Notional life insurance profit computation excludes use of proviso for actual yearly foreign income, with deduction denied.

The third proviso to Section 4(1) of the Indian Income-tax Act, 1922 was held inapplicable to life insurance profits computed under rule 2(b) of the Schedule on the basis of annual average surplus from actuarial valuation. That computation was treated as a notional figure reflecting inter-valuation surplus, not the actual income of a particular year, so the proviso for income accruing or arising in that year could not be used to exclude unremitted foreign income. Section 42 was also held to have no application. The result was that the claimed deduction was unavailable and the assessment made by the Income-tax Officer was restored.

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Issues: Whether the third proviso to Section 4(1) of the Indian Income-tax Act, 1922 applied to an assessment of life insurance business profits computed under rule 2(b) of the Schedule on the basis of the annual average surplus disclosed by actuarial valuation.

Analysis: The assessment under rule 2(b) was a computation of notional profits by reference to the average surplus of the inter-valuation period, and not an assessment of the actual income of the individual year. The third proviso to Section 4(1) was directed to income actually accruing or arising in the year and included in the assessment of that year. As the assessed figure under rule 2(b) was not the actual income of the year, the proviso could not be applied to deduct Rs. 4,500 in respect of unremitted foreign income. Section 42 was held to have no application.

Conclusion: The third proviso to Section 4(1) did not apply to the computation of life insurance profits under rule 2(b), and the assessee was not entitled to the deduction.

Final Conclusion: The assessment made by the Income-tax Officer was restored, and the appeal succeeded for the Revenue.

Ratio Decidendi: A proviso allowing exclusion of a portion of income accruing or arising outside British India applies only to actual yearly income and not to a notional income computed by averaging the surplus of a life insurance business under the Schedule.

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