Life insurance profit computation must aggregate shareholders' and policyholders' accounts under the First Schedule.

Section 44 requires the profits of insurance business to be computed only under the First Schedule, and for a life insurance business Rule 2 of Part A governs the computation. Rule 5 of Part B applies only to insurance business other than life insurance, so the shareholders' account cannot be treated as separate from the policyholders' account in a life insurer's accounts. Where the assessee carries on only life insurance business, the surplus or deficit in the shareholders' account must be aggregated with the policyholders' account for determining profit or loss.

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Issues: Whether, in computing the profits of a life insurance company, the surplus or deficit in the shareholders' account is to be aggregated with the policyholders' account under Section 44 and Rule 2 of Part A of the First Schedule, or whether Rule 5 of Part B of the First Schedule applies so as to treat the two accounts separately.

Analysis: Section 44 contains a non obstante clause and mandates that the profits and gains of any business of insurance be computed only in accordance with the First Schedule. Rule 2 of Part A specifically governs computation of profits of life insurance business, while Rule 5 of Part B applies only to insurance business other than life insurance. The assessee was found to be engaged only in life insurance business, and the financial statements were prepared under the IRDA regulations on the basis of policyholders' account and shareholders' account. Following the settled position that the shareholders' account forms part of the life insurance business computation, the Court held that the two accounts cannot be separated for the purpose of applying Rule 5.

Conclusion: The Revenue's challenge fails. Section 44 read with Rule 2 of Part A applies, Rule 5 of Part B does not, and the surplus or deficit in the shareholders' account must be aggregated with the policyholders' account for determining the assessee's profit or loss.

Ratio Decidendi: For a assessee carrying on only life insurance business, Section 44 requires computation strictly under Rule 2 of Part A of the First Schedule, and the shareholders' account is to be treated as part of the life insurance business computation rather than as a separate source of income.

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