1956 (8) TMI 55

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..... his 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  .....

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..... he 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 o .....

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..... o with it what it liked. It was not open to the company to utilise any part of this amount either for declaring dividend or giving benefits to the policy-holders. By statute this amount had to be credited to the life fund in order to make good the deficit which had occurred in the earlier years. Therefore, in our opinion, it could not be said of this sum of ₹ 3,56,054 that it was reserved for the policyholders within the meaning of rule 3(a). In our opinion, therefore, the Tribunal was right in the view that it took that no deduction could be allowed to the company in respect of this amount. We, therefore, answer the question submitted to us in the negative. The company to pay the costs. Reference answered in the negative.
Case .....

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