CPT V24P7-Art1 (Content).pmd - Taxmann

Direct Tax Laws
Insurance Act, 1938. The profits of the insurance
business while computing shall be increased
by the aggregate of the accruals of the receipts
calculated as per the provisions mentioned
under section 33(2) of the draft Bill to the
extent that such profits are not referred to in
any other heads of profits and the amount of
expenditure referred to under section 35(4)
and the exceptions of finance charges referred
to under section 36(2) of the draft Bill shall
be considered as the deductions while computing
profits of the insurance business. 60 While
computing the profits, deductions mentioned
under section 35(2)(xxx) which talks about
contribution to any fund related to their
employees shall also be taken into consideration. 61
10.2 Computation of profits of non-life insurance
business - The profits of the insurance business
other than life insurance business shall be the
profits disclosed in the annual accounts, the
copies of which are deposited with the Controller
of Insurance as per the provisions of the Insurance
Act, 1938. 62 The increase in the profits and
deductions made in the profits are same as
calculated in the life insurance business. 63
The profits of the branches in India of a person
not resident in India and carrying on any
business of insurance, may, in the absence of
more reliable data, be deemed to be that
proportion of the world income of such person
which corresponds to the proportion which
his premium income derived from India bears
to his total premium income. 64
The profit from the business of insurance shall
be aggregated with unabsorbed preceding year’s
loss from the business of insurance, if any,
and the net result of such aggregation shall
be the current profit from the business of
insurance for the financial year. 65 The current
profit from the business of insurance shall be
treated as nil, if the net result of aggregation
in profit is negative and the absolute value of
the net result of the aggregation shall be the
amount of unabsorbed current loss of the business
of insurance for the financial year.
666
In this manner the total profit of the insurance
business shall be calculated as per the different
provisions of the Direct Tax Code Bill in
consonance with the Insurance Act, 1938.
CONCLUSION
August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 46
11. It is evident from the present study that
there is a need to tax the insurance businesses
differently from other businesses. The same
has been convincingly clarified by the Courts
in various judgments while identifying the
difficulties that might arise if the insurance
businesses are taxed in the same model of
taxing as the other businesses.
However, inspite of these clarifications and
reconciliations by both, the Courts as well as
the Legislatures, the difficulties in ascertaining
a stable model for taxing insurance businesses
still persist.
There are great difficulties in applying rule 2.
This is because the term ‘annual average’ referred
to in rule 2 has been left redundant, since
actuarial valuation is carried out on yearly
basis by insurance companies. Moreover, the
term ‘Actuarial valuation’ is not defined in the
Income-tax Act. Further, only policyholders’
account is considered if prescribed Form is
adopted as basis for taxation.
Also, the computational provision, i.e., the rule
2 of the First Schedule is capable of different
interpretations.
Further, the tax provisions have not kept pace
with major regulatory changes brought about
by IRDA, since there has been no amendment
since 1976 to provide for uniform methodology
for computation of profits from life insurance
business.
Moreover, the Central Government had in 2000
formed a Committee under the Chairmanship
of Justice V.U. Eradi to suggest necessary
alterations in the present Income-tax Act, 1961
in relation to the taxation of the Insurance
Businesses. However, despite some significant
alterations suggested by the Committee’s report,