1956 (8) TMI 55

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....is 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 ₹ 3,93,483 comprising the actuarial valuation of ₹ 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 ₹ 34,622 out of the actuarial surplus of &#83....

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....e extent of ₹ 37,429. Now, in law the insurance company could dispose of this surplus, viz., ₹ 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 ₹ 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....