CPT V24P7-Art1 (Content).pmd - Taxmann

the same have not yet been adopted by the
Government in the present taxation scheme.
The expert Committee headed by Justice VU
Eradi on taxation of life insurance sector has
designed a two-tier tax structure, one for the
policyholders and the other for the shareholders
against the existing uniform base of taxation
of both, policyholders and shareholders.
The Committee set-up by the Ministry of Finance
has recommended a concessional tax rate of
5 per cent to 7 per cent on the life insurance
policyholders fund. The shareholders fund of
the life insurance companies will be taxed at
the prevailing corporate tax rate of 35 per
cent.
As per the proposed norms, two separate tax
structures will be applicable for computing
the taxes after bifurcating the entire fund of
a company into shareholder’s fund and
policyholder’s fund.
The Eradi Committee was set-up with the
objective of forming concrete guidelines for
computing the taxes on the total income of the
insurance companies. The Committee had further
proposed that the present method of actuarial
valuation should continue to be the basis of
taxation, nevertheless some members of the
Committee were understood to have
recommended that income-expenditure method
should be the basis. The concessional rate
prescribed by the Committee aimed at
safeguarding the interest of the policyholders
who generally belong to the lower middle
income group.
The Committee’s recommendations would now
necessitate the insurance companies to prepare
two different profit and loss accounts, based
on two different tax rates - for policyholders
and shareholders of the company.
Furthermore, it is also pertinent to note that
the aforementioned recommendations have been
largely ignored in the proposed Direct Tax
Code, 2010 as well.
However, one can only pray that necessary
recommendations are adopted by the Legislature
and the government and the significant alterations
are brought about in the persisting laws in
order to streamline and stabilize the taxation
scheme on the insurance businesses. This will
ensure that the insurance businesses play a
major role in economic and human welfare by
not only providing investments into the economy
but also by contributing to the revenue
significantly by means of taxes paid.
1. Himalaya Assurance Co. Ltd., In re [1939] 7 ITR 402 (PC).
2. Ibid.
3. George J. Couch, Couch on Insurance, § 1.2, at 4-5 (2nd Ed. 1984).
4. Insurance Act, 1938, Section 2(9).
5. Dr. Avtar Singh, Law of Insurance, Eastern Book Company, Lucknow, p. 14, (7th Ed., 2010).
6. New India Insurance Company Ltd. v. Kiran Singh [2004] 10 SCC 649.
7. Insurance Act, 1938, section 2(8).
8. Income-tax Act, 1961, section 199.
9. Ibid, section 43B.
10. LIC v. CIT [1996] 85 Taxman 313 (SC); CIT v Hero Cycles (P.) Ltd. [1997] 94 Taxman 271 (SC), General Insurance
Corpn. of India v. CIT [1999] 106 Taxman 389 (SC), CIT v. Oriental Insurance, 260 ITR 91, Bombay Mutual Life
Assurance Society Ltd. v. CIT [1951] 20 ITR 189 (Bom.), CIT v. New India Assurance Co. Ltd. [1969] 71 ITR 761
(Bom.), Addl. CIT v. Jupiter General Insurance Co. Ltd. [1984] 18 Taxman 152 (Bom.) & CIT v. National Insurance
Co. Ltd. [1995] 81 Taxman 449 (Cal.).
11. CIT v. B.B. & C.I. Railway Co-operative Mutual Death Benefit Society for Indian Staff Ltd. [1949] 17 ITR 509 (Bom.).
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