INCOME TAX ACT, 1961

Section 115B Section 44

Insurance company - Income from insurance business - Income in shareholders' account - Assessee maintaining separate accounts

Assessee-company engaged in life insurance business filed nil return of income after setting off brought forward business losses against surplus from Life Insurance business of Rs. 1,29,16,20,120. Subsequently, the assessee filed revised return of income declaring total income of Rs. Nil after setting off brought forward business losses against surplus from life insurance business of Rs. 1,09,40,23,000. AO made additions and adjustment of set-off of brought forward losses and determined total income at Rs. 12,85,17,62,813. Assessee's case was that Surplus available in shareholders' account was not to be taxed separately as income from other sources and at normal corporate rate because surplus from shareholders' account was only part of income from insurance business and net surplus arrived at after combing surplus available in shareholders' account and surplus available in policy holders account is only taxable under section 44, as per the rates specified under section 115B. Held: Assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts were maintained, incomes in shareholders' account did not become separate from Life insurance business. In terms of Insurance Act, 1938 all incomes were part of one business only and these incomes were considered as part of same business. Therefore, incomes in shareholders' account were to be considered as arising out of Life insurance business only. More over, section 44 mandates that only First Schedule would apply for computing incomes and excludes other heads of income like, Interest on Securities, Income from house property, Capital gains or Income from other sources. Being non-obstante clause, section 44 mandates that profits and gains of insurance business shall be computed in accordance with Rules contained in First Schedule. Therefore, incomes in Shareholder account were to be taxed as part of life insurance business only, as they were part of same business and investments were made as part of solvency ratio of same business. Thus, AO was directed to treat them as part of Life Insurance Business and tax them under section 115B.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 44

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