Life insurance business profits are computed under the special tax code, excluding separate taxation of shareholders' account income and section 14A.

For life insurance business, profits and gains are computed under section 44 of the Income-tax Act read with Rule 2 of the First Schedule, which overrides the general computation provisions. On that basis, income credited in the shareholders' account is not separately taxable where it forms part of life insurance business profits under the special regime. The same special code also excludes recourse to section 14A for segregating exempt income and related expenditure in computing insurance business profits. The discussion further confines consideration to the actuarial surplus issue in the non-linked participating policyholders' account.

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Issues: Whether the income reflected in the shareholders' account of a life insurance company is separately taxable, whether section 14A applies to exempt income in computing insurance business profits, and whether the computation of actuarial surplus in the non-linked participating policyholders' account is to be examined on the issues framed.

Analysis: The statutory scheme for taxation of insurance business is governed by section 44 of the Income-tax Act, 1961 read with Rule 2 of the First Schedule, and this mechanism prevails over other computational provisions because section 44 operates notwithstanding anything to the contrary. On that basis, the Court found no distinction for tax computation purposes between income shown in the policyholders' account and income shown in the shareholders' account, since both form part of the profits and gains of life insurance business under the special statutory regime. For the same reason, once the computation is controlled by section 44 and the First Schedule, recourse to section 14A for segregating individual items of income and expenditure does not arise in relation to insurance business profits.

Conclusion: The shareholders' account income was not required to be taxed separately, and section 14A was held inapplicable in the computation of life insurance business profits. The Court confined further consideration to the actuarial surplus issue in the non-linked participating policyholders' account.

Final Conclusion: The special computation code for life insurance business was affirmed for the issues decided, while the remaining question was left for consideration in the admitted appeal.

Ratio Decidendi: For life insurance business, profits and gains must be computed exclusively under section 44 read with Rule 2 of the First Schedule, and that special code excludes separate resort to general income-tax computation provisions such as section 14A.

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