1955 (9) TMI 83

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....20,29,894 and on an actuarial basis the liabilities in respect of subsist- ing policies of the policy holders amounted to ₹ 1,38,75,624. There was therefore a deficit of ₹ 18,45,730. In order to get over this deficit the head office in Canada placed at the disposal of the branch office secu- rities to the extent of ₹ 24 lakhs and the Imperial Bank was constitut- ed a trustee in respect of those securities. These securities yielded income and in the relevant assessment year the income came to ₹ 85,700 and the Income-tax authorities attempted to tax the assessee company in respect of this income under section 12 of the Income-tax Act. The question that arises is whether the assessee company is liable to be taxed under ....

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....t January, 1944. It appears that till the end of 1943 the assessee company had adopted a receipt basis and interest used to be credited on receipts basis. But with the commencement of 1944 the method was changed and the interest was credited on the accrual basis. The result of this change was that the sum of ₹ 74,511 was not shown in the actuarial valuation of the 31st December, 1944, and the Income-tax authorities attempted to correct the actuarial valuation by adding to it this sum of ₹ 74,511 thereby increasing the surplus, and the question is whether in law they are entitled to do so. We agree with the Advocate-General that in justice the assessee company has no answer to the claim of the taxing depart- ment because by this ....

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....ittedly, the assessee company has reserved or expended on behalf of policy holders a certain amount and they are claiming that amount as a permissible deduction by reason of rule 3(a), and the contention of the Department is that as in relevant valuation report there was no surplus but a deficit it is not open to the assessee company to deduct the amount referred to in rule 3(a) from the valuation when the valuation discloses a deficit and not a surplus. In other words, according to the Department, rule 3(a) can only come into operation provided the valuation discloses a surplus and not a deficit. There is no warrant for that contention in the language of rule 3(a). When rule 3(a) refers to "computing the surplus for the purpose of rul....