BIR Ruling

June 19, 1969 1st Indorsement Returned to the Revenue Operations Head (Assessment), the entire docket bearing on the 1960 deficiency income and premium taxes of the Star Life Insurance Corporation, Wilson Building, Juan Luna, Manila involving the amounts of P2,231.38 and P10,704.41, respectively. cdll The records of this case disclose that the Star Life Insurance Corporation (hereinafter referred to as the Corporation) is a domestic life insurance corporation organized and established on August 22, 1958. On July 19, 1966 this Office issued an assessment notice and letter of demand against the Corporation demanding the payment of the amounts of P2,231.38 and P10,704.41 as deficiency income and premium taxes, respectively for the year 1960. The miscellaneous income on which the deficiency income tax was assessed was allegedly neither an underwriting nor an investment income of the Corporation. Thus, Special Investigator Jose M. Aguila, Jr. reported as follows: "In the case of the Star Life Insurance Corporation, verification of its records showed that the said Corporation derived from its business operation during 1960, miscellaneous income amounting to P8,594.47. This income was not properly returned for taxation by subject taxpayer in the belief that the same does not fall within the purview of taxable income of a life insurance company. Said miscellaneous income is said neither to be premium or underwriting income which is exempt from income tax, nor is it investment income which is subject to the tax rate of 6%. Section 24 of the Tax Code and Section 124 of the Revenue Regulations No. 2 define investment income as interest, dividends, and rents derived from all sources and taxable at the rate of 6% on the corresponding net investment income. Since miscellaneous income of life insurance companies is not income specifically exempted by law for purposes of income tax, it is therefore, the view of the undersigned that the same is taxable as an ordinary domestic corporation under Section 24 of the Tax Code, and pursuant to the provisions of Section 55 of the same Code . . ." (Memo-report of Special Investigator Jose M. Aguila, Jr. dated July 5, 1966) Every insurance business consists of two major activities: underwriting and investment. The investment business of a life insurance company includes activities relating to interest, dividends and rents constituting the income that is subject to tax as distinguished from its "underwriting business" which embraces its other activities. (par. 44.04, Vol. 8, Law of Federal Income Taxation) Domestic life insurance companies are not subject to tax on income other than investment income as interests, dividends and rents pursuant to Section 24(c) of the Tax Code as amended by Republic Act No. 1855. In this connection, it is significant to note that the aforecited ruling holds true only with respect to domestic life insurance companies' income other than investment income before the passage of Republic Act No. 5431. In view thereof, it is the opinion of this Office that the so-called miscellaneous income realized by the Corporation from its business operations in 1960 are not subject to tax as they do not fall under the category of an investment income. However, the corporation is subject to premium tax at the rate of one per centum on the total premium collected pursuant to Section 255 of the Tax Code. aisadc (SGD.) PRISCILLA R. GONZALES Acting Revenue Operations Head (Legal)