Life Insurance Business prepares Financial Statement as per IRDA regulations, for Purpose of Taxation Section 44 can Apply: ITAT grants relief to HDFC Life Insurance [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) granted relief to HDFC Life Insurance Company and held that when the life insurance business prepares the financial statement as per the Insurance Regulatory and Development Authority Act (IRDA) regulations, then for the purpose of taxation the provision of Section 44 of the Income Tax Act, 1961 can apply.

The assessee is engaged in the business of life insurance which includes term insurance linked business, pension business, general annuity business, etc. falling within the definition of the term “life insurance business” under the Insurance Act, 1938. The assessee is regulated by the Insurance Act, the IRDA, and the rules and regulations there under. The assessee filed the return of income declaring a total income of Rs.504,60,59,780/-.

The assessee disclosed its income based on surplus of Form I which is the actuarial valuation as prescribed by the IRDA. The Assessing Officer (AO) recomputed the income from the insurance business of the assessee by modifying the computation by making adjustments. The Commissioner of Income Tax (Appeal) [CIT(A)] gave relief to the assessee by placing reliance on the decision of the co-ordinate bench in the assessee’s own case.

The Authorized Representative submitted that the assessee has computed its income as per the provisions of Section 44 of the Income Tax Act read with rule No.2 of Schedule I according to which, the difference between the actuarial valuation done in accordance with Fourth Schedule of Insurance Act, 1938 and the difference between the closing balance of the opening balance is treated as the income in the hands of the assessee.

According to Rule 5 of Schedule I wherein the company engaged in the life insurance business is excluded for the purpose of computing income as per the IRDA Act and though the assessee prepares the financial statements as per the IRDA regulations, for taxation provisions of Section 44 of the Income Tax Act would apply.

It was further submitted that the CIT(A) has correctly followed the decision of the coordinate bench to give relief to the assessee and that there is no infirmity in the order of the CIT(A). The facts for the year under consideration being identical, the AR submitted that the issue is covered by the decision of the co-ordinate bench.

The Two-member bench comprising of Amit Shukla (Judicial member) and Padmavathy S. (Accountant member) held that “the assessing officer while recomputing the income of the assessee has made the adjustment stating that the revenue in earlier assessment years has made a similar adjustment. The CIT(A) has given relief to the assessee by relying on the decision of the coordinate bench in the assessee's own case for earlier assessment years”.

There was merit in the contention of the assessee and it was noticed that in the above case, the coordinate bench has considered the various adjustments made to the income of the assessee and has held that in the assessee’s case, the income should be computed as per the provisions of Section 44 of the Income Tax Act and accordingly, to be taxed under Section 115B of the Income Tax Act. Therefore, respectfully following the above, the bench upheld the decision of the CIT(A).

To Read the full text of the Order CLICK HERE

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