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Commonwealth Assurance Co. Ltd. Versus Commissioner of Income-Tax Bombay South

[1957] 31 ITR 136 - Income-Tax Reference No. 2 of 1956 - Dated:- 1-8-1956 - Chagla (CJ) And Tendolkar, JJ. For the Assessee : N. A. Palkhivala with Kale For the Commissioner : Advocate-General with G. N. Joshi JUDGMENT Chagla, CJ. The assessee is a life insurance company and according to the actuarial valuation as at 31st December, 1943, there was a deficit of ₹ 3,56,054. The actuarial valuation as at 31st December, 1946, showed a surplus of ₹ 37,429, and the question that arose was .....

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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 ₹ 37,429 to be reserved for the exclusive benefit of the policy-holders as Participating Policy-holders' Bonus Reserve Fund, and with regard to this half, the amount, viz., ₹ 17,311 w .....

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d is that there is an obligation upon every life insurer to maintain a fund which is sufficient to meet the present and contingent liabilities of the policy-holders. This fund cannot be utilised for any other purpose except for the purpose of meeting these liabilities, and there is also an obligation upon the insurer under the Insurance Act to invest this fund in the manner provided in the Act. When the actuarial valuation was made as at 31st December, 1943, a deficit was discovered in this fund .....

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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 divi .....

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