CPT V24P7-Art1 (Content).pmd - Taxmann

Direct Tax Laws
the assessee. 33 Now even if the life and nonlife
insurance businesses are separate and do
not constitute separate departments of the same
business, still the aforesaid provision can be
effected. 34
Under this rule the annual average of the
surplus disclosed by the actuarial valuation 35
made for the last inter-valuation period 36 pending
before the commencement of the assessment
year is to be taken as the basis of computation
subject to certain adjustments. 37 It is not open
to the department to make an addition to the
surplus other than the adjustments specifically
provided for in the Schedule, even if an item
of the income escapes tax as a result of not
being taken into account in making the actuarial
valuation.
The provision also stipulates that in case of
any carry forward of losses or surplus, an
adjustment for the surplus or deficit of an
earlier inter-valuation period must be made to
the surplus disclosed by actuarial valuation
before the assessable annual average is
calculated. 38
5.1.2 RULE 2 39 - This rule stipulates that a
surplus or deficit disclosed by the valuation
for the relevant inter-valuation period includes
the surplus or deficit of an earlier inter-valuation
period. The same should be fragmented and
the surplus or deficit from any previous intervaluation
period must be excluded. 40
For instance, if the actuarial valuation depicts
a surplus of ` 24 lakhs which includes ` 4
lakhs as surplus of the previous inter-valuation
period which has been carried forward, the
surplus to be actually taken into consideration
shall be ` 20 lakhs arrived at after ignoring
` 4 lakhs of the surplus carried forward from
the previous inter-valuation period.
For clarification, it was observed in LIC (supra)
that when the assessee had taken over the
assets and liabilities of the existing insurers,
the refund received by the assessee in respect
of excess tax paid by the predecessor companies
must be deemed to be included in the previous
664
August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 44
inter-valuation period, rather than being included
in the relevant inter-valuation period. 41
It is pertinent to note that only the notional
figure arrived at according to the valuation under
rule 2 is to be taken as the basis of assessment
and not the actual income of the relevant year,
which might be more or less than the annual
average of the last inter-valuation period 42 .
5.1.3 RULE 4 43 - This rule specifies that when
an assessment has been made under rule 2 on
the basis of the annual average of surplus
disclosed by actuarial valuation for an intervaluation
period exceeding 12 months, no credit
should be given in accordance with section
199 for the tax deducted at source in the previous
year, but credit should be given for annual
average of tax deducted at source during such
inter-valuation period. 44
It has been clarified that this rule applies only
to tax deducted at source and not when the
tax is directly paid on assessment. 45
METHOD OF CALCULATING THE PROFITS
OF THE NON-LIFE INSURANCE
BUSINESS
6. Rule 5 46 of the First Schedule prescribes the
method of calculating the income of a Non-
Life Insurance Business for the purpose of tax
assessment.
It stipulates that the profits of non-life insurance
businesses shall be taken to be the profits
revealed by the annual accounts required to
be furnished under the Insurance Act, 1938. 47
It is pertinent to note that the figures in the
accounts of the assessee drawn in accordance
with the provisions of the First Schedule and
satisfying the requirements of the Insurance
Act are binding on the Assessing Officer. He
has no general power to correct errors in accounts
of the insurance business and undo any entry
made therein. 48
However, in terms of rule 5(a), if the profit
has been arrived at after deducting any