TMI Blog1933 (12) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... stract of the report of such actuary to be made in the form set forth in Schedule 4 to the Act. The form of the resulting valuation balanoe-sheet is to be found at the end of Schedule 4 of the Act and is as follows: IMAGES 1 3. The actuarial valuation balance-sheet as at 31st December 1923, for the previous quinquennium, was drawn up in exactly this form and showed a surplus of ₹ 5,96,952, out of which rupees 4,68,394 was allotted to the participating policy holders. Under Rule 25 made under Section 59, Income Tax Act, 1922 the income, profits and gains of a life assurance business shall be the average annual net profits disclosed by the last preceding valuation, that is to say, shall be arrived at by taking one-fifth of the surplus disclosed in the valuation balance-sheet already mentioned and treating it as the average annual income of the business for the next quinquennium. The surplus shown in the valuation balance-sheet was so dealt with, and was raised to ₹ 6,61,935 by adding back, pursuant to the proviso to Rule 25, deductions made by the actuary which were inadmissible for Income Tax. One-fifth of this total was taken as the average annual income of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred in earning it, was not affected by the fact that the Board was bound by statute to apply such surplus for the creation of a sinking fund and afterwards in reduction of its dues. In Last's case (1886) 10 A.C. 438 it was held that the liability of the London Assurance Corporation to pay Income Tax on the whole of the profits earned in its business was not affected by the fact that it had bound itself by its contract with the participating policy-holders to pay them two-thirds of the profits earned in the participating part of its business, and it was accordingly held that this share was part of the profits earned by the company in carrying on its business and so assessable to Income Tax, and could not be regarded as expenditure incurred by the Corporation in earning its own profits. 7. In England the Income Tax payable on a trade or business has to be computed on the full balance of the profits or gains, phraseology which, as pointed out by Lord Blackburn in Coltness Iron Co. v. Black (1881) 6 A.C. 315, has remained unaltered since its insertion in 46 Geo. III, c. 15. This balance or sum has always been interpreted as meaning the difference between the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a share of any profit there might be, and if there was no profit, they got nothing. They might therefore, Lord Blackburn said, be regarded as having purchased a share of the profits. If that was the right view, Income Tax was payable by the Corporation on those profits, whatever they might be bound to do with them, as held in the Mersey Docks case (1884) 8 A.C. 315. This, he proceeded to say, seemed to be expressly enacted by 5 6 Vict., c. 35, Section 54, which requires the estimate of the profits of a corporation to be made before any dividend shall have been made thereof to any other persons having any share, right or title in or to such profits. 10. Lord Blackburn, and Cotton, L.J., in the Court of Appeal, were both of opinion that if the participating policy-holders were to be considered as having a share of the profits of the corporation within the meaning of this section, that would go to show that the share of the profits allotted to them formed part of the profits assessable to Income Tax; but Cotton, L.J., had held that they were not within the section, whereas Lord Blackburn was of opinion that they were. In their Lordships' opinion, it is unnecessary to pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were bound by their convention with the French Government to pay to the French Colony, and the two cases last mentioned were cited at the Bar. This contention was rejected by the Board in a judgment delivered by Lord Macmillan on much the same grounds as had been taken in Last's case (1886) 10 A.C. 438. It is claimed for the company that when it makes over to the Colonial Government their half of the net profits it is making an expenditure incurred solely for the purpose of earning its own profits. The Court below has unanimously negatived this contention, and, in their Lordships' opinion has rightly done so. A payment out of profits and conditional on profits being earned cannot accurately be described as a payment made to Ram profits. It assumes that profits have first come into existence. But profits on their coming into existence attract tax at that point, and the revenue is not concerned with the subsequent application of the profits. 12. If Last's case (1886) 10 A.C. 438 had never been decided, this decision would, in their Lordships' opinion be decisive of the present case, as the share of profits allotted to the policy holders really stands on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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