Life Insurance Corporation (LIC) has recently triumphed in a longstanding dispute with the Income Tax Department, resulting in a substantial tax refund of Rs 25,464.46 crore across seven assessment years.
The central issue of the disagreement revolved around interim bonus payments made by LIC to its policyholders. LIC staunchly maintained that these payouts should be considered deductible expenditures for tax purposes. However, the assessing officer of the Income Tax Department initially disagreed, viewing it instead as taxable because the surplus was being distributed as an interim bonus.
This divergence in viewpoints led LIC to challenge the assessing officer's decision in various appellate forums, including the Income Tax Appellate Tribunal (ITAT). The ITAT subsequently directed the IT Department to re-examine the case.
Upon reconsideration, the assessing officer issued a refund for seven assessment years, which are AY 2012-13, 2013-14, 2014-15, 2016-17, 2017-18, 2018-19, and 2019-20, amounting to an aggregate of Rs 25,464 crore, according to LIC's filings with stock exchanges.
However, along with the refund, the officer also made a separate demand order of Rs 2,133 crore for two other years. As a result, the initially expected refund of approximately Rs 27,500 crore was adjusted against this demand, leaving LIC with a net refund of Rs 25,464 crore.
In response to the demand orders, LIC plans to appeal to the Commissioner, Appeals against all the demand orders – Rs 2,133.67 crore, Rs 1,395 crore, and Rs 1,370 crore – for various assessment years. These plans were disclosed in LIC's filings with the stock exchanges.
Despite these demand orders, LIC has assured that there will be no material impact on its financials, operations, or other activities due to these demands.
This significant tax refund marks a substantial victory for LIC in its dispute with the Income Tax Department. However, the journey is far from over as LIC now prepares to appeal against the additional demand orders. The outcome of these appeals and their potential impact on LIC's operations remain to be seen.
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