RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF INSURANCE BUSINESS
1. Profits of life insurance to be computed separately.- The profits and gams
of an assessee carrying on life insurance business shall, from whatever source derived, be
chargeable under the head "Income from business or profession" and shall be
computed separately from his income from any other business.
2. Computation of profits and gains of life insurance business.- The profits and
gains of life insurance business [ ] shall be taken to be 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 inter-valuation period and any expenditure other than expenditure which
may, under the provisions of section 23 of this Ordinance, be allowed for computing the
profits and gains of a business.
3. In computing the surplus for purposes of rule 2,- (a) the amounts paid to, or reserved for, or expended on behalf of, policy-holders
shall be allowed as a deduction:
Provided that in the first such computation made under this rule of any such surplus, no
account shall be taken of any such amounts to the extent to which they are paid out, or in
respect, of any surplus brought forward from a previous inter-valuation period:
Provided further that if any amount so reserved for policy-holders ceases to be so
reserved, and is not paid to, or expended on behalf of, policy-holders, the sums
previously allowed as a deduction under this Ordinance or under the repealed Act shall be
treated as part of the surplus for the period in which the said amount ceased to be so
reserved;
(b) any amount either written off or reserved in the accounts or through the actuarial
valuation balance sheet to meet depreciation, or loss on the realisation, of investments,
shall be allowed as a deduction, and any sums taken credit for in the accounts or
actuarial valuation balance sheet on account of appreciation, or gains on the realisation,
of investments shall be included in the surplus:
Provided that if it appears to theDeputy Commissioner after consultation with the Controller of
Insurance that the rate of interest or other factors employed in determining the liability
in respect of outstanding policies is inconsistent with the valuation of investments so as
artificially to reduce the surplus, he may make such adjustment to the allowance for
depreciation, or in respect of appreciation, of such investment as he thinks reasonable;
and
(c) interest received during the inter-valuation period in respect of any
securities of the Federal Government which have been issued or declared to be
income-tax-free, shall not be excluded; but such interest shall be exempt from tax in
accordance with the provisions of sub-section (2) of section 17.
4. Adjustment of tax paid by deduction at source.- Where for any year an assessment
of the profits and gains of life insurance business 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
for the tax paid in the income year but credit shall be given for the annual average of
the tax paid by deduction at source from interest on securities or otherwise during such
period.
5. General insurance.- The profits and gains of any business of insurance other
than life insurance shall be taken to be the balance of the profits disclosed by the
annual accounts required under the Insurance Act, 1938 (IV of 1938) to be furnished to the
Controller of Insurance, subject to the following adjustments, namely:-
(b) any amount either written off or taken to reserve to meet depreciation or loss on the
realisation, of investments shall be allowed as a deduction, and any sums taken credit for
in the accounts on account of appreciation, or gains on the realisation, of investments
shall be treated as part of the profits and gains:
(c) Nothing contained in this rule shall be construed to authorise
deduction of any expenditure or allowance or reserve or provision in excess of the limits
laid down in the Insurance Act, 1938 (IV of 1938), Provided that the Deputy Commissioner
is satisfied about the reasonableness of the amount written off or taken to reserve in the
accounts to meet depreciation, or loss on the realisation, of investments, as the case may
be.
6. Mutual Insurance associations.-These rules shall also apply to the
assessment of the profits of any business of insurance carried on by a mutual insurance
association and such profits shall be deemed to be liable to tax under the head 'Income
from business or profession'.
6A Exemption of capital gains from sale of
shares.- In computing income under this Schedule, there shall not be included
"capital gains" being income from the sale of any instrument of redeemable
capital as defined in clause (30A) of sub-section (1) of section 2 of the Companies
Ordinance, 1984 (XLVII of 1984), listed on any stock exchange in Pakistan or shares of a
public company, as defined in sub-paragraph (12) of part IV of the First Schedule to this
Ordinance, derived in respect of any assessment year ending on or before the thirtieth day
of June, 1999.
7. Definitions.- For the purposes of these rules,-
(a) "investments" includes securities, stocks and shares; and
(b) "life insurance business" means life insurance business as defined in clause
(11) of section 2 of the Insurance Act, 1938 (IV of 1938).
8. Application of this Schedule.- The provisions of this Schedule shall apply
notwithstanding anything contained in this Ordinance or any law for the time being in
force.
