TMI Blog2017 (5) TMI 1769X X X X Extracts X X X X X X X X Extracts X X X X ..... us is cryptic without any reference to the above mentioned letter submitted by the assessee. However, it is clear from the reply given by the assessee, as extracted supra, 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. 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 [ 2015 (1) TMI 9 - ITAT MUMBAI ] There is a clear opinion expressed by the Mumbai bench that when section 44 of the Act is applied, distinction between various heads of income paled into insignificance. The assessee had in its return, separately shown the revenue in its shareholders account and revenue derived from its policy holders account. Revenue account for policy holders account clearly reflec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. the deficit/surplus of the policyholders account and the deficit/surplus of the shareholders account are distinct and taxed separately. The set off of loss from policyholders account which is from the life insurance business cannot be set off against the income from shareholders account. By setting off of the deficit from the policyholders account to the surplus of the Shareholders account, the assessee has not offered the income amounting to ₹ 10,52,02,173/- which is taxable at normal rate. By allowing the set off of the losses against the surplus, the Assessing Officer has erred in passing an erroneous order which is prejudicial to revenue as there is non-taxation of income. Hence, the CIT held that the set off of deficit in policyholders ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 governing computation of taxable income earned from business of insurance . It opens with a non obstante clause and, thus, has an overriding effect over other provisions contained in the Act. It mandates the assessing authorities to compute the taxable income from business of insurance in accordance with the provisions of the First Schedule.' Life Insurance Corpn. of India v. CIT [1964] 51 ITR 773 (SC) There is no other provision in the Schedule which authorises an ITO to make adjustments in the actuarial valuation made by the assessee. When one comes to rule 3(b) one can find that the first part of it lays down that it shall be obligatory on the ITO to allow certain amounts written off or reserved by the assessee as a deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder'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 assessee that both the Policy- holders' Share-holders' account has to be consolidated into one and transfer from one account to another is tax neutral. Just because separate accounts are maintained the incomes in Shareholders' account does not become separate from Life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Shareholders' account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders 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 to policyholder s account as and when there is a deficit in policyholder s account. As rightly noted by the Hon'ble Bombay High Court, as a policy, company is transferring funds/assets from shareholder s account to policyholder s account even during the year periodically as and when the actuarial valuation was arrived at in policyholder s account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requirement of actuarial valuation report periodically and accordingly assessee was transferring funds from the shareholder s account to policyholder s 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 balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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