THE FOURTH SCHEDULE

See section 26(a)

1.    Profits of life insurance to be computed separately.-

The profits and gains 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or expended on behalf of, policy-holders, the sums previously allowed as a deduction under this Ordinance or under the repealed Act shall be treated as part of the surplus for the period in which the said amount ceased to be so reserved;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 the Deputy 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:-

(a)   any expenditure or allowance, or any reserve or provision for any expenditure, or the amount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the head "Income from business or profession" shall be excluded;

(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:

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.

(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).

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 (2) 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,-

(1)   "investments"; includes securities, stocks and shares; and

(2)   "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.