The Income Tax Appellate Tribunal (ITAT), while granting relief to Max New York Life Insurance Company Ltd, held that the addition made by the income tax department treating bonus allocated to the policyholders as taxable income under section 44 of the Income Tax Act, 1961 is liable to be quashed.

The assessee, Max New York Life Insurance Company Ltd is a joint venture between Max India Ltd and New York Life insurance International Holding Ltd. The assessee filed the return of income declaring income. The assessment was made to determine the total income. The income of the assessee was taxed under Section 115B of the Act. The AO treated the income from shareholder’s accounts as business income being income earned from noninsurance activities and taxed the same @30% in that assessment year.

The assessee challenged the assessment before the CIT(A) who passed an order, deleted the disallowance of the provision of doubtful debts, and dismissed all other grounds. The assessee also raised the additional grounds before him with respect to the allowability of exemption under Section 10(34) of the Act and it was also dismissed. Therefore, the assessee filed an appeal.

The tribunal consisting of a Judicial Member, Bhavnesh Saini, and an Accountant Member, Prashant Maharishi relied on the Tribunal’s decision in the assessee’s own case where it was held that that the premium received by the assessee is embedded with the obligation to declare bonus to participating policyholders, therefore, it has to be set off against the premium received and therefore, the bonus declared by Insurance Company can be set off against the premium received while calculating taxable income.

“We have carefully considered the rival contentions and find that the above issue has been decided in favor of the assessee in assessee’s own case for earlier years. We find no reason to defer from the same. There is no change in the facts and circumstances of the case,” the bench said.