I-T catches LIC in sights, slaps bill of Rs 9k cr

The taxman is unrelenting in his onslaught on corporate India. And even government-owned companies are not being spared.

The taxman's drive has caught government-owned insurance giant LIC in its  cross-hairs and has slapped the PSU with a notice to pay a tax of Rs 9,000 crore, reports CNBC-TV18's Ashmit Kumar, quoting sources.
India's largest life insurance company LIC has fallen foul of the income tax department.  Sources say that in December 2011, the company was served with a Rs 9,000-crore tax demand on a Rs 37,000-crore entry as negative reserves in LIC's 2008-2009 balance-sheet.
The  I-T department argues that this negative reserve of Rs 37,000 crore is the actual income based on which the department calculated the tax liability of Rs 9,000 crore or 12.5% tax plus interest for three years.
At the heart of the calculation of LIC's tax liability is the interpretation of the Insurance Act regarding the treatment and taxability of 'negative reserves' for insurance companies.
Negative reserves represent the present value of premium receivable on a policy contract, minus the liabilities during the tenure of the policy.
LIC is learnt to have argued that this negative reserve is notional income, and is exempt from taxation under the Insurance Act.
However, the taxman maintains that this income is real and hence taxable. The I-T department adds that the Insurance Act provides for exemptions only in specific cases and this is not one of them.
So far, LIC has paid Rs 1,800 crore to the taxman, but has moved the Commissioner of Income Tax (CIT) in an appeal to overturn the tax demand.
When contacted LIC said, "We cannot comment on issues pending in appeal or is under discussion with the I-T department."
Sources say that this promises to be another long-drawn battle. If LIC receives an unfavourable ruling from the CIT, it is expected to press for further legal action. Also watch the accompanying video.