2(1)Section 69(7) of the Finance Act 1965 (which prohibits, in general, the repayment of income tax on the policy holders' share of the franked investment income from investments held in connection with a company's life assurance business) shall have effect in relation to any income as if, for the reference to such part of it as belongs or is allocated to, or is reserved for or expended on behalf of, policy holders, there were substituted a reference to the part of it specified in sub-paragraph (3) below.
(2)Section 427(2) of the [1952 c. 10.] Income Tax Act 1952 (under which, where the tax on its investment income exceeds seven shillings and sixpence in the pound, a company is entitled, notwithstanding the said section 69(7), to repayment of the excess on the policy holders' share) shall have effect in relation to any income as if, for the references in paragraphs (a) and (b) to such part of it as, in the opinion of the Commissioners, belongs or is allocated to, or is reserved for or expended on behalf of, policy holders, there were substituted references to the part specified in sub-paragraph (3) below of so much of that income as has not been excluded from charge to tax by virtue of any provision and against which no relief has been allowed by deduction or set-off.
(3)The said part shall be, in the case of any income, the same fraction of it as the fraction which, on a computation of the profits of the company in respect of its life assurance business in accordance with the provisions applicable to Case I of Schedule D (whether or not the company is in fact charged to tax under that Case for the relevant accounting period or periods) would be connoted by the words in section 427(1) of the said Act of 1952 " such part of those profits as belongs or is allocated to, or is reserved for, or expended on behalf of, policy holders or annuitants ":
Provided that, if the income exceeds the profits as computed in accordance with those provisions other than the said section 427(1), the said part shall be that fraction of the income so far as not exceeding the profits, together with the amount of the excess.
(4)Sub-paragraph (2) above shall not affect the said section 427(2) as it applies by virtue of the said section 69 to chargeable gains.
(5)Sub-paragraphs (1) and (2) above shall have effect, as respects income tax, for the year 1966-67 as well as subsequent years of assessment and, as respects corporation tax, for accounting periods ending on or after 6th April 1965.
(6)For the avoidance of doubt, it is hereby declared that the reference in the said section 69(7) to repayment of income tax includes a reference to the setting off of income tax against tax which the company is liable to pay in respect of its own distributions.
(7)The said section 69(7), as amended by sub-paragraph (1) above, shall not be taken to apply to repayments of income tax under section 62 of the said Act of 1965.
(8)Paragraph 9(3) of Schedule 5 to the [1966 c. 18.] Finance Act 1966 (which provides that franked investment income by virtue of which annuities have been treated as charges on income shall be left out of account under section 48 of the said Act of 1965) shall have effect, and be deemed always to have had effect, as if, for the words " shall be left out of account under section 48 of the Finance Act 1965 ", there were substituted the words " shall be income the tax on which is not available for set-off against income tax which the company is liable to pay in respect of its own distributions ".