Shareholder's Account to be Taxed under Life Insurance Business Provisions: ITAT in Kotak Mahindra Life Insurance case [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) in the Kotak Mahindra Insurance case held that theshareholder's account is to be taxed under life insurance business provisions.

The revenue has appealed against the order of the Commissioner of Income Tax Appeals [CIT(A)] for the assessment year 2021-22.

Before the ITAT, the assessee’s counsel vehemently contended that all the 3 grounds which were raised in the assessee’s appeal were already covered in favor of the assessee by a previous order by the Mumbai ITAT. It was also contended by the counsel that the same issues were consistently ruled in the appellant's favor from AY 2007-08 onwards. Copies of ITAT orders, including the latest for AY 2020-21 (ITA No. 2352/Mum/2024), were also submitted.

The bench, by referring to the decision of its coordinate bench, noted that solely for the reason that separate accounts are maintained, the income from the shareholder's account does not become separate from the life insurance business.

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The ITAT noted that as per the Insurance Act of 1938, all incomes are part of one business, including those in the shareholder's account, which are considered part of the life insurance business.

The bench also observed that “moreover, Sec. 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like Interest on Securities, income from house property, capital gains, or income from other sources.”

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The ITAT noted that since the shareholder's account income is part of the life insurance business and tied to solvency ratio investments, it should be taxed under Section 115B of the Income Tax Act. The grounds raised by the assessee were allowed, and the AO was directed to tax it accordingly.

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In conclusion, the Mumbai bench of the ITAT, comprising Kavitha Rajagopal (Judicial Member) and Omkareshwar Chidara (Accountant Member) dismissed the revenue’s appeal.

To Read the full text of the Order CLICK HERE

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