1956 (8) TMI 55

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....ng the profits or income of this company in accordance with the Schedule to the Income-tax Act. Now, there is no dispute with regard to the application of rule 2. For that purpose the surplus for the inter-valuation period has to be assessed at Rs. 3,93,483 comprising the actuarial valuation of Rs. 37,429 and the deficiency as disclosed by the actuarial valuation as at 31st December, 1943. The question that arises on this reference is as to the application of rule 3 and rule 3(a) provides: "In computing the surplus for the purpose of rule 2, one-half of the amounts paid to or reserved for or expended on behalf of policy-holders shall be allowed as a deduction." The company carried forward a sum of Rs. 34,622 out of the actuar....

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.... the extent of Rs. 37,429. Now, in law the insurance company could dispose of this surplus, viz., Rs. 37,429, as it pleased. It could declare a dividend out of it or it could give a bonus to the policy-holders or it could reserve it for bonus to be given in future, and what the company did, as pointed out, was that to the extent of Rs. 34,622, it set it apart for bonus to be given to the participating policy-holders. When we turn to rule 3(a) it is clear that the object of the Legislature in enacting this rule was to induce a life insurance company to reserve as much as possible out of the actual surplus amounts for the benefit of policy-holders and not to distribute it as dividend to the shareholders. Therefore, the application of this rul....