Summarize the following court judgment. Civil Appeal No. 12 of 1955. Appeal from the judgment and decree dated September 10	 1953	 of the Calcutta High Court (Original Side) in I. T. Reference No. 8 of 1947. C. K. Daphtary	 Solicitor General for India	 G. N. Joshi and B. H. Dhebar	 for the appellant. K. P. Khaitan	 Rameshwar Nath	 section N. Andley and J. B. Dadachanji	 for the respondents. April 24. The Judgment of the Court was delivered by VENKATARAMA AIYAR J. This appeal raises a question of importance as to whether amounts shown by an insurance company as reserves for unexpired risks on pending policies are liable to be deducted under r. 2 of Sch. II to the Excess Profits Tax Act (XV of 1940) hereinafter referred to as the Act. The respondent is a company carrying on life	 fire	 marine and general insurance business	 and the present dispute relates to the assessment of excess profits tax on its income from business other than life insurance for the chargeable accounting periods ending December 31	 1940	 and December 31	 1941. To appreciate the contentions raised	 it is necessary to state that the policies of insurance with which these proceedings are concerned	 are	 unlike life insurance policies	 issued in general for short periods or ad hoc in relation to a specified voyage or event. To take the most important of them	 fire insurance policies	 they are issued normally for one year	 and the whole of the premium due thereon is received when the policies are actually issued. In any given year	 while the premiums due on the policies would have been received in full	 the risks covered by them would have run only in part and a	 part will be outstanding for the next year. The companies have to prepare annual statements of profit and loss for the purpose of ascertaining their profits and distributing their dividends. They have also to prepare revenue statements to be sent to the authorities under the provisions of the . The method 1004 adopted by the respondent in preparing the above statements has been that while the premiums received are all of them included in the assets of the year	 a certain proportion ' thereof	 usually 40 per cent.	 is treated as the reserve for unexpired risks	 and that is shown as a liability. To take a concrete example	 if in the year 1939 the respondent issued annual fire insurance policies and received a sum of Rs. 1	00	000 as premiums thereof	 the whole of it would be shown as income in the statement for the year 1939	 and a sum of Rs. 40	000 will be shown as a reserve for unexpired risks. In the profit and loss statement	 the former will be shown as part of the assets and the latter as liability	 and it is only the balance that will be included in the net profits. In 1940	 the policies issued in 1939 would all of them have expired	 and the sum of Rs. 40	000 shown as reserve in 1939 would be treated as part of the assets in 1940. There will	 of course	 be fresh policies issued in 1940	 and in the statement of that year	 the premiums received on those policies would be shown as part of the income	 and 40 per cent. thereof would be set apart as reserve for unexpired risks. This ' method of account keeping is what is 'usually adopted by insurance companies	 and is in accordance with well recognised and approved practice of accountancy. Now	 the question is whether in the illustration given above	 the sum of Rs. 40	000 which is set apart in 1939 as reserve for unexpired risks is liable to be deducted under r. 2 of Sch. II to the Act from out of the capital employed in business for that year	 which would	 of course	 include the whole of Rs. 1	00	000 received as premiums. The contention of the appellant is that if all the premiums received are to be treated as capital under r. 1	 Sch. 11	 then the sums which represent the outstanding liability in respect of the unexpired period of the policies in the illustration given above	 Rs. 40	000 should be deducted as a liability under r. 2 of Sch. The respondent	 while claiming that all the premiums received mu 	it be treated as capital	 maintains that the provision for unexpired risks is a contingent liability	 and that that 1005 is not within r. 2 of Sch. The Tribunal decided the question against the respondent	 but on reference under section 66(1) of the Indian Income tax Act read with section 21 of the Act	 the High Court of Calcutta answered the question adversely to the appellant	 but granted a certificate under section 66 A	 and that is how the appeal comes before us. The relevant statutory provisions may now be noticed. Under section 4 of the Act	 the charge is on the " amount by which the profits during any chargeable accounting period exceed the standard profits ". I Standard profits ' are defined in section 6	 sub section (1)	 and the respondent having exercised his option under the second proviso thereto	 they have to be calculated "by applying the statutory percentage to the average amount of capital employed in the business during such chargeable accounting period Schedule II enacts rules for the determination of the average capital employed. Under r. 1(c)	 the capital employed will include the value of all assets "I when they became assets of the business ". Rule 2(1) enacts that any borrowed money and debts shall be deducted from out of the value of the assets. There is a further provision in r. 2(1)	 which is what is material for the purposes of the present appeal	 and it runs as follows: " The debts to be deducted under this sub rule shall include any such sums in respect of accruing liabilities as are allowable as a deduction in computing profits for the purposes of excess profits tax ; and the said sums shall be deducted notwithstanding that they have not become payable. " For this clause to apply	 two conditions must be satis fied. The sums to be deducted should be allowable as a deduction in computing the profits for the purposes of the Act	 and further they should be in respect of accruing liabilities. Rule 1 of Sch. 1 enacts that	 " The profits of a business . . during any chargeable accounting period . . shall	 subject to the provisions of this Schedule	 be computed on the principles on which the profits of a business are computed for the purposes of income tax under section 10 of the Indian Income tax Act	 1922. " 1006 Section 10(7) of the Indian Income tax Act provides 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. " Rule 6 of the Schedule provides: "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	 copies of which are required under the 	 to be furnished to the Controller of Insurance after adjusting such balance so as to exclude from it 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. " It is common ground that the statements furnished to the Controller of Insurance by the respondent for the relevant periods did disclose 40 per cent. of the premiums received as reserve for unexpired risks on the outstanding policies and that the same has been treated as a liability in its profits and loss statements and allowed in the assessment of income tax. Thus	 one of the conditions required by r. 2 has been satisfied. The whole controversy between the parties relates to the other condition whether the reserve of 40 per cent. can be regarded as a sum in respect of accruing liability. The contention of the learned Solicitor General is that it must be so regarded	 and his argument in support of it may thus be stated: A contract of insurance is complete as soon as the policy is issued. From that time	 the risk begins to attach to it	 and there is a liability incurred. Rule 2 does not require that the liability should have actually accrued; it is sufficient that it is accruing. Liability under a policy must be held to be accruing so long as the policy is in force	 because it can ripen into actual liability at any time during the life of the policy on the happening of the specified event. When the assessee shows a certain amount as the value of that 1007 liability	 it is a sum in respect of an accruing liability and must be deducted under r. 2. In support of this contention	 the decision in Sun Insurance Office vs Clark (1) was relied on. The facts of that case were as follows: A fire insurance company which had been following the practice of entering in its annual statements 40 per cent. of the total premium receipts as reserve for unexpired risks claimed a deduction therefor in the assessment of its annual profits. The validity of the claim having been disputed	 the question as to its admissibility was referred to the decision of the court. Bray J.	 who heard the reference	 held that the amounts reserved for unexpired risks should be deducted firstly on the ground that the premium which had been paid in respect of a risk for a whole year could not be said to have been wholly earned	 when a portion of the period covered by the policy was still to run	 and that the reserve therefore was not income earned	 and secondly and in the alternative	 on the ground that as the premium had been received burdened with a liability which had been only partially discharged in the year of account	 the portion of the liability still outstanding should be valued on the analogy of unpaid price due in respect of property purchased and included in the trading assets. This decision was taken in appeal	 and was reversed by the Court of Appeal	 the learned Judges holding that though the reasoning of Bray J. was sound	 the question was concluded against the assessee by the decision of the House of Lords in The General Accident Fire and Life Assurance Corporation vs McGowan (2 ). The case came on further appeal before the House of Lords which agreed with Bray J.that the deduction was admissible	 and distinguished the decision in The General Accident Fire and Life Assurance Corporation vs McGowan (2 ) as one turning on the facts of that case and as not laying down that	 as a matter of law	 the deduction could not be made. Lord Haldane stated the ground of his decision thus: ". . the case is analogous to one in which if goods are bought their value cannot be treated as (1) ; ; (2) 1008 profit without deducting the value of the liability to pay for them which the buyer has incurred." Lord Alverstone expressed the reasoning on which he based his conclusion as follows: "Premiums are not profits or gains	 they are receipts which must be brought into account and out of which	 after proper deduction for losses	 profits will accrue." Lord Atkinson also rested his decision on the same ground	 and observed: " That case (Gresham Life Assurance Society vs Styles) (1) clearly decided that the receipts of a business are not in themselves profit and gains within the meaning of the Income Tax Acts	 but that it is what remains of those receipts after there has been deducted from them the cost of earning them which constitute the taxable profits and gains. Now what is the service which a Fire Insurance Company renders to each insurer in consideration for the premium it receives ? It is only	 by rendering this service in each case it earns these receipts. The service consists in indemnifying the insurer against loss by fire during the continuance of his policy. . Yet until that time has expired the service for which the Company has been paid has not been completely performed. If the accounts of the Company are to be rendered before the date of expiry	 then some division of the premium must be made	 and the proportion to be appropriated to the service which is to be performed thereafter. I think the description 'unearned premium ' which has been used to describe this latter portion is a very appropriate and accurate description. " It is also material to note that one of the authorities relied on for the Crown was the decision in Scottish Union and National Insurance Company V. Smiles (2) wherein	 discussing how the reserve for unexpired risk in fire policies is to be dealt with in computing the profits	 the Lord President observed: " Seeing that fire insurance policies are contracts for one year only	 the premiums received for the year (1) (2) 1009 of assessment	 or on an average of three years	 deducting losses by fire during the same period and ordinary expenses	 may be fairly taken as profits and gains of the Company without taking into account or making any allowance for the balance of annual risks unexpired at the end of the financial year of the Company." Referring to this and to another decision	 Lord Haldane observed that they " are not	 when carefully examined in the light of what appears to be the true principle	 reliable as authorities for the proposition which would run counter to the practice and good sense of the commercial community. " On the strength of the observations quoted above	 the argument has been advanced by the learned Solicitor General that the obligation which an insurance company contracts when it issues a policy is to be treated	 in computing its profits for the purposes of taxation	 as a liability in praesenti. Mr. K. P. Khaitan	 learned counsel for the respondent	 disputes the correctness of this contention. He argues that whatever the position under the English law	 a contract of insurance is under the Indian Contract Act merely a contingent contract	 that until the event specified in the policy happens	 there is no enforceable liability	 and that accordingly unexpired risks in pending policies cannot be treated as present liabilities. He also urges a further contention based on the history of the enactment of r. 2 of Sch. II to the Act. That rule as originally passed mentioned only borrowed money and debts	 and it was by section 10 of the Excess Profits Tax (Amendment) Act (XLII of 1940) that accruing liabilities were brought within that rule. And when they were brought in	 they did not come as something independent of and distinct from borrowed money and debts. They came in under a provision	 which enacted that the debts to be deducted under the rule included sums in respect of accruing liabilities. Relying on this circumstance	 counsel for the respondent contends that however liberally the expression " accruing liabilities " might be construed	 it cannot be interpreted so as to take in liabilities which do not bear the character of debts	 and that a liability under a contract of 130 1010 insurance where under risk had not materialised	 cannot be held to be a debt	 and is therefore not an accruing liability within the rule. In support of this position	 he relies on the decisions in Webb vs Stenton (1) and Israelson vs Dawson (Port of Manchester Insurance Co.	 Ltd.	 Garnishees) (2). In Webb vs Stenton (1)	 the question was whether a sum which was payable to the judgment debtor under a trust deed but which had not become due could be attached in the hands of the trustees as a debt owing or accruing within 0. 45	 R. 2 of the English Rules of Practice. In holding that it could not be	 Lindley L.J. observed: " I should say	 apart from any authority	 that a debt legal or equitable can be attached whether it be a debt owing or accruing; but it must be debt	 and a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation	 debitum in praesenti	 solvendum in futuro. An accruing debt	 therefore	 is a debt not yet actually payable	 but a debt which is represented by an existing obligation. " Israelson vs Dawson (Port of Manchester Insurance Co.	 Ltd.	 Garnishees) (2) was again a decision on 0. 45	 R. 2	 the Court holding that the amount which became payable under a policy as the result of the accident specified therein having occurred was	 nevertheless	 not a debt which could be attached under this rule	 before the compensation had been determined by the arbitrator in accordance with the conditions of the policy. The argument of the respondent based on the above decisions is that until the risk specified in the policy materialises and	 consequent thereon	 the compensation payable thereunder is ascertained	 there is only a contingent liability and not a debt	 and that such liability is not within r. 2 of Sch. II to the Act. In answer	 the learned Solicitor General contends that the decisions quoted above are not in point	 they having been given on a different statute	 that the decision in (1) 	 527. (2) 1011 Sun Insurance Office vs Clark(1) which dealt with the question of assessment for purposes of taxation was directly applicable	 and that according to that decision	 the amounts reserved for unexpired risks would be sums in respect of accruing liabilities. That a contract of insurance is a contingent contract does not admit of argument. That is so under section 31 of the Indian Contract Act	 and that is also the law in England where it is termed " conditional contract". (Vide Pollock on Contracts	 13th Edn.	 p. 222). This	 however	 is not material for the purpose of the present discussion which is how such contracts are to be dealt with in assessing	 the taxable profits of an insurance company. That is a matter which must be determined on the provisions of the taxing statutes and their application to the facts found with reference to the particular assessment. And it is in this view that the decision in Sun Insurance Office vs Clark (1) becomes important. Now	 what is the ratio of this decision? The law is well settled that a liability which is purely contingent cannot be allowed as a deduction in computing the profits of a business. And in holding that unexpired risks in respect of pending policies could be estimated and deducted out of the gross premium receipts	 the House of Lords must be held to have decided that the obligation of an insurer under such risks was a liability in praesenti. Reference might be made in this connection to the recent decision of the House of Lords in Southern Railway of Peru Ltd. vs Owen (2). There	 the appellant Company operated a railway in Peru under a statutory scheme under which its employees were entitled to receive from it a lump sum payment on retirement	 death or other termination of service. The Company claimed that it was entitled to value this liability in accordance with "accountancy practice" and to deduct the same from out of its annual profits. And support for this contention was sought in the decision in Sun Insurance Office vs Clark (1). In rejecting this claim it was observed by the House of Lords that the accountancy valuation was not necessarily the correct (1) ; ; (2) ; 1012 valuation for purposes of income tax	 and that the real point for decision was whether the claim was to be regarded as an essential charge against the trade receipts during the year. In distinguishing the decision in Sun Insurance Office vs Clark (1)	 Lord Oaksey made the following observations	 which are pertinent to the present discussion: " Reliance was placed	 during the argument	 on Sun Insurance Office vs Clark (1)	 in which this House held that a percentage of the premium income of an insurance company might be deferred as a receipt to a future year because it was paid as consideration for future liability	 but the principle of that decision is not	 in my opinion	 applicable to the present case. The premium income was only deferred and would suffer tax in a future year	 whereas	 in the present case	 if the appellant is permitted to deduct compensation	 Which it has not paid and which it may never have to pay	 that compensation will escape tax altogether. There is	 in my opinion	 a fundamental distinction between a contingent liability and a payment dependent on a contingency. When a debt is not paid at the time it is incurred its payment is	 of course	 contingent on the solvency of the debtor but the liability is not contingent. Similarly	 the liability in Sun Insurance Office vs Clark (1) was not	 in my opinion	 contingent but remained in force throughout the period of the insurance	 though payment in pursuance of that liability might	 or might not	 have to be made. " The decision in Sun Insurance Office vs Clark (1) and the observations in Southern Railway of Peru	 Ltd. vs Owen(1) quoted above do support the contention of the appellant that in computing the profits of an insurance company for purposes of income tax	 the unexpired risks are to be treated as a present liability. But even so	 on the footing that r. 6 in the Schedule to the Indian Income tax Act has adopted the law as laid down in Sun Insurance Office vs Clark (1)	 the question still	 remains whether unexpired risk in an outstanding policy is an accruing liability within r. 2 of Sch. II to the Act. It is contended for the (1) ; (2) ; 1013 appellant that if that liability is a present liability for purposes of assessing the taxable profits for purposes of income tax	 it must logically be the same for purposes of excess profits tax	 and must therefore be deducted under r. 2 of Sch. II to the Act. That would be so	 if the scheme and framework of the Excess Profits Tax Act were the same as those of the Income. tax Act. But the fact is that the Excess Profits Tax Act differs	 in material respects from the Income tax Act	 and the principles applicable in the assessment of profits under section 10 of the latter enactment cannot necessarily be held to be applicable in the ascertainment of the capital employed under rr.1 and 2 of Sch. II to the former Act. The object of the Excess Profits Tax Act is to tax profits of a business when they overflow a certain level. That level is determined thus: A certain	period called the standard period is taken; the capital invested and the profits made in the business during that year are ascertained	 and the standard profits are worked out in relation to those two factors. Then	 the capital actually employed in business during the chargeable accounting period is ascertained. If the capital is the same as that employed in the standard period	 then there is no further problem; but if it is more	 then the standard profits are increased	 and if it is less	 they are reduced pro tanto. Thus	 the whole scheme of the Act is to tax profits above a certain level	 and that level will move upwards or downwards as the capital employed may be more or less. It is this that constitutes the distinguishing feature of the Excess Profits Tax Act	 and it is the determination of the capital actually employed in business that forms one of the most important and arduous tasks in the ascertainment of taxable profits under the Act. Rule 1 of Sch. II to the Act enumerates three categories of properties	 which are to be included in the computation of capital. It is to be noted that this rule does not adopt any legalistic or conventional notion of what is technically termed 'capital '; but it proceeds on a factual basis to include whatever is utilised in business	 :whether it be tangible property or intangible 1014 property. The object of the provision is clearly to confer a benefit on the assessee by enabling him to retain at least in part the profits realised by him by investment of additional capital. Then there is r. 2	 which provides for certain deductions being made out of capital. Omitting for the present "accruing liabilities"	 which form the subject of the present controversy	 the other two items mentioned therein are borrowed money and debts	 and the reasons for their exclusion from capital falling within r. 1 would appear to be this: Money borrowed and debts incurred for the purpose of the business must have been utilised in it	 and would be included in the capital employed as defined in r. 1. The policy of the law being to give some relief to an assessee who invests additional capital in his business	 the reason of it requires that that should be limited to capital contributed by the assessee himself. Otherwise	 the benefit intended to be given to him might be abused	 and the object of the legislation defeated by large scale employment of borrowed capital. Borrowed money and debt are therefore to be deducted out of what is capital within r. 1. We now come to the expression "accruing liabilities". What does it precisely import ? To decide that	 we must have regard to the scope and purpose of rr. 1 and 2 of Sch. II to the Act and to the context and setting of the expression. It has been already pointed out that the object of the Act is to tax profits which overflow a certain line indicated by what is termed " standard profits "	 that the location of that line varies with the capital employed	 that the scheme of r. I is on a factual basis to treat as capital all assets tangible and intangible which are thrown into a business and contribute to the earning of profits and to exclude therefrom under r. 2 that part of it which came in as a result of borrowing. Now	 obviously. a deduction under r. 2 can only relate to what is capital under r. 1	 and that must be a really profit earning asset	 whether tangible or not . Borrowed money to be deducted under r. 2 is money borrowed for the purpose of the business	 and which has gone to swell the capital under r. 1. That is also the position as regards debts. And 1015 accruing liabilities which are liable to be deducted under r. 2 must also be of the same character as borrowed money and debts with which they are associated on the principle of noscitur a sociis. They must be such as can be said to have been utilised in the business and formed part of the really effective trading assets during the chargeable accounting period. If that is the correct approach	 as we conceive it is	 the question to be considered is neither	 on the one hand	 whether the liability amounts in law to a debt for if it is capable of being utilised in business and is so utilised	 it will fall under r. 2	 even though it is not strictly speaking a debt; nor	 on the other hand	 whether it is a liability which has been treated as one for the purpose of assessing income tax. In assessing income from business under section 10 of the Income tax Act	 what is allowed as a deduction is any liability incurred solely and exclusively for the purpose of the business	 and when that has not matured	 its value is to be determined according to rules of accountancy and deducted. But when a deduction is claimed under r. 2	 what has to be seen is whether the obligation is such that it could be regarded as an asset used in the business	 such as could conceivably contribute to its profits. If that is not established	 then it cannot be included as capital under r. 1	 and cannot be deducted therefrom under r. 2 as an accruing liability. It should not be overlooked that a deduction under section 10 of the Income tax Act and that under r. 2 of Sch. 11 to the Act proceed on totally different lines and have different objects in view. Under section 10	 the deduction is claimed by the assessee	 and that has the effect	 when allowed	 of reducing the taxable profits. Under r. 2	 it is claimed by the department	 and if allowed	 it will enhance the liability of the assessee by reducing the capital under r. 1. Incidentally	 how inappropriate the principle laid down in Sun Insurance Office vs Clark (1) would be if it is applied for determining the question of capital employed in business for the purpose of Excess Profits Tax Act will be seen from (1) ; ; 1016 the fact that one of the grounds on which the decision therein was based was that 40 per cent. of the premiums received and set apart as reserve for unexpired risks was unearned income	 and could not therefore be regarded as profits for the purpose of the Act. If that were the true position under the Excess Profits Tax Act	 then the reserve could not be included in the capital of the business	 and	 indeed	 that was one of the contentions urged by the learned Solicitor General. But that was not the stand taken by the department before the Tribunal and that is directly opposed to the plain language of r. I of Sch. II	 under which all the premiums thrown into the business would be capital employed in the business. That clearly shows how unsafe it will be to adopt the principles laid down for the purpose of assessing business profits under the Income tax Act to a determination of the question of the capital employed under the Excess Profits Tax Act. In this view	 is the reserve for unexpired risks an "accruing liability " within r. 2 ? The decision in. Sun Insurance Office vs Clark(1) that it should be allowed as a deduction was based on two grounds. One was that it should be regarded as " unearned income "	 and for the reasons already stated	 it cannot avail when the question is one of determining capital under the Act. And the other was that the reserve represents a liability in the nature of unpaid price of property included in the trading assets. But apart from the fact that we have to strain the analogy in applying it to the present situation	 can that liability be held to be of the character contemplated by r. 2 ? Can it be said that the reserve for unexpired risk was	 like borrowed money and debt	 part of the real trading assets of the business ? The answer must clearly be in the negative. The reserve liability could not factually be said to have contributed to the running of the business or the earning of profits. It was some. thing in the air	 and could have had no effect in the working of the concern	 during the chargeable accounting period. It cannot therefore be held to be an is accruing liability " within r. 2 of Sch. 11 to the Act. (1) ; ; 1017 A case very much in point is the decision in Northern Aluminium Co. Ltd. vs Inland Revenue Commissioners(1). There	 the question arose whether a conditional liability under a contract was an " accruing liability " within the corresponding provision in the English Excess Profits Tax Act. The facts were that on December 16	 1939	 an agreement was entered into between the Ministry of Aircraft Production and a company engaged in manufacturing aluminium products and supplying them to manufacturers of aircraft for the Government	 wherein it was provided that the prices which the latter was then charging to its customers should be reduced for the period July 1	 1939	 to June 30	 1940	 and that the amount by which the prices paid to the company were in excess of the reduced prices should be paid by the company to the Ministry. The agreement further provided that negotiations should be started not later than June 30	 1940	 for determining the rates to be charged for the periods following June 30	 1940. The agreement was	 in fact	 concluded only on October 12	 1942	 whereby the prices to be charged by the company were fixed for the years 1941	 1942 and 1943. In accordance with the agreement entered into on October 12	 1942	 a sum of pound 2	743	469 was repaid by the company to the Ministry in 1943 being the difference between the price paid by the customers and that fixed in the agreement. This amount was actually allowed as a deduction in the assessment of the business income for purposes of income tax	 and the dispute related to the question whether it could be deducted in assessing the excess profits tax as an "accruing liability" of the company for the chargeable accounting period which was January 1 to December 31	 1941. It was held by the Court of Appeal that there was	 in fact	 no agreement between the parties during the chargeable accounting period	 and that therefore no liability was incurred. In the alternative	 it was held that even if the agreement dated December 16	 1939	 could be construed as amounting to a conditional agreement for the period subsequent to June 30	 1940	 the obligation created thereby could not be (1) 	 554. 1018 regarded as an accruing liability within the rule in question. Lord Greene M.R. stated the reason thus: " A purely conditional liability	 which may or may not mature	 is not one which falls within that language	 for this reason: Quite apart from the actual words	 it would be contrary to the whole conception underlying these capital provisions because a purely conditional liability	 which may or may not eventuate	 is not a thing which affects a company 's capital position	 any more than a conditional receipt can affect its capital position. A receipt which may or may not be received	 according as some event does or does not happen	 is not a thing with which you can earn profits. It is the possibility of earning profits on your real capital that these capital provisions are concerned with. Therefore	 in my opinion	 even if one could spell such a hypothetical and conditional contract out of these words	 the result would not give rise to an accruing liability within the meaning of the section. " This decision was taken in appeal to the House of Lords and was affirmed. Vide Inland Revenue Commissioners vs Northern Aluminium Co. Ltd. (1). This decision establishes that a conditional liability under a concluded contract it is on that footing that the second point arose for decision was not an accruing liability for the purposes of the Excess Profits Tax Act	 as the same had no effect on the actual capital position of the company	 and the fact that it was allowed for purposes of income tax did not affect the position under the Excess Profits Tax Act. The learned Solicitor General sought to distinguish this decision on the ground that it did not relate to an insurance business	 whereas it was contended that Sun Insurance Office vs Clark (2 ) directly dealt with the question now under consideration whether reserves for unexpired risks in pending policies were liabilities which could be deducted. We do not see how it makes any difference in the construction of r. 2 of Sch. II to the Act that the liability sought to be deducted arises under an insurance policy and not under some other contract. (1) (2) ; ; 	 1019 We are of opinion that the principles laid down in Northern Aluminium Co.	 Ltd. vs Inland Revenue Commissioners (1) and Inland Revenue Commissioners vs Northern Aluminium Co.	 Ltd. (2 ) are applicable to the decision of the present case	 and that a contingent liability in respect of unexpired risk is not an "accruing liability" within r. 2 of Sch. II to the Act. The decision appealed from is correct	 and this appeal must accordingly be dismissed with costs. Appeal dismissed.

The respondent was a company carrying on life	 fire	 marine and general insurance business	 and the question for determination related to the assessment of excess profits tax on its income other than life insurance. The method adopted by the company with respect to fire insurance policies was that while the premiums received were all of them included in the assets of the year	 a portion thereof	 40 per cent.	 was treated as reserve for unexpired risks on the outstanding policies	 and shown as a liability. The appellant	 the Commissioner for Excess Profits Tax	 claimed that the sum set apart as reserve for unexpired risks was liable to be deducted under r. 2 of Sch. II of the Excess Profits Tax Act	 1940	 from out of the capital employed in business for that year. The respondent	 while maintaining that all the premiums received must be treated as capital under r. 1 of Sch. II to the Act	 contended that the provision for unexpired risks was only a contingent liability and that a liability under a contract of insurance where under risk had not materialised could not be held to be a debt and was therefore not an accruing liability within r. 2 of Sch. II to the Act. Held	 that the reserve liability for unexpired risk	 unlike borrowed money and debts	 cannot be treated as part of the real trading assets of the business so as to have an effect on the running of the business or the earning of profits	 and consequently	 as it cannot be included as capital under r. i	 it cannot be deducted as an accruing liability within r. 2 of Sch. II of the Excess Profits Tax Act	 1940. Sun Insurance 0Office vs Clark; 	 and Southern Railway of Peru Ltd. vs Owen	 (1956) 2 All E.R. 728	 distinguished. Northern Aluminium Co.	 Ltd. vs Inland Revenue Commis sioners	 and Inland Revenue Commissioners vs Northern Aluminium Co. Ltd. (1947) 1 All E. R. 608	 relied on. 1003