1937 (9) TMI 8

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....le 30 of the Income-tax Rules as an item of expenditure on account of amounts carried to the Investment Reserve Fund meant to provide for depreciation in the value of the said securities?" The assessee is a company carrying on life insurance business. The year of assessment is the year 1933-34. Under Rule 25 of the Indian Income-tax Rules framed under Sec. 59(2)( a)(ii) it is provided : "In the case of Life Assurance Companies incorporated in British India whose profits are periodically ascertained by actuarial valuation, the income, profits and gains of the Life Assurance Business shall be the average annual net profits disclosed by the last preceding valuation" with certain statutory additions which may have to be made thereto....

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.... the purpose of earning the profits of the business without giving credit for appreciation which occurred in the third year. The contention of the Commissioner of Income-tax is that the words " may be treated as expenditure" in Rule 30 are permissive and confer an option upon the Income-tax Officer either to allow this expenditure or not. No doubt the word "may" is permissive. But the question is on whom is, the permission conferred? It seems to me perfectly plain that it is conferred on the assessee. It may also be conferred on the Income-tax Officer, but that is irrelevant. It seems to me clear that when the rule says that these sums placed to reserve may be treated as an expenditure solely for the purpose of earning the profits of the....

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....possibility of a company forming excessive reservations under Rule 30 and evading paying taxation. In my view, the finding of fact of the Assistant Commissioner of Income-tax, which is referred to in the question raised, is really irrelevant, and the questions must he answered in the negative. Blackwell, J.-I am of the same opinion. The contention of the Commissioner of Income-tax is that the words "may be treated" in Rule 30 confer upon him and upon him alone, the option to treat sums written off to meet depreciation of, or loss on, securities or other assets, or carried to a reserve fund formed for that sole purpose, and not used for any other purpose, as expenditure incurred solely for the purpose of earning the profits of the busi....