Deemed profit charging rules override exempt investment income unless the statute expressly allows an exclusion or set-off.

A charging rule that taxes a deemed or notional profit computed by a prescribed statutory formula is not affected by the presence of investment income that is otherwise exempt from tax. The rule in issue applied a conventional basis of charge to the life assurance fund of a non-resident assurance company and treated a fixed fraction of total fund income as profits. Exemption provisions relating to actual investment income did not displace that self-contained computation, and the only express adjustment allowed was the statutory set-off where tax had already been borne independently. Exempt investment income therefore did not require any further reduction in the assessment.

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Issues: Whether, in computing the charge under Rule 3 of Case III of Schedule D of the Income Tax Act, 1918, the presence of income from investments exempt from tax in the life assurance fund requires exclusion or reduction in the assessment.

Analysis: Rule 3 created a conventional charging mechanism for non-resident assurance companies carrying on business through a United Kingdom branch. The charge was based on a prescribed fraction of the total income from the life assurance fund and was not a direct tax on the specific investments themselves. The exemption provisions relied on by the taxpayer applied to actual income from investments, but they did not alter the operation of a self-contained charging rule that deemed a fixed sum to be profits. The only express adjustment permitted by the rule was the set-off under sub-rule (4) where tax had already been borne independently of the rule. The authorities concerning actual profits and exempt receipts did not govern this notional computation.

Conclusion: The existence of exempt investments did not require any reduction in the charge under Rule 3, and the assessment was correctly made without deducting such income.

Final Conclusion: The conventional basis of charge under Rule 3 prevailed, and exempt investment income did not qualify for further relief beyond the express statutory set-off.

Ratio Decidendi: Where a charging provision imposes tax on a deemed or notional profit computed by a prescribed statutory formula, exempt investment income is irrelevant unless the statute expressly directs its exclusion or permits a corresponding adjustment.

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