The state-owned Life Insurance Corporation (LIC) has not provided for contingent liabilities worth ₹29,407 crore, of which a chunk (₹28,080 crore) is on account of statutory demands and liabilities in dispute and not provided for.
The dispute relates to show cause-cum-demand notices and assessment orders received by the corporation from the tax authorities for 15 assessment years from FY03 to FY05, followed by FY09 to FY20. As of December 31, 2021, the aggregate amount of income tax and interest contested in these matters was ₹72,762 crore. Besides, there is an indirect tax claim not provided for worth ₹2,132 crore.
For assessment years from FY03 to FY05, the I-T authorities have alleged that LIC has incorrectly calculated its total income and no deductions should have been claimed on (i) dividend income; (ii) provision for solvency margin; and (iii) loss from Jeevan Suraksha Fund.
While the corporation believes the loss on account of Jeevan Surkasha, a guaranteed annuity plan, can be set off against taxable income of the assessee, the IT department feels Jeevan Suraksha Fund is covered under Section 10 (23AAB) of the IT Act, whereby the income including the loss is not includible in the total income.
The income tax appellate tribunal passed an order dated October 28, 2009, ruling that the assessment of the profits in the insurance business is governed by Section 44 of the IT Act read with the rules in the First Schedule to the IT Act and, therefore, the assessing officer has no power to make any disallowance of deduction in relation to solvency margin. The Commissioner of Income Tax-I, however, filed an appeal before the High Court of Bombay which upheld the order again in 2011. But the tax authorities filed a special leave petition (SLP) before the Supreme Court to set aside the HC order and the matter is currently pending.
For each of the assessment years, where the tax authorities' contention has been dismissed by the Mumbai HC, it has moved the SC with SLPs, which are still pending.
For the assessment years beginning from FY09 to FY20, the corporation states that if the SC rules against the corporation then, it will have to pay an aggregate ₹63,590 crore, based on internal calculations. Of which ₹5,955 crore is for FY09, ₹5,808 crore for FY10, ₹6,880 crore for FY11, ₹6,269 crore for FY12, ₹5,113 crore for FY13, ₹4,891 crore for FY14, ₹5,090 crore for FY15, ₹4,543 crore for FY16, ₹4,672 crore for FY17, ₹4,561 crore for FY18, ₹4,909 crore for FY19, and ₹4,899 crore for FY20.