TaxTMI 
TaxTMI 
2017 (5) TMI 1769
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....assessment order is erroneous and prejudicial to the interest of the revenue and hence initiated proceedings u/s 263. After considering the assessee explanation, the CIT held that the assessee is engaged in the life insurance business has maintained the financials as per the IRDA regulations. The surplus/deficits in the shareholders account and the policyholders account are shown -separately. During f y 2000-09, the assesses has arrived at deficit in policyholders account at Rs. 194,04,02,725/- and surplus in shareholders account for Rs. 10,52,02,173/-. The net loss is shown at Rs. 183,52,00,552/- which is the total income returned. In the assessment order, adjustments are made on transfer pricing and the loss is determined at Rs. 181 ,03,3322.-. As per section 115B , the profits and gains of life insurance business is taxed at two different rates on the profits earned by the Life insurance business and on the profits excluding the income from life insurance business. While the profits of life insurance business is taxed at 12.5%, the profits from other than life insurance business is taxed at normal rate of tax. In view of these provisions, it is evident that the two incomes, i.e.....
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....The taxation of the income from life insurance business is governed by section 44 of the Act. Section 44 of the Act which reads as follows: "Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head "Interest on securities", "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule." Further, according to section 44 of the Act, provisions regarding computation of income chargeable under the head 'Interest on securities',"Income from house property', 'Capital gains', Income from other source' and provisions of section 28 to43B would not apply to assessee in insurance business. Reliance is placed on the following decisions on applicability of section 44 of the Act: General Insurance Corpn. of India v. CIT [1999] 106 TAXMAN 389 (SC) 'Section 44 is a special provision govern....
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....ness only. (a) DCIT v. ICICI Prudential Life Insurance Company Limited. (ITA/1563/Mum/2013) (b) HDFC Standard Life Insurance Company Ltd. v. DIT (ITA/3004/Mum/2012) A brief summary of the above mentioned precedents is reproduced below for your goodselfs ready reference: 'IRDA Regulations specifically require to maintain the Policy-holders' account and the Share-holders' account separately and permits transfer of funds from Shareholders' account to Policy-holders' account as and when there is a deficit in Policyholders' account. Since the insurance business will not yield the required profits in the initial 7 to 10 years, lot of capital has to be infused so as to balance the deficit in the policy - holder's account. Since assessee is having only one business of life insurance, the entire transactions both under the Policy-holders' and Share-holders' account do pertain to the life insurance business only as it was not permitted to do any other business. Once assessee is in the lift insurance business, the computation has to be made in accordance with the Rule-2as per provisions of section 44. Therefore, there is a valid argument raised by a....
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....pra, that the AO had required the assessee to explain its stand regarding aggregation of profits / loss as it appeared in policy holders account and as it appeared in shareholders account and the assessee had given an explanation. We cannot say that the AO was not aware of the issue of aggregation. 05. Now , coming to the view taken by the CIT that these two accounts had to be considered separately, and benefit of section 115B of the Act, could be given only to the profits from life-insurance business, there is no dispute that assessee was doing only life-insurance business as regulated by the IRDA. The CIT himself has mentioned that the assessee was engaged in life-insurance business. Question whether policy holders account and shareholders account, in the case of an assessee carrying on only the business of life-insurance business was to be separated or consolidated, had come before the Tribunal in ICICI Prudential Ltd, (supra). Para 32 of this order dt.14.09.2012 is reproduced below : "32. IRDA Regulations specifically require to maintain the policyholder's account and the shareholder's account separately and permits transfer of funds from shareholder's account ....