CPT V24P7-Art1 (Content).pmd - Taxmann

This article aims to study various aspects related
to the taxation of the insurance businesses in
India under the Income-tax Act, 1961.
The authors have proceeded in the following
manner for the purpose of this study.
Firstly, the authors have tried to give a brief
description of the working of Insurance
Businesses.
Secondly, the authors aim to present the difficulties
in taxation of insurance businesses and seek
to clarify, through legal provisions and settled
case laws, the need of a different mode of
taxation of the insurance businesses.
Thirdly, the authors have presented the form
in which the insurance businesses are required
to submit their financial statements to the
concerned authorities in consonance with the
provisions of the Insurance Act, 1938 and various
IRDA regulations.
Fourthly, the authors have tried to analyze the
mode of taxation of the insurance businesses
according to the provisions of the Income-tax
Act, 1961, read with the Insurance Act, 1938
and various other Finance Acts and IRDA
regulations.
Fifthly, the paper seeks to study the provisions
of the Direct Tax Code, 2010.
INSURANCE BUSINESS AND THE
PRINCIPLES ON WHICH THIS BUSINESS
WORKS
2. In the present era, when life is full of risks
and uncertainty, insurance has its own
importance. Today it is not limited to individuals
or families, rather it embraces the entire country
in a way that no industry can ignore it. It is
the backbone of every industry, irrespective of
field in which it operates. Big industrial units
having huge investment needs to get risk covered
so that in case of a misfortune, the industry
may not come to a standstill. No one in the
modern world can afford to be without an
insurance cover.
Insurance, or as it is sometimes called, assurance,
is a contract by which one party, for a
consideration, which is usually paid in money
either in lump sum or at different times during
the continuance of the risk, promises to make
certain payment of money upon the destruction
or injury to something in which the other
party has an interest. In fire insurance and in
marine insurance the thing insured is property;
in life or accident insurance it is the life or
health of the person. 3 In this manner insurance
covers every type of risk and now insurance
business has turned up into a trillion dollar
business.
Insurance business works on certain general
principles. All principles enshrined under section
10 of the Indian Contract Act, 1872 for a lawful
contract apply to insurance contracts. However,
there are certain other principles which apply
to Insurance business. Those principles are as
follows:
(a) Indemnity: Every contract of insurance,
except life insurance, is a contract of
indemnity and no more than an indemnity.
The insurer 4 undertakes, within the
limit of obligation, to compensate the insured
for his actual loss, and no more. 5
(b) Duty of disclosure, uberrima fides (utmost
good faith): Every contract of insurance
is a contract of utmost good faith
(uberrima fides). The insured should not
only make any misrepresentation but should
also disclose all facts affecting the risk
insured against. Insurance is a contract of
good faith where both parties have to
abide by the terms and conditions of the
policy. 6
COMPUTATION OF INCOME TAX ON
INSURANCE BUSINESSES UNDER THE
INCOME-TAX ACT, 1961
3. The Insurance Companies 7 and Co-operative
Societies providing insurance have been provided
with a special status under the Income-tax Act
in relation to both, the procedure as well as
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