Life assurance apportionment and interim bonus rules: branch income uses previous-year premiums, and bonus forms part of divisible surplus.
In computing taxable income of a non-resident life assurance business, the Burma branch apportionment was made by reference to premium income of the previous year, because the tax scheme charged income for that year and the actuarial rules could not displace annual assessment. Interim bonus paid to policyholders was treated as a distribution out of, or in anticipation of, profits and therefore formed part of the divisible surplus for the valuation period; it was not deductible as expenditure incurred in earning profits. The result was that both substantive questions were resolved in favour of Revenue, with one judge dissenting only on the first issue.
Issues: (i) Whether, in computing the taxable income of a non-resident life assurance company for Burma assessment, the Burma branch proportion had to be worked out by reference to premium income of the previous year or by reference to the premium income during the valuation period ended with the last actuarial valuation; (ii) whether interim bonus paid to policyholders was liable to be included back in the divisible surplus / total income for the valuation period.
Issue (i): Whether, in computing the taxable income of a non-resident life assurance company for Burma assessment, the Burma branch proportion had to be worked out by reference to premium income of the previous year or by reference to the premium income during the valuation period ended with the last actuarial valuation.
Analysis: The majority held that Rule 25 provided only the method for ascertaining the total income, profits and gains of a life assurance business by actuarial valuation, while Rule 35 governed the apportionment of that total income to the Burma branch. The premiums relevant for the apportionment under Rule 35 were the premiums received in the previous year, because the tax was charged on the income of that previous year and the branch proportion had to be determined from the figures of that year. The rules could not displace the Act's scheme of annual assessment. One judge dissented, construing "premium income" in Rule 35 as referable to the valuation period used for computing the actuarial profits.
Conclusion: The Burma premium to world premium ratio had to be computed by reference to premium income of the previous year, and the issue was decided in favour of Revenue.
Issue (ii): Whether interim bonus paid to policyholders was liable to be included back in the divisible surplus / total income for the valuation period.
Analysis: The majority held that the interim bonus represented a distribution out of, or in anticipation of, profits and was part of the amount to be taken as the true surplus for the period. It was not expenditure incurred for earning profits and therefore could not be deducted under the relevant deduction provision.
Conclusion: Interim bonus was includible in the divisible surplus, and the issue was decided in favour of Revenue.
Final Conclusion: The reference was answered against the assessee on both substantive questions, with one judge dissenting only on the first question.
Ratio Decidendi: Where the Act charges tax on the income of the previous year, rules framed for actuarial computation of insurance profits cannot be used to substitute a different period for apportioning branch income, and distributions of interim bonus out of anticipated profits are includible in the assessable surplus rather than deductible as expenditure.
TaxTMI 
AI Drafter ✕
TaxTMI 
