the judgment.

JUDGMENT

DERBYSHIRE, C.J. - The facts of this case are set out fully in the case stated by the Commissioner of income tax. The question asked is :

"The assessees actuarial valuation balance sheet on the last date of the last preceding valuation having shown a deficiency does the provision of Rule 25 of the rules under the Income Tax Act for ascertaining the average annual net profits of a Life Assurance Company permit the department to go behind the said valuation balance sheet to find out if there were any profits in respect of the period of the last preceding valuation ?"

It appears to me that the matter is concluded by the judgment of the Privy Council in the case of Bharat Insurance Company Limited v. Commissioner of income tax. At page 43 (of 61 I.A.) Sir John Wallis said : "Under the provisions of Section 5 & 6 of the Indian Life Assurance Companies Act, 1912, the companys life assurance business has to the kept entirely separate from its other businesses if any and under Sec. 8, sub-section (1), it is obliged to have a quinquennial valuation made by an actuary and to cause an abstract of the report of such actuary to be made in the form set forth in the fourth Schedule to the Act.

"The form of the resulting valuation balance sheet is to be found at the end of the fourth schedule of the Act and is as follows :

Valuation Balance-Sheet of As at 19

"......... Under Rule 25 made u/s 59 of the Indian Income Tax Act, 1922 : the income, profits and gains of a life assurance business shall be the average annual net profits disclosed by the last preceding valuation ; that is to say, shall be arrived at by taking one fifth of the surplus disclosed in the valuation balance sheet already mentioned and treating it as the average annual income of the business for the next quinquennium".

That statement is emphasised at page 49 of the report as follows : "The net profit in this rule clearly means the surplus if any in the statutory form of valuation of valuation balance sheet set out above of life assurance and annuity funds (as per balance sheet under third schedule) over the net liability under life assurance and annuity transaction (as per summary statement statement provided in fourth schedule)".

In my view that clearly states what the legal position is in this case and the answer to the question asked by the Commissioner of income tax must be in the negative.

The assessee will have the taxed costs of this Reference.

KHUNDKAR, J. - I agree.

MUKHERJEA, J. - I agree.

Question answered in the negative.