Judgement Appeal (No. 54 of 1947) from a judgment and order of the High Court (October 6, 1944) on a reference made to that court under s. 66, sub-s. 1, of the Indian Income-tax, 1922. The following facts and statutory provisions are taken from the judgment of the Judicial Committee. This appeal raised two questions relating to the computation of the profits and gains of the Bombay branch of the respondent company (hereinafter called " the assessee"). The assessee was a company incorporated in the Straits Settlement having its head office at Singapore and carrying on life insurance business in British India through its branch office at Bombay. It was therefore a company not resident in British India. The year of assessment was the year 1939- 1940, and the previous year, that was, the year of charge, was the calendar year 1938. The amendments to the Indian Income-tax Act, 1922, made by the Indian Income-tax (Amendment) Act, 1939, which came into force on April 1, 1939, applied to the year of assessment. The Act of 1922 as so amended by the Act of 1939 will hereinafter be referred to as "the Act." It follows from the above that the problem for determination related to the proper method of computing the profits and gains of the Indian branch of a non-resident life insurance company, and such problem arose, not under rr. 25 and 35 of the old Indian Income tax rules, but under the rules contained in the schedule to the amending Act of 1939. Section 3 of the Act, which was the charging section, drew no distinction between resident and non-resident assessees. Section 4, sub-s. 1, provided that the total income of any previous year of any person included all income, profits and gains from whatever source derived which (a) were received or were deemed to have been received in British India in such year by or on behalf of such person, or (c) if such person was not resident in British India during such year, accrued or arose or were deemed to have accrued or arisen to him in British India during such year. Income was deemed to accrue or arise under the, provisions of s. 42 of the Act. Income was deemed to accrue or arise under the, provisions of s. 42 of the Act. Section 10, sub-s. 7, of the Act enacted that " Notwithstanding anything to the " contrary contained in sections 8, 9, 10, 12 or 18, the profits " and gains of any business of insurance and the tax payable " thereon shall be computed in accordance with the rules " contained in the Schedule to this Act." The rule making power was contained in s. 59 of the Act. The schedule was headed u Rules for the computation of the profits and gains of " insurance business," and the following rules or portions of rules were relevant in this appeal " 1. In the case of any person who carries on, or at any " time in the preceding year carried on, life insurance " business the profits and gains of such person from that "business shall be computed separately from his income, "profits or gains from any other business. "2. The profits and gains of life insurance business shall " be taken to be either— Law. Rep. 75 Ind. App. 331 ( 1947- 1948) Commissioner of Income-Tax, v. Great Eastern Life Assurance 211 " (a) the gross external incomings of the preceding year " from that business less the management expenses of " that year, or " (b) the annual average of the surplus arrived at by " adjusting the surplus or deficit disclosed by the actuarial " valuation made for the last inter-valuation period " ending before the year for which the assessment is to be "made, so as to exclude from it any surplus or deficit " included therein which was made in any earlier intervaluation period and any expenditure other than " expenditure which may under the provisions of section 10 " of this Act be allowed for in computing the profits and " gains of a business, " whichever is the greater " 3. In computing the surplus for the purpose of rule 2— " (a) one-half of the amounts paid to or reserved for or " expended on behalf of policy-holders shall be allowed 14 as a deduction " The provisos to that rule were not relevant. "4. In computing the surplus for the purpose of rule 2— " (a) one-half of the amounts paid to or reserved for or " expended on behalf of policy-holders shall be allowed 14 as a deduction " The provisos to that rule were not relevant. "4. Where for any year an assessment is made in " accordance with the annual average of a surplus disclosed " by" a valuation for an inter-valuation period exceeding " twelve months, then, in computing the tax payable for that " year, credit shall not be given in accordance with sub-" section (5.) of section 18 for the tax paid in the preceding " year, but credit shall be given for the annual average of the " income-tax paid by deduction at source from interest on " securities or otherwise during such period." Rule 5 contained various definitions, including definitions of "gross external incomings" and "management expenses." " 8. The profits and gains of the British Indian branches " of an insurance company not resident in British India, " in the absence of more reliable data, may be deemed to be "the proportion of the total world income of the company " corresponding to the proportion which its British Indian " premium income bears to its total premium income. For " the purpose of this rule, the total world income of life " insurance companies not resident in British India whose " profits are periodically ascertained by actuarial valuation " shall be computed in the manner laid down in these rules " for the computation of the profits and gains of life insurance "business carried on in British India." Before the income-tax officer the assessee produced exhibit T-A, which was headed " Consolidated statement of Indian " Fund for the Triennium commencing 1st January, 1935 to "31st December, 1937, showing the actuarial surplus for the " said triennium of the Indian business separately prepared at "Singapore." That document will be referred to as "the "triennial valuation." The assessee also produced exhibit T-C, which was headed " Revenue account for Indian business " for the year ended 31st December, 1938," and which contained on the credit side an item " Interest Rs. 4,57,424." The following alternative questions were referred to the High Court " (1.) Is the scope of the expression more reliable data " occurring in r. 8 of the Schedule to the Income-tax Act " confined to the higher of the two computations under " r. 2 (a) and 2 (b) of the said schedule? " or " (2.) Whether " the separate actuarial valuation statement for the Indian " business has rightly been held by the Tribunal to contain " more reliable data for the purpose of r. 8 of the said "schedule?" The reference came before Stone C.J. and Kania J., who amended the first question as follows " Is the scope of the "expression more reliable data occurring in r. 8 of the " schedule to the Income-tax Act confined to that data required " for arriving at the higher of the two computations under " r. 2 (a) and 2 (b) of the said schedule? " The court answered the first question as so amended in the negative Law. Rep. 75 Ind. App. 331 ( 1947- 1948) Commissioner of Income-Tax, v. Great Eastern Life Assurance and the second question in the affirmative. 1948. June 29, 30. Millard Tucker K.C. and Handoo for the appellant. This appeal is of considerable importance to the Commissioner of Income-tax, as it will settle the proper basis on which to assess under the new rules which came into force in 1939 the profits of non-resident insurance companies operating in India, of which there are a great many. The question in this case arises on r. 8, and turns almost entirely on " in the absence of more reliable data " National Mutual Life Association of Australasia, Ld. v. income-tax Commissioner (( 1935) L. R. 63 I. A. 99,110-11.). It is submitted that the first question as amended by the High Court should be answered in the affirmative. Under the general charging provisions of the Act the assessee was assessable to tax for the year 1939-40 on its total income for the previous year, 1938, which income had to be computed in the manner laid down in the Act. It is submitted that the first question as amended by the High Court should be answered in the affirmative. Under the general charging provisions of the Act the assessee was assessable to tax for the year 1939-40 on its total income for the previous year, 1938, which income had to be computed in the manner laid down in the Act. Section 10, sub-s. 7, of the Act and the schedule thereto provide a comprehensive code for the compu tation of the profits and gains of any insurance business of any kind carried on in British India, whether by residents or non residents, and rr. 2 to 5 of the schedule apply to a life insurance business carried on in British India by a non-resident company. Rule 8 of the schedule provided an alternative basis of computation of the income, but it could only be applied by the income-tax officer "in the absence of more reliable data." The expression " more reliable data" means data which is more reliable than the alternative proportionate computation provided for by r. 8, for the purpose of computing the total income of the previous year from any life insurance business so carried on by any non-resident company, such total income being that referred to in s. 4, sub-s. 1, of the Act, computed in manner laid down in the Act. If r. 2 does apply to a nonresident company, the expression "more reliable data" in r. 8 can be expanded to mean " more reliable data from which can " be computed the total income of the assessee according to " the provisions of r. 2 of the schedule, but after taking into " account the restrictive and expanding provisions of s. 4, " sub-s. 1 (a) and (c), Explanation 3 to s. 4, sub-s. 1, and s. 42, "sub-ss. 1 and 3 of the Act." It is submitted that the appellate assistant commissioner gave effect to the restrictive and expanding provisions of s. 4, sub-s. 1 (a) and (c), and Explanation 3 to s. 4, sub-s. 1, in respect of his computation under r. 2 (a), by taking as the relevant part of the "gross external " incomings" of the assessee the amount of such incomings shown by the separate " revenue account for Indian business for the year ended December 31, 1938, which were shown as Rs. 4,57,424. 4,57,424. The appellate assistant commissioner then rightly gave effect to that part of r. 2 (a) and the proviso to r. 2, which requires a deduction to be made in respect of " management expenses,” by adopting the same amount for this purpose as was allowed by the income-tax officer. On this basis the appellate assistant commissioner computed the assessable business income of the assessee at Rs. 2,36,547. It is immaterial (from the point of view of the assessee) what amount would be revealed by a computation under r. 2 (b) because if it were greater than the Rs. 2,36,547 there was no cross-appeal by the income-tax officer under s. 33, sub-s. 2, of the Act, against the reduction of the original assessment by the appellate assistant commissioner, and such lower assessment would therefore have to stand so far as the appellant is concerned. If, however, such restricted computation under r. 2 (b) showed a lower amount than Rs. 2,36,547, the latter would still remain the effective amount, because r. 2 requires the greater of the two computations to be taken. Alternatively, if r. 2 has no application to non-resident companies, the " consolidated statement of Indian fund" for the triennium ended December 31, 1937, provided no data for ascertaining the actual profits of the assessee for the calendar year 1938 ; and there was no statutory provision by which one-third of the profit disclosed by such statement could be deemed to be the profit for the year 1938. The judgments both of the tribunal and of the High Court were wrong, and either the assessment as determined by the appellate assistant commissioner should be restored, or the case should be remitted to the High Court with directions that the assessment for the year 1939-40 should be made on the alternative proportionate basis provided by r. 8, credit being given for any tax paid by deduction in accordance with the provisions of s. 18, sub-s. 5, of the Act, and in any event this appeal should be allowed. Law. Rep. 75 Ind. App. 331 ( 1947- 1948) Commissioner of Income-Tax, v. Great Eastern Life Assurance 213 Cyril King K.C. and Graham Dixon for the respondent. The whole question is the true construction of r. 8. Law. Rep. 75 Ind. App. 331 ( 1947- 1948) Commissioner of Income-Tax, v. Great Eastern Life Assurance 213 Cyril King K.C. and Graham Dixon for the respondent. The whole question is the true construction of r. 8. Looking at the rules in the schedule and trying to fit them into s. 4 of the Act, it will be observed that r. 8 is the only one that assists at all. What is reliable data and whether it is reliable is a question of fact for the fact-finding tribunal which states the case, and the question is whether there is any evidence on which they could come to their conclusion if there was, their finding must stand. The profits and gains of the Bombay branch of the respondents life-insurance business should be computed in accordance with the provisions of r. 8, and it has been found that in fact the respondents consolidated statement of Indian fund for the triennium to December 31, 1937, provides " more " reliable data" within the meaning of r. 8. The profits and gains ought to be assessed on the basis of the consolidated statement of Indian fund and not otherwise. There being more reliable data available within the meaning of r. 8, the alternative methods of computation provided by r. 2 of the schedule are not applicable for the purposes of computing the profits and gains. The words "more reliable data" in r. 8 are contrasted with the data required for the purpose of computing the profits and gains on the proportionate basis provided in r. 8 and not with the data required for the purposes of the alternative computations required by r. 2. If, contrary to the above submission, it is necessary to resort to r. 2, then both the income-tax officer and the appellate assistant com- missioner have erred in making their respective computations under r. 2 (a). The appellate assistant commissioner by his order has also, it is submitted, erred in that he has not computed the gross external incomings or the management expenses of the respondents business as a whole, but has taken the relevant gross external incomings as being the incomings of the Indian branch alone, and has deducted therefrom a sum in respect of management expenses of the Indian branch, as was done by the income-tax officer. The decision of the High Court is correct. Millard Tucker K.C. replied. The decision of the High Court is correct. Millard Tucker K.C. replied. October 14. The judgment of their Lordships was delivered by SIR JOHN BEAUMONT, who stated the facts set out above and continued The income-tax officer held that the triennial valuation provided " more reliable data" for the purposes of r. 8 and he calculated the profits and gains of the Indian business under r. 2 (b) on the basis of this document. He then calculated the profits and gains under r. 2 (a) by reference to the proportionate rule laid down in the latter part of r. 8. Finding the profits and gains under r. 2 (a) greater than the profits and gains under r. 2 (b) he based his assessment on the former. No one supports the method adopted by the income-tax officer for computing the profits and gains under r. 2 (a) and his order need not be further discussed. The assessee appealed to the appellate assistant commissioner who agreed with the income-tax officer that the triennial valuation provided "more reliable data" within r. 8 for calculating the profits and gains under r. 2 (b), and that was not disputed. The assistant commissioner, however, disagreed with the method adopted by the income-tax officer for calculating the profits and gains under r. 2 (a) and held that the revenue account, exhibit T-C, provided " more reliable "data" within r. 8 for calculating the income under r. 2 (a), since he considered that the item of interest Rs. 4,57,424 could be accepted as the gross external incomings for the purpose of r. 2 (a). As the amount of profits and gains calculated under r. 2 (a) was greater than that calculated under r. 2 (b) the assistant commissioner based the assessment on the figures arrived at under r. 2 (a). The assessee then appealed to the appellate tribunal. In the memorandum of appeal objection was taken to the figure of Rs. 4,57,424 being treated as gross external incomings and it was alleged that that figure in the revenue account did not represent an actual receipt of income, and complaint was further made that the appellate assistant commissioner did not inform the assessee that he was proposing to assume the item of interest appearing in the revenue account as the gross Law. Rep. 75 Ind. App. Rep. 75 Ind. App. 331 ( 1947- 1948) Commissioner of Income-Tax, v. Great Eastern Life Assurance 214 external incomings of the Indian business. The appellate tribunal disagreed with the view taken by the appellate assistant commissioner as to his construction of r. 8, and held that if there were " more reliable data " available within the meaning of that rule a computation under r. 2 (a) orr. 2 (b) was not called for. After a full discussion of the facts and the law the tribunal held that the triennial valuation provided " more reliable data" in terms of r. 8 and that the assessment must be computed on the data given in that statement. The tribunal considered that r. 2 applied to all insurance companies whether resident or non-resident so far only as related to adjustments and allowances envisaged in that rule. At the request of the commissioner of income-tax, Bombay, Sind and Baluchistan the tribunal referred two questions for the opinion of the High Court at Bombay under s. 66, sub-s. 1, of the Act. The questions were (1.) Is the scope of the expression "more reliable data" occurring in r. 8 of the schedule to the Income-tax Act, confined to the higher of the two computations under r. 2 (a) and r. 2 (b) of the said schedule? or (2.) Whether the separate actuarial valuation statement for the Indian business has rightly been held by the tribunal to contain " more reliable data " for the purpose of r. 8 of the said schedule? The reference was heard by a Bench consisting of Sir Leonard Stone C. J. and Kania J. (as he then was) . The court made some verbal alterations in the first question as mentioned later, and as so amended answered the first question in the negative, and the second question in the affirmative. The learned Chief Justice thought that the application of r. 2 should be excluded altogether and continued ? The court made some verbal alterations in the first question as mentioned later, and as so amended answered the first question in the negative, and the second question in the affirmative. The learned Chief Justice thought that the application of r. 2 should be excluded altogether and continued ? In my "judgment, the reliable data referred to in r. 8 is the data " necessary to assess the profits and gains of a branch business " by some recognized business method which can be applied " having regard to the manner in which the insurance company " conducts its affairs." Such a method of assessment ignores s. 10, sub-s. 7, of the Act, which requires the profits and gains of any business of insurance to be computed in accordance with the rules. Nor do their Lordships think that there is any recognized business method of ascertaining the profits derived from life-assurance business, the liabilities of which must necessarily depend on actuarial calculations and valuations. The learned Chief Justice agreed with the appellate tribunal in thinking that the triennial valuation afforded " more " reliable data" within the meaning of r. 8, and that the profits and gains should be computed on the basis of that document. But it is to be observed that if r. 2 is not applicable there is no authority for computing the profits of 1938 on the figures of a period which expired before that year. Kania J. was not prepared to say that r. 2 never applied to non-residents, but he thought that it could not be applied to the Indian branch of a non-resident insurance company. He pointed out that the gross external incomings and the management expenses as defined in r. 5 are not in terms confined to the incomings and expenses of the Indian branch of a non-resident assessee. Whilst this is perfecely true, their Lordships think that the application of the rules in the schedule must of necessity be controlled by reference to the subject-matter to be taxed. A non-resident is only liable to tax in respect of profits and gains which are either received or deemed to be received in British India, or which accrue or arise or are deemed to accrue or arise in British India. A non-resident is only liable to tax in respect of profits and gains which are either received or deemed to be received in British India, or which accrue or arise or are deemed to accrue or arise in British India. Their Lordships think that in calculating the profits and gains of the Indian branch of a non-resident company under r. 2 (a) the gross external incomings and the management expenses are confined by the context to those of the Indian branch. In this connexion reference may be made to s. 42, sub-s. 3, of the Act. Cases may well arise in which it proves impracticable to supply the necessary data relating to an Indian branch with the result that in such cases there may be " more reliable data" to take the case out of r. 8. In their Lordships opinion, in assessing the profits and gains of the Indian branch of an insurance company not resident in British India recourse must be had in the first instance to r. 8, which is the only rule dealing specifically with that subject. In the absence of "more reliable data" the profits and gains must be computed on the proportionate basis laid down in the rule. In that case no other rule is relevant, except for the purpose of computing the total world income which has to be apportioned. If there is "more reliable data," that is, data more reliable for computing the profits and gains of the Indian business of the assessee than those on which the proportionate rule is based, Law. Rep. 75 Ind. App. 331 ( 1947- 1948) Commissioner of Income-Tax, v. Great Eastern Life Assurance 215 then r. 8 passes out of the picture and by virtue of s. 10, sub-s. 7, of the Act, the computation of profits and gains must be made under the other rules in the schedule which are appropriate. Their Lordships feel no doubt that r. 2 extends to the life-insurance business of all persons whether or not resident in British India. Rule 2 (b) replaces the old r. 25 which was confined to life-insurance companies incorporated in British India, but there is no such limitation in r. 2 which in terms draws no distinction between residents and non-residents. Unless the rule applies to non-residents they would lose the valuable privilege conferred by r. 3; nor would r. 4 apply. Rule 2 (b) replaces the old r. 25 which was confined to life-insurance companies incorporated in British India, but there is no such limitation in r. 2 which in terms draws no distinction between residents and non-residents. Unless the rule applies to non-residents they would lose the valuable privilege conferred by r. 3; nor would r. 4 apply. Furthermore, r. 2 (b) is the only rule which enables profits and gains to be computed on the annual average disclosed by an actuarial valuation made for the last inter-valuation period ending before the year in which the assessment is to be made. Insurance companies usually get out an actuarial valuation for a quinquennial or triennial period, which is all that they are required to do by s. 13 of the Assurance Act, 1938, and some statutory authority for treating the triennial or quinquennial valuation as the basis for computing the profits of a particular year seems essential. Without r. 2 (b) it would seldom be possible in the case of a life-insurance business to find " more "reliable data" within r. 8. Their Lordships think that the view taken by the appellate assistant commissioner was correct. The triennial valuation afforded " more reliable data " for computing profits and gains under r. 2 (b), and the Indian revenue account, exhibit T-C (subject to the question of figures mentioned below) afforded "more reliable data" for computation under r. 2 (a), and the greater of the two computations can be accepted by the revenue authorities. As already noted, the assessee in its appeal to the appellate tribunal challenged the figure of interest in the revenue account as representing gross external incomings. In the view which the tribunal took of the case it was not necessary to decide this point. Mr. Tucker, on behalf of the commissioner, agreed that it would be open to the assessee to raise this matter when the case is referred back to the tribunal under s. 66, sub-s. 5, of the Act. Their Lordships will only say, therefore, that they think that the revenue authorities are entitled to accept the figure of interest in the revenue account as representing the gross external incomings for the year unless the assessee produces satisfactory evidence to show what the true figure of gross external incomings should be. Their Lordships will only say, therefore, that they think that the revenue authorities are entitled to accept the figure of interest in the revenue account as representing the gross external incomings for the year unless the assessee produces satisfactory evidence to show what the true figure of gross external incomings should be. The first question for determination, as amended by the High Court, reads " Is the scope of the expression more reliable " * data occurring in r. 8 of the schedule to the Income-tax " Act confined to the data required for arriving at the higher of "the two computations under r. 2 (a) and 2 (b) of the said "schedule?" Their Lordships think that the question is not happily expressed and does not admit of a simple answer in the affirmative such as the appellant claims. Rule 8 extends to British Indian branches of any insurance company not resident in British India, whilst r. 2 is confined to life insurance business. It is obvious, therefore, that "more reliable data" under r. 8 might have to be employed in cases altogether outside the scope of r. 2. Their Lordships propose to answer question one by saying " The more reliable data referred to in r. 8 are to be " employed for the computation of the profits and gains of the " British Indian branches of a non-resident insurance company " in accordance with the rules in the schedule appropriate to " the case, including, in the case of a life insurance business, " r. 2." The second question does not call for an answer. Their Lordships views on the matter sufficiently appear in this judgment. For these reasons their Lordships will humbly advise His Majesty that this appeal be allowed and that the first question referred to the High Court be answered in the manner above indicated. The respondent must pay the costs of the hearing in the High Court and of this appeal.