CPT V24P7-Art1 (Content).pmd - Taxmann

Direct Tax Laws
the rate of taxes levied on the insurance
businesses.
It is important to note that the insurance
businesses are exempted from the application
of section 199 8 and sections 28 to 43B 9 . The
mode and rates of computation of income-tax
on insurance businesses are governed by the
provisions of section 44, read with the First
Schedule of the Income-tax Act, 1961 and section
115B. This interpretation has been settled in
a plethora of judgments. 10
It was laid down in the case of CIT v. BB &
Railway Co-op. Mutual Death Benefit Society Ltd. 11
that an insurance company, instead of making
its return of income under the various heads
laid down under section 14 is required to
submit only one figure of income, arrived at
in accordance with the rules laid down in the
First Schedule. This is because First Schedule
does not provide for computation of income
under different heads.
In GIC v. CIT 12 , the Supreme Court held that
section 44, read with First Schedule, lays down
a synthetic mode of computing the profits and
gains of the insurance business, for the purposes
of the income-tax. It also held that the figures
of accounts drawn by the assessee must be
drawn up in accordance with the provisions
of the First Schedule and must also satisfy the
requirements of the Insurance Act. Further,
the Court held that the reports so drawn are
binding on the Assessing Officer and he has
no general power to correct the errors in the
accounts of the insurance business and undo
the entries made therein.
It is also pertinent to note that the profits of
life insurance business are to be taxed at rates
specifically provided under section 115B, inserted
by the Finance Act, 1976.
FURNISHING OF ACCOUNTS
4. The insurance businesses are required to
produce financial statements in accordance with
the provisions of the Insurance Act, 1938, read
with the Insurance Regulatory and Development
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Authority (Preparation of Financial Statements
and Auditor’s Report of Insurance Companies)
Regulations, 2002. 13
Financial reports and balance sheets of the
insurance businesses must be prepared in
accordance with the provisions enlisted under
sections 10 to 13 of the Insurance Act, 1938.
It is obligation upon every insurer dealing
with any kind of insurance business to have
a separate account of all receipts and payments
in respect of each class of insurance business. 14
In case of life insurance business by any insurance
company the business of life insurance shall
be carried on with the help of separate fund
known as life insurance fund. They are not
permitted to carry on any other business other
than life insurance until and unless the assets
of life insurance fund of the insurer are adequate
to meet all liabilities of life insurance. 15
Every insurer carrying on any kind of insurance
business is under an obligation to prepare balance
sheet, profit and loss account, a separate account
of receipts and payments and revenue accounts
after expiration of each financial year as per
provisions mentioned under the Insurance
Regulatory and Development Authority Act,
1999. 16 They shall also keep separate accounts
relating to funds of shareholders and policyholders.
17 Every balance sheet, profit and loss
account, revenue account and profit and loss
appropriation account of every insurer must be
audited annually by a practicing auditor. 18 It is
obligatory upon every insurer carrying on the
business of life insurance to cause an actuarial
valuation of its assets and liabilities and financial
condition of the life insurance business once in
a year as per provisions mentioned in the Insurance
Regulatory and Development Authority (Actuarial
Report and Abstract) Regulation, 2000. The audited
accounts and reports carried on by actuary as
per the IRDA (Actuarial Report and Abstract)
Regulation, 2000 as well as financial statements
of every insurance companies or insurers is to
be submitted to the Insurance Regulatory and
Development Authority within six months of
the period specified by every insurance company
or insurer. 19