Valuation of insurance securities can be corrected without consulting the Controller of Insurance where the assets were wrongly undervalued.

For insurance business deductions under rule 3(b) of the Indian Income-tax Act, 1922, the proviso requiring consultation with the Controller of Insurance applies only where the liability computation, after proper valuation of securities and assets, is materially inconsistent and artificially reduces the surplus. It does not apply where the securities themselves have been wrongly undervalued. On that basis, the Income-tax Officer could correct an erroneous securities valuation and recompute the deductible amount without first consulting the Controller of Insurance.

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Issues: Whether the Income-tax Officer was bound to consult the Controller of Insurance before correcting the valuation of securities for the purpose of computing the deductible amount under rule 3(b) of the Schedule to the Indian Income-tax Act, 1922.

Analysis: The deduction scheme for insurance business proceeds on the basis of the proper valuation of securities and assets. The proviso to rule 3(b) is attracted only where, after consultation with the Controller of Insurance, the rate of interest or other factor employed in determining the liability in respect of outstanding policies is found to be materially inconsistent with the valuation of securities and other assets, so as artificially to reduce the surplus. That proviso deals with a disparity between correctly valued assets and the liability computation, not with a case where the securities themselves have been under-valued. Where the Income-tax Officer merely corrects an erroneous valuation of securities and fixes the permissible deduction accordingly, no consultation with the Controller is required.

Conclusion: The Income-tax Officer had jurisdiction to correct the valuation without consulting the Controller of Insurance, and the question referred was answered in the affirmative.

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